PROSPECTUS
FRANKLIN MONEY FUND
INVESTMENT STRATEGY
INCOME
NOVEMBER 1, 1999
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
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INFORMATION ABOUT THE
FUND YOU SHOULD KNOW
BEFORE INVESTING
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2 Goal and Strategies
3 Main Risks
5 Performance
6 Fees and Expenses
7 Management
8 Distributions and Taxes
9 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT
ACCOUNT TRANSACTIONS
AND SERVICES
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10 Buying Shares
12 Investor Services
15 Selling Shares
18 Account Policies
20 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE
ABOUT THE FUND
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Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide investors with as high a level of
current income as is consistent with the preservation of shareholders' capital
and liquidity. The fund also tries to maintain a stable $1 share price.
PRINCIPAL INVESTMENTS The fund normally invests in high-quality, short-term
money market securities of domestic and foreign issuers, including U.S.
government securities, repurchase agreements, bank obligations and commercial
paper.
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.
A REPURCHASE AGREEMENT is an agreement to buy a security and then to sell the
security back after a short period of time (generally, less than seven days) at
a higher price.
BANK OBLIGATIONS, and instruments secured by bank obligations, include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, bank notes and bankers' acceptances.
COMMERCIAL PAPER typically refers to short-term obligations of banks,
corporations and other borrowers with maturities of up to 270 days.
The fund maintains a dollar-weighted average portfolio maturity of 90 days or
less and only buys securities:
o with remaining maturities of 397 days or less, and
o that the manager determines present minimal credit risks and are rated in
the top two short-term ratings by U.S. nationally recognized rating
services (or comparable unrated securities).
[Insert graphic of chart with line going up and down] MAIN RISKS
INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall. Because the
fund limits its investments to high-quality, short-term securities, its
portfolio generally will earn lower yields than a portfolio with lower-quality,
longer-term securities subject to more risk.
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Income risk is the risk that a fund's income will decrease due to falling
interest rates.
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CREDIT There is the possibility that an issuer will be unable to make interest
payments and repay principal. Changes in an issuer's financial strength or in a
security's credit rating may affect a security's value.
INTEREST RATE When interest rates rise, security prices fall. The opposite is
also true: security prices rise when interest rates fall. In general, securities
with longer maturities are more sensitive to these price changes.
MARKET A security's value may be reduced by market activity or the results of
supply and demand. This is a basic risk associated with all securities. When
there are more sellers than buyers, prices tend to fall. Likewise, when there
are more buyers than sellers, prices tend to rise.
YEAR 2000 When evaluating current and potential portfolio positions, Year 2000
is one of the factors the manager considers.
The manager will rely upon public filings and other statements made by issuers
about their Year 2000 readiness. The manager, of course, cannot audit each
issuer and its major suppliers to verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be adversely
affected. Please see page 7 for more information.
More detailed information about the fund, its policies, risks and short-term
debt ratings can be found in the fund's Statement of Additional Information
(SAI).
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Mutual fund shares are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Although the fund tries to maintain a $1 share price, it is possible
to lose money by investing in the fund. [End callout]
MASTER/FEEDER STRUCTURE The fund seeks to achieve its investment goal by
investing all of its assets in shares of The Money Market Portfolio (Portfolio).
The Portfolio has the same investment goal and substantially similar investment
policies 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 if the Portfolio changes its investment goal or if the fund's Board of
Directors, at any time, considers it to be in the fund's best interest.
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is one
indicator of the risks of investing in the fund. The bar chart shows changes in
the fund's returns from year to year over the past 10 calendar years. The table
shows the fund's average annual total returns. Of course, past performance
cannot predict or guarantee future results.
ANNUAL TOTAL RETURNS1
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Best Quarter:
Q2 '89
2.25%
Worst Quarter:
Q2 '93
0.57%
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8.71% 7.64% 5.39% 2.97% 2.35% 3.47% 5.32% 4.85% 4.98% 5.04%
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89 90 91 92 93 94 95 96 97 98
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YEAR
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1998
1 YEAR 5 YEARS 10 YEARS
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Franklin Money Fund 5.04% 4.73% 5.06%
1. As of September 30, 1999, the fund's year-to-date return was 3.35%.
All fund performance assumes reinvestment of dividends.
To obtain the fund's current yield information, please call 1-800/DIAL BEN(R).
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases None
Exchange fee None
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS)1
Management and administration fees2 0.44%
Other expenses 0.23%
Total annual fund operating expenses2 0.67%
1. The annual fund operating expenses shown and included in the example below
reflect the expenses of both the fund and The Money Market Portfolio.
2. For the fiscal year ended June 30, 1999, the manager had agreed in advance to
limit its management fees. With this reduction, management fees were 0.15% and
total annual fund operating expenses were 0.67%. The manager may end this
arrangement at any time upon notice to the fund's Board of Directors.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year;
o The fund's operating expenses remain the same; and
o You sell your shares at the end of the periods shown.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 Year 3 Years 5 Years 10 Years
$68 $214 $373 $835
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Portfolio's investment manager and the fund's administrator.
Together, Advisers and its affiliates manage over $222 billion in assets.
The Portfolio pays Advisers a fee for managing the Portfolio's assets and making
its investment decisions. For the fiscal year ended June 30, 1999, the fund's
share of the Portfolio's management fees, before any advance waiver, was 0.15%
of the fund's average daily net assets. Under an agreement by the manager to
limit its fees, the fund's share was 0.15% of its average daily net assets. The
manager may end this arrangement at any time upon notice to the fund's Board of
Directors.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide network
of computer systems that contain date fields, including securities trading
systems, securities transfer agent operations and stock market links. Many of
the systems currently use a two digit date field to represent the date, and
unless these systems are changed or modified, they may not be able to
distinguish the Year 1900 from the Year 2000 (commonly referred to as the Year
2000 problem). In addition, the fact that the Year 2000 is a leap year may
create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected if
the computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others.
The manager and its affiliated service providers are making a concerted effort
to take steps they believe are reasonably designed to address their Year 2000
problems. Of course, the fund's ability to reduce the effects of the Year 2000
problem is also very much dependent upon the efforts of third parties over which
the fund and the manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME DISTRIBUTIONS The fund typically pays income dividends each day that its
net asset value is calculated. Your account may begin to receive dividends on
the day after we receive your investment and will continue to receive dividends
through the day we receive a request to sell your shares. The amount of these
dividends will vary and there is no guarantee the fund will pay dividends.
TAX CONSIDERATIONS In general, fund distributions are taxable to you as ordinary
income. This is true whether you reinvest your distributions in additional fund
shares or receive them in cash.
Backup Withholding
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By law, the fund must withhold 31% of your taxable distributions and proceeds if
you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so.
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Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid in December.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. Because the fund expects to
maintain a stable $1 share price, you should not have any gain or loss if you
sell your fund shares.
Fund distributions generally will be subject to state and local income tax.
Non-U.S. investors may be subject to U.S. withholding and estate tax. You should
consult your tax advisor about the federal, state, local or foreign tax
consequences of your investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
<TABLE>
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YEAR ENDED JUNE 30,
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<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 19951
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PER SHARE DATA ($)
Net asset value, beginning of year 1.00 1.00 1.00 1.00 1.00
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Net investment income .046 .050 .048 .049 .030
Distributions from net investment income (.046) (.050) (.048) (.049) (.030)
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Net asset value, end of year 1.00 1.00 1.00 1.00 1.00
===============================================================
Total return (%)2 4.66 5.10 4.88 4.99 3.07
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1 million) 1,969 1,722 1,498 1,172 1,018
Ratios to average net assets: (%)
Expenses3 .67 .68 .73 .75 .80 4
Expenses excluding waiver and .67 .69 .74 .76 .82 4
payments by affiliate3
Net investment income 4.54 4.99 4.78 4.86 5.19 4
</TABLE>
1. For the period December 1, 1994 to June 30, 1995.
2. Total return is not annualized.
3. The expense ratio includes the fund's share of the Portfolio's allocated
expenses.
4. Annualized.
YOUR ACCOUNT
[Insert graphic of paper with lines and someone writing] BUYING SHARES
MINIMUM INVESTMENTS
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INITIAL ADDITIONAL
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Regular accounts $1,000 $50
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UGMA/UTMA accounts $100 $50
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Retirement accounts (other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs) no minimum no minimum
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IRAs, IRA rollovers, Education IRAs or Roth IRAs $250 $50
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Broker-dealer sponsored wrap account programs $250 $50
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Full-time employees, officers, trustees and directors
of Franklin Templeton entities, and their immediate
family members $100 $50
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PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE
FOR SALE IN YOUR STATE OR JURISDICTION.
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The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance Products
Trust, Templeton Capital Accumulator Fund, Inc., and Templeton Variable Products
Series Fund.
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Certain Franklin Templeton Funds offer multiple share classes not offered by
this fund. Please note that for selling or exchanging your shares, or for other
purposes, the fund's shares are considered Class A shares. Before January 1,
1999, the fund's shares were considered Class I shares.
Many of the fund's investments, through the Money Market Portfolio, must be paid
for in federal funds, which are monies held by the fund's custodian on deposit
at the Federal Reserve Bank of San Francisco and elsewhere. The fund generally
cannot invest money it receives from you until it is available to the fund in
federal funds, which may take up to two days. Until then, your purchase may not
be considered in proper form. If the fund is able to make investments within one
business day, it may accept your order with payment in other than federal funds.
ACCOUNT APPLICATION If you are opening a new account, please complete and sign
the enclosed account application. To save time, you can sign up now for services
you may want on your account by completing the appropriate sections of the
application (see the next page).
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BUYING SHARES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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[Insert graphic of hands shaking] Contact your investment representative Contact your investment representative
Through your investment representative
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[Insert graphic of envelope] By Mail Make your check, Federal Reserve Draft Make your check payable to Franklin
or negotiable bank draft payable to Money Fund. Include your account number
Franklin Money Fund. Instruments drawn on the check.
on other mutual funds may not be
accepted. Fill out the deposit slip from your
account statement or checkbook. If you
Mail the check or draft and your signed do not have a slip, include a note with
application to Investor Services. your name, the fund name, and your
account number.
Mail the check and deposit slip or note
to investor services.
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[Insert graphic of three lightning Call to receive a wire control number Call to receive a wire control number
bolts] By Wire and wire instructions. and wire instructions.
1-800/632-2301(or 1-650/312-2000 collect)
Wire the funds and mail your signed
To make a same day wire investment,
application to Investor Services.
Please please make sure we receive
your order include the wire control
number or your by 3:00 p.m. pacific
time.
new account number on the application.
To make a same day wire investment,
please make sure we receive your
order by 3:00 p.m. pacific time.
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[Insert graphic of two arrows pointing Call Shareholder Services at the number Call Shareholder Services at the number
in opposite directions] below, or send signed written below or our automated TeleFACTS
instructions. The TeleFACTS system system, or send signed written
By Exchange cannot be used to open a new account. instructions.
TeleFACTS(R)1-800/247-1753 (Please see page 13 for information on (Please see page 13 for information on
(around-the-clock access) exchanges.) exchanges.)
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with handset] INVESTOR SERVICES
AUTOMATIC INVESTMENT PLAN This plan offers a convenient way for you to invest in
the fund by automatically transferring money from your checking or savings
account each month to buy shares. The minimum investment to open an account with
an automatic investment plan is $50 ($25 for an Education IRA). To sign up,
complete the appropriate section of your account application.
AUTOMATIC PAYROLL DEDUCTION You may be able to invest automatically in shares of
the fund by transferring money from your paycheck to the fund by electronic
funds transfer. If you are interested, indicate on your application that you
would like to receive an Automatic Payroll Deduction Program kit.
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund in
an existing account in the fund or in the same share class of another Franklin
Templeton Fund. Any initial sales charges or contingent deferred sales charges
(CDSCs) will not apply if you reinvest your distributions within 365 days. You
can also have your distributions deposited in a bank account, or mailed by
check. Deposits to a bank account may be made by electronic funds transfer.
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For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
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Please indicate on your application the distribution option you have chosen,
otherwise we will reinvest your distributions in the fund. If you choose not to
reinvest your distributions, the fund will distribute distributions paid during
the month as directed on the last business day of each month.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and their
policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure or
application, please call Retirement Plan Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
CHECK WRITING PRIVILEGES You may request redemption drafts (checks) free of
charge on your account application or, for an existing account, by calling our
TeleFACTS system. Check writing privileges allow you to write checks against
your account and are available unless you hold share certificates.
For security reasons and reasons related to the requirements of check processing
systems, the fund can only accept checks ordered from the fund. The fund cannot
be responsible for any check not ordered from the fund that is returned unpaid
to the payee.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to sell
or exchange your shares and make certain other changes to your account by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For all
other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not be
responsible for any losses that may occur from unauthorized requests. Of course,
you can decline telephone exchange or redemption privileges on your account
application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton Funds
within the same class*. If you exchange shares from the fund to another Franklin
Templeton Fund, a sales charge may apply unless you acquired your fund shares by
exchange or through the reinvestment of dividends, or you otherwise qualify to
buy shares without an initial sales charge.
*Certain Class Z shareholders of Franklin Mutual Series Fund Inc. may exchange
into the fund. Advisor Class shareholders of other Franklin Templeton Funds also
may exchange into the fund. Advisor Class shareholders who exchange their shares
for shares of the fund and later decide they would like to exchange into another
fund that offers Advisor Class may do so. Retirement plan assets temporarily
invested in the fund and not previously subject to a sales charge in another
Franklin Templeton Fund may be exchanged for Class C shares of another Franklin
Templeton Fund. The time the shares were held in the fund will not count towards
the CDSC holding period for the Class C shares.
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An EXCHANGE is really two transactions: a sale of one fund and the purchase of
another. In general, the same policies that apply to purchases and sales apply
to exchanges, including minimum investment amounts. Exchanges also have the same
tax consequences as ordinary sales and purchases.
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Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee.
Frequent exchanges can interfere with fund management or operations and drive up
costs for all shareholders. To protect shareholders, there are limits on the
number and amount of exchanges you may make (please see "Market Timers" on page
19).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. Certain terms and
minimums apply. To sign up, complete the appropriate section of your
application.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect you
and the fund we will need written instructions signed by all registered owners,
with a signature guarantee for each owner, if:
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A signature guarantee helps protect your account against fraud. You can obtain a
signature guarantee at most banks and securities dealers.
A notary public CANNOT provide a signature guarantee.
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o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of record,
or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the fund
against potential claims based on the instructions received.
SELLING SHARES BY CHECK For accounts with check writing privileges, you may make
checks payable to any person and for any amount of $100 or more. Since you will
not know the exact amount in your account on the day a check clears, a check
should not be used to close your account.
When a check is presented for payment, we will redeem an equivalent number of
shares in your account to cover the amount of the check. The shares will be
redeemed at the net asset value next determined after we receive the check, as
long as the check does not exceed the collected balance in your account. If a
check is presented for payment that exceeds the collected balance in your
account, the bank may return the check unpaid.
The checks are drawn through Bank of America N.A. Bank of America may end this
service at any time upon notice to you. You generally will not be able to
convert a check drawn on your fund account into a certified or cashier's check
by presenting it at the bank. Since the fund is not a bank, the fund cannot
assure that a stop payment order you write will be effective. The fund will use
its best efforts, however, to see that these orders are carried out.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with a
check or draft, we may delay sending you the proceeds until your check or draft
has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days after
we receive your request in proper form. We are not able to receive or pay out
cash in the form of currency. Redemption proceeds may be delayed if we have not
yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in a
Franklin Templeton Trust Company retirement plan. For participants under age
591/2, tax penalties may apply. Call Retirement Plan Services at 1-800/527-2020
for details.
CONTINGENT DEFERRED SALES CHARGE (CDSC) Most Franklin Templeton Funds impose a
1% CDSC on certain investments of Class A shares sold within 12 months of
purchase. While the fund generally does not have a CDSC, it will impose one if
you sell shares exchanged into the fund from another Franklin Templeton Fund and
those shares would have been assessed a CDSC in the other fund. Please keep in
mind that the time the shares are held in the money fund does not count towards
the CDSC holding period.
The CDSC is based on the current value of the shares being sold or their net
asset value when purchased, whichever is less. To keep your CDSC as low as
possible, each time you place a request to sell shares we will first sell any
shares in your account that are not subject to a CDSC. If there are not enough
of these to meet your request, we will sell the shares in the order they were
purchased.
Selling shares
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To sell some or all of your shares
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[Insert graphic of hands Contact your investment representative
shaking] Through your
investment representative
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[Insert graphic of envelope] Send written instructions and endorsed
By Mail share certificates (if you hold share
certificates) to Investor Services.
Corporate, partnership or trust
accounts may need to send additional
documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the name(s)
and address on the account, or
otherwise according to your written
instructions.
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[Insert graphic of phone] As long as your transaction is for
By Phone $100,000 or less, you do not hold share
certificates and you have not changed
1-800/632-2301 your address by phone within the last 15
days, you can sell your shares by phone.
A check will be mailed to the name(s)
and address on the account. Written
instructions, with a signature
guarantee, are required to send the
check to another address or to make it
payable to another person.
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[Insert graphic of three You can call or write to have redemption
lightning bolts] proceeds sent to a bank account. See the
policies above for selling shares by
By Electronic mail or phone.
Funds Transfer (ACH)
Before requesting to have redemption
proceeds sent to a bank account,
please make sure we have your bank
account information on file. If we do
not have this information, you will
need to send written instructions with
your bank's name and address, a voided
check or savings account deposit slip,
and a signature guarantee if the
ownership of the bank and fund
accounts is different.
If we receive your request in proper
form by 3:00 p.m. pacific time,
proceeds sent by ACH generally will be
available within two to three business
days.
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[Insert graphic of two arrows Obtain a current prospectus for the fund
pointing in opposite directions] you are considering.
By Exchange Call Shareholder Services at the number
below or our automated TeleFACTS system,
or send signed written instructions. See
the policies above for selling shares by
mail or phone.
TeleFACTS(R)
1-800/247-1753 If you hold share certificates, you will
(around-the-clock access) need to return them to the fund before
your exchange can be processed.
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE When you buy shares, you pay the net asset value (NAV)
per share. When you sell shares, you receive the NAV minus any applicable
contingent deferred sales charge (CDSC).
The fund calculates its NAV per share at 3:00 p.m. pacific time, each day the
New York Stock Exchange is open, by dividing its net assets by the number of
shares outstanding. The fund's assets are generally valued at their amortized
cost.
Requests to buy and sell shares are processed at the NAV next calculated after
we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its applicable
minimum investment amount. If you choose not to do so within 30 days, we may
close your account and mail the proceeds to the address of record.
STATEMENTS AND REPORTS You will receive statements that show your account
transactions. You also will receive the fund's financial reports every six
months. To reduce fund expenses, we try to identify related shareholders in a
household and send only one copy of the financial reports. If you need
additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive statements and other information about your
account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have an
agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two or
more owners are registered as "joint tenants with rights of survivorship" (shown
as "Jt Ten" on your account statement). To make any ownership changes to a joint
account, all owners must agree in writing, regardless of the law in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You will
be considered a market timer if you have (i) requested an exchange out of the
fund within two weeks of an earlier exchange request, or (ii) exchanged shares
out of the fund more than twice in a calendar quarter, or (iii) exchanged shares
equal to at least $5 million, or more than 1% of the fund's net assets, or (iv)
otherwise seem to follow a timing pattern. Shares under common ownership or
control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies and
reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase under
the exchange privilege.
o At any time, the fund may change its investment minimums or waive or lower
its minimums for certain purchases.
o If you buy shares with a check or draft that is returned to the fund
unpaid, the fund may impose a $10 charge against your account for each
returned item.
o When you buy shares, it does not create a checking or other bank account
relationship with the fund or any bank.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to make
payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us at
P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of the
following numbers. For your protection and to help ensure we provide you with
quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
FRANKLIN MONEY FUND
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1999
[INSERT FRANKLIN TEMPLETON BEN HEAD]
P.O. BOX 997151, SACRAMENTO, CA 95899-9983 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It contains
information in addition to the information in the fund's prospectus. The fund's
prospectus, dated November 1, 1999, which we may amend from time to time,
contains the basic information you should know before investing in the fund. You
should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended June 1, 1999, are incorporated
by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
CONTENTS
Goal and Strategies ...................................... 2
Risks .................................................... 5
Officers and Directors ................................... 6
Management and Other Services ............................ 8
Portfolio Transactions ................................... 9
Distributions and Taxes .................................. 10
Organization, Voting Rights
and Principal Holders ................................... 11
Buying and Selling Shares ................................ 11
Pricing Shares ........................................... 14
The Underwriter .......................................... 14
Performance .............................................. 15
Miscellaneous Information ................................ 16
Description of Ratings ................................... 16
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MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
o ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
o ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK;
o ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
- --------------------------------------------------------------------------------
GOALS AND STRATEGIES
The fund's investment goal is 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 it may not be changed
without shareholder approval. The fund also tries to maintain a stable $1 share
price.
U.S. GOVERNMENT SECURITIES Some U.S. government securities, including U.S.
Treasury bills, notes and bonds and securities of the Government National
Mortgage Association, 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 Farm
Credit Banks Funding Corporation, are supported only by the credit of the
instrumentality.
BANK OBLIGATIONS The fund may invest in obligations of U.S. banks, foreign
branches of U.S. or foreign banks, and U.S. branches of foreign banks. 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.
The fund 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 fund may not invest more than 10% of its
assets in time deposits with more than seven days to maturity.
The fund 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 fund
may, however, invest more than 25% of its assets in certain domestic bank
obligations, including U.S. branches of foreign banks.
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 fund, 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 fund
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 fund'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, the manager
considers, among other things, the earnings power, cash flow and other liquidity
ratios of the issuer.
ASSET-BACKED SECURITIES in which the fund may invest 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.
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.
CORPORATE OBLIGATIONS may include fixed, floating and variable rate bonds,
debentures or notes.
COMMERCIAL PAPER The fund may invest in commercial paper of domestic or foreign
issuers.
STRIPPED SECURITIES are the separate income and principal components of a debt
securities. 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 fund 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.
MUNICIPAL SECURITIES The fund 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 fund is a diversified fund. As fundamental policies: (a) the
fund 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 fund
may not invest in a security if the fund 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 fund must follow certain procedures
required by federal securities laws that may be more restrictive than some of
the fund's other policies or investment restrictions. With respect to
diversification, these procedures require that the fund 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 fund 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 fund, except to the
extent that the fund invests all of its assets in another registered investment
company with the same investment objective and substantially similar policies as
the fund.
WHEN-ISSUED OR 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 deliver, the fund
assumes the risk that the value of the security at delivery may be more or less
than the purchase prices. When the fund 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 fund will not engage in when-issued and
delayed-delivery transactions for investment leverage purposes.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income on
this portion of its assets, the fund may enter into repurchase agreements. Under
a repurchase agreement, the fund agrees to buy securities guaranteed as to
payment of principal and interest by the U.S. government or its agencies from a
qualified bank or broker-dealer and then to sell the securities back to the bank
or broker-dealer after a short period of time (generally, less than seven days)
at a higher price. The bank or broker-dealer must transfer to the fund's
custodian securities with an initial market value of at least 102% of the dollar
amount invested by the fund in each repurchase agreement. The manager will
monitor the value of such securities daily to determine that the value equals or
exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency of
the bank or broker-dealer, including possible delays or restrictions upon the
fund's ability to sell the underlying securities. The fund will enter into
repurchase agreements only with parties who meet certain creditworthiness
standards, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may lend
certain of its portfolio securities to qualified banks and broker-dealers. These
loans may not exceed 331/3% of the value of the fund's total assets, measured at
the time of the most recent loan. For each loan, the borrower must maintain with
the fund's custodian collateral (consisting of any combination of cash,
securities issued by the U.S. government and its agencies and instrumentalities,
or irrevocable letters of credit) with a value at least equal to 102% of the
current market value of the loaned securities. The fund retains all or a portion
of the interest received on investment of the cash collateral or receives a fee
from the borrower. The fund also continues to receive any distributions paid on
the loaned securities. The fund may terminate a loan at any time and obtain the
return of the securities loaned within the normal settlement period for the
security involved.
Where voting rights with respect to the loaned securities pass with the lending
of the securities, the manager intends to call the loaned securities to vote
proxies, or to use other practicable and legally enforceable means to obtain
voting rights, when the manager has knowledge that, in its opinion, a material
event affecting the loaned securities will occur or the manager otherwise
believes it necessary to vote. As with other extensions of credit, there are
risks of delay in recovery or even loss of rights in collateral in the event of
default or insolvency of the borrower. The fund will loan its securities only to
parties who meet creditworthiness standards approved by the fund's board of
directors, i.e., banks or broker-dealers that the manager has determined present
no serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the loan.
BORROWING The fund may borrow up to 5% of its total assets from banks for
temporary or emergency purposes. The fund will not make any new investments
while any outstanding loans exceed 5% of its total assets.
ILLIQUID INVESTMENTS The fund'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 fund has valued them.
OTHER LIMITATIONS The fund 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 Internal Revenue Code.
MASTER/FEEDER STRUCTURE The fund seeks to achieve its investment goal by
investing all of its assets in shares of The Money Market Portfolio (Portfolio).
The Portfolio has the same investment goal and substantially similar investment
policies as the fund, except, in all cases, the fund may pursue its policies by
investing in a mutual fund with the same investment goal and substantially
similar policies and restrictions as the fund. The investment goal of the
Portfolio also is fundamental and may not be changed without shareholder
approval.
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 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.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50% of
the fund's outstanding shares are represented at the meeting in person or by
proxy, whichever is less.
The fund may not:
1. 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 fund, (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 agreement, 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 Portfolio's investment restrictions are the same as the fund's, except as
necessary to reflect the fund's policy to invest all of its assets in shares of
the Portfolio.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund is
not required to sell a security because circumstances change and the security no
longer meets one or more of the fund's policies or restrictions. If a percentage
restriction or limitation is met at the time of investment, a later increase or
decrease in the percentage due to a change in the value or liquidity of
portfolio securities will not be considered a violation of the restriction or
limitation.
RISKS
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund.
The political, economic and social structures of some countries the fund invests
in may be less stable and more volatile than those in the U.S. The risks of
investing in these countries include the possibility of the imposition of
exchange controls, expropriation, restrictions on removal of currency or other
assets, nationalization of assets and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs on
foreign securities markets are generally higher than in the U.S. The settlement
practices may be cumbersome and result in delays that may affect portfolio
liquidity. The fund may have greater difficulty exercising rights, pursuing
legal remedies, and obtaining judgments with respect to foreign investments in
foreign courts than with respect to domestic issuers in U.S. courts.
DERIVATIVES The fund's transactions in stripped securities involve certain
risks. These risks include, among others, the risk that the price movements in
the underlying securities correlate with price movements in the relevant portion
of the fund's portfolio. The fund bears the risk in the same amount as the
instrument it has purchased, or that there may be a negative correlation that
would result in a loss on both the underlying security and the derivative
security.
MASTER/FEEDER STRUCTURE 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 of
directors 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 policies as the fund, or hiring an investment manager
to manage the fund's investments. Either circumstance could increase the fund's
expenses.
OFFICERS AND DIRECTORS
The fund has a board of directors. The board is responsible for the overall
management of the fund, including general supervision and review of the fund's
investment activities. The board, in turn, elects the officers of the fund who
are responsible for administering the fund's day-to-day operations.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the fund, and principal occupations during the
past five years are shown below.
Frank H. Abbott, III (78)
1045 Sansome Street, San Francisco, CA 94111
DIRECTOR
President and Director, Abbott Corporation (an investment company); director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold Mines
Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing)
(until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
DIRECTOR
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
Robert F. Carlson (71)
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, member,
Corporate Board, Blue Shield of California, and Chief Counsel, California
Department of Transportation.
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
DIRECTOR
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or trustee,
as the case may be, of 49 of the investment companies in the Franklin Templeton
Group of Funds.
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND DIRECTOR
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Investment
Advisory Services, Inc. and Franklin Templeton Distributors, Inc.; Director,
Franklin/Templeton Investor Services, Inc. and Franklin Templeton Services,
Inc.; officer and/or director or trustee, as the case may be, of most of the
other subsidiaries of Franklin Resources, Inc. and of 48 of the investment
companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND DIRECTOR
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin
Advisory Services, LLC; Director, Franklin/Templeton Investor Services, Inc.;
and officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (70)
20833 Stevens Creek Blvd., Suite 102, Cupertino, CA 95014
DIRECTOR
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); director or trustee, as the case may be, of
27 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Director, Fischer Imaging Corporation (medical imaging systems),
Digital Transmission Systems, Inc. (wireless communications) and Quarterdeck
Corporation (software firm), and General Partner, Peregrine Associates, which
was the General Partner of Peregrine Ventures (venture capital firm).
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
DIRECTOR
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 47 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory
Services, Inc. and Franklin/Templeton Investor Services, Inc.; and officer
and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies
in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and Director,
Templeton Investment Counsel, Inc.; Executive Vice President and Chief Financial
Officer, Franklin Advisers, Inc.; Chief Financial Officer, Franklin Advisory
Services, LLC and Franklin Investment Advisory Services, Inc.; President and
Director, Franklin Templeton Services, Inc.; officer and/or director of some of
the other subsidiaries of Franklin Resources, Inc.; and officer and/or director
or trustee, as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (50)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (60)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32 of
the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Thomas J. Runkel (41)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer of four of the investment companies in the Franklin Templeton Group of
Funds.
R. Martin Wiskemann (72)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President and Director,
ILA Financial Services, Inc.; and officer and/or director or trustee, as the
case may be, of 15 of the investment companies in the Franklin Templeton Group
of Funds.
*This board member is considered an "interested person" under federal securities
laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The fund pays noninterested board members $800 per month plus $575 per meeting
attended. Board members who serve on the audit committee of the fund and other
funds in the Franklin Templeton Group of Funds receive a flat fee of $2,000 per
committee meeting attended, a portion of which is allocated to the fund. Members
of a committee are not compensated for any committee meeting held on the day of
a board meeting. Noninterested board members also may serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may receive
fees from these funds for their services. The fees payable to noninterested
board members by the fund are subject to reductions resulting from fee caps
limiting the amount of fees payable to board members who serve on other boards
within the Franklin Templeton Group of Funds. The following table provides the
total fees paid to noninterested board members by the fund and by the Franklin
Templeton Group of Funds.
NUMBER OF
TOTAL FEES BOARDS IN
RECEIVED THE FRANKLIN
FROM THE TEMPLETON
TOTAL FEES FRANKLIN GROUP
RECEIVED TEMPLETON OF FUNDS
FROM THE GROUP OF ON WHICH
NAME FUND1 ($) FUNDS2 ($) EACH SERVES3
- ---------------------------------------------------------------------
Frank H. Abbott, III 11,605 166,614 27
Harris J. Ashton 12,673 361,157 47
Robert F. Carlson 15,925 78,052 9
S. Joseph Fortunato 11,803 367,835 49
Frank W.T. LaHaye 12,180 171,536 27
Gordon S. Macklin 12,673 361,157 47
1. For the fiscal year ended June 30, 1999.
2. For the calendar year ended December 31, 1998.
3. We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the board
members are responsible. The Franklin Templeton Group of Funds currently
includes 54 registered investment companies, with approximately 157 U.S. based
funds or series.
Noninterested board members are reimbursed for expenses incurred in connection
with attending board meetings, paid pro rata by each fund in the Franklin
Templeton Group of Funds for which they serve as director or trustee. No officer
or board member received any other compensation, including pension or retirement
benefits, directly or indirectly from the fund or other funds in the Franklin
Templeton Group of Funds. Certain officers or board members who are shareholders
of Franklin Resources, Inc. may be deemed to receive indirect remuneration by
virtue of their participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February 1998,
this policy was formalized through adoption of a requirement that each board
member invest one-third of fees received for serving as a director or trustee of
a Templeton fund in shares of one or more Templeton funds and one-third of fees
received for serving as a director or trustee of a Franklin fund in shares of
one or more Franklin funds until the value of such investments equals or exceeds
five times the annual fees paid such board member. Investments in the name of
family members or entities controlled by a board member constitute fund holdings
of such board member for purposes of this policy, and a three year phase-in
period applies to such investment requirements for newly elected board members.
In implementing such policy, a board member's fund holdings existing on February
27, 1998, are valued as of such date with subsequent investments valued at cost.
The board, with approval of all noninterested and interested board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the fund and The Money Market Portfolio 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.
MANAGEMENT AND OTHER SERVICES
MANAGER AND SERVICES PROVIDED The Money Market Portfolio's manager is Franklin
Advisers, Inc. The manager is a wholly owned subsidiary of Franklin Resources,
Inc. (Resources), a publicly owned company engaged in the financial services
industry through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr.
are the principal shareholders of Resources.
The manager provides investment research and portfolio management services, and
selects the securities for the Portfolio to buy, hold or sell. The manager also
selects the brokers who execute the Portfolio's portfolio transactions. The
manager provides periodic reports to the board, which reviews and supervises the
manager's investment activities. To protect the Portfolio, the manager and its
officers, directors and employees are covered by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of the
other funds it manages, or for its own account, that may differ from action
taken by the manager on behalf of the Portfolio. Similarly, with respect to the
Portfolio, the manager is not obligated to recommend, buy or sell, or to refrain
from recommending, buying or selling any security that the manager and access
persons, as defined by applicable federal securities laws, may buy or sell for
its or their own account or for the accounts of any other fund. The manager is
not obligated to refrain from investing in securities held by the Portfolio or
other funds it manages. Of course, any transactions for the accounts of the
manager and other access persons will be made in compliance with the Portfolio's
code of ethics.
Under the Portfolio's code of ethics, employees of the Franklin Templeton Group
who are access persons may engage in personal securities transactions subject to
the following general restrictions and procedures: (i) the trade must receive
advance clearance from a compliance officer and must be completed by the close
of the business day following the day clearance is granted; (ii) copies of all
brokerage confirmations and statements must be sent to a compliance officer;
(iii) all brokerage accounts must be disclosed on an annual basis; and (iv)
access persons involved in preparing and making investment decisions must, in
addition to (i), (ii) and (iii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or other
client transaction or if they are recommending a security in which they have an
ownership interest for purchase or sale by a fund or other client.
MANAGEMENT FEES The Portfolio pays the manager a fee equal to an annual rate of
0.15 of 1% of the Portfolio's average daily net assets. The fee is computed at
the close of business each day according to the terms of the management
agreement.
For the last three fiscal years ended June 30, the Portfolio paid the following
management fees:
MANAGEMENT
FEES PAID ($)1
- -------------------------------------------
1999 3,900,807
1998 2,830,858
1997 2,429,509
1. For the fiscal years ended June 30, 1999, 1998 and 1997, management fees,
before any advance waiver, totaled $3,996,761, $2,963,304 and $2,547,891. Under
an agreement by the manager to limit its fees, the Portfolio paid the management
fees shown.
ADMINISTRATOR AND SERVICES PROVIDED Franklin Advisers, Inc. (Advisers) has an
agreement with the fund to provide various administrative, statistical and other
services to the fund.
ADMINISTRATION FEES The fund pays Advisers a fee equal to an annual rate of:
o 91/200 of 1% for the first $100 million of its average daily net assets;
o 33/100 of 1% of its average daily net assets over $100 million up to and
including $250 million;
o 7/25 of 1% of its average daily net assets in excess of $250 million
During the last three fiscal years ended June 30, the fund paid Advisers the
following administration fees:
ADMINISTRATION
FEES PAID ($)
- --------------------------------------------
1999 6,256,919
1998 4,789,789
1997 3,977,302
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor Services,
Inc. (Investor Services) is the fund's shareholder servicing agent and acts as
the fund's transfer agent and dividend-paying agent. Investor Services is
located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please send all
correspondence to Investor Services to P.O. Box 997151, Sacramento, CA
95899-9983.
For its services, Investor Services receives a fixed fee per account. The fund
also will reimburse Investor Services for certain out-of-pocket expenses, which
may include payments by Investor Services to entities, including affiliated
entities, that provide sub-shareholder services, recordkeeping and/or transfer
agency services to beneficial owners of the fund. The amount of reimbursements
for these services per benefit plan participant fund account per year will not
exceed the per account fee payable by the fund to Investor Services in
connection with maintaining shareholder accounts.
CUSTODIAN Investor Services, as the transfer agent for The Money Market
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, NY 10286, acts as custodian of the fund's cash,
pending investment in Portfolio shares. Bank of New York also acts as custodian
of the securities and other assets of the Portfolio.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA 94105,
is the fund's independent auditor. The auditor gives an opinion on the financial
statements included in the fund's Annual Report to Shareholders and reviews the
fund's registration statement filed with the U.S. Securities and Exchange
Commission (SEC).
PORTFOLIO TRANSACTIONS
The fund will not incur any brokerage or other costs in connection with buying
or selling 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 the manager receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services allows the manager to supplement its own research
and analysis activities and to receive the views and information of individuals
and research staffs of other securities firms. As long as it is lawful and
appropriate to do so, the manager and its affiliates may use this research and
data in their investment advisory capacities with other clients. If the
Portfolio's officers are satisfied that the best execution is obtained, the sale
of fund shares, as well as shares of other funds in the Franklin Templeton Group
of Funds, also may be considered a factor in the selection of broker-dealers to
execute the Portfolio's portfolio transactions.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by the manager are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by the manager, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
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.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Portfolio did
not pay any brokerage commissions.
As of June 30, 1999, neither the fund nor the Portfolio owned securities of
their regular broker-dealers.
DISTRIBUTIONS AND TAXES
The fund does not pay "interest" or guarantee any fixed rate of return on an
investment in its shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund's daily net income includes
dividends it receives from its investment in the Portfolio, less the estimated
expenses of the fund. 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.
The Portfolio's daily net income includes accrued interest and any original
issue or acquisition discount, plus or minus any gain or loss on the sale of
portfolio securities and changes in unrealized appreciation or depreciation in
portfolio securities (to the extent required to maintain a constant net asset
value per share), less the estimated expenses of the Portfolio.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses in
connection with its investment in the shares of the Portfolio. Distributions
from net short-term capital gains will be taxable to you as ordinary income.
Because the fund is a money fund, it does not anticipate realizing any long-term
capital gains.
MAINTAINING A $1 SHARE PRICE Gains and losses on the fund's investment in shares
of the Portfolio and unrealized appreciation or depreciation in the value of
these shares may require the fund to adjust distributions to maintain a $1 share
price. These procedures may result in under- or over-distributions by the fund
of its net investment income.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
Portfolio. Similarly, foreign exchange losses realized by the Portfolio on the
sale of debt securities are generally treated as ordinary losses by the
Portfolio. These gains when distributed will be taxable to the fund as ordinary
dividends, and any losses will reduce the Portfolio's ordinary income otherwise
available for distribution to the fund. This treatment could increase or reduce
the Portfolio's ordinary income distributions to the fund and, in turn, to you.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your distributions at the time they are paid, and will advise you
of their tax status for federal income tax purposes shortly after the close of
each calendar year.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected to
be treated as a regulated investment company under Subchapter M of the Internal
Revenue Code, has qualified as such for its most recent fiscal year, and intends
to so qualify during the current fiscal year. As a regulated investment company,
the fund generally pays no federal income tax on the income and gains it
distributes to you. The board reserves the right not to maintain the
qualification of the fund as a regulated investment company if it determines
such course of action to be beneficial to shareholders. In such case, the fund
will be subject to federal, and possibly state, corporate taxes on its taxable
income and gains, and distributions to you will be taxed as ordinary dividend
income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the Internal
Revenue Code requires the fund to distribute to you by December 31 of each year,
at a minimum, the following amounts: 98% of its taxable ordinary income earned
during the calendar year; 98% of its capital gain net income earned during the
twelve month period ending October 31; and 100% of any undistributed amounts
from the prior year. The fund intends to declare and pay these amounts in
December (or in January that are treated by you as received in December) to
avoid these excise taxes, but can give no assurances that its distributions will
be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are taxable
transactions for federal and state income tax purposes. Because the fund tries
to maintain a stable $1 share price, however, you should not expect to realize a
capital gain or loss on the sale or exchange of your shares.
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 Government National Mortgage Association or Federal
National Mortgage Association securities, bankers' acceptances, commercial paper
and repurchase agreements collateralized by U.S. government securities do not
generally qualify for tax-free treatment. The rules on exclusion of this income
are different for corporations. The fund, however, anticipates that no portion
of its distributions to you will qualify for exemption from state and local
personal income taxes as dividends paid to you from interest earned on direct
obligations of the U.S. government. Even if the Portfolio invests in direct
obligations of the U.S. government, the fund only does so indirectly by
investing in the Portfolio.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived indirectly from interest, generally no portion of its distributions will
be eligible for the corporate dividends-received deduction. None of the
dividends paid by the fund for the most recent fiscal year qualified for such
deduction, and it is anticipated that none of the current year's dividends will
so qualify.
INVESTMENT IN COMPLEX SECURITIES The Portfolio may invest in complex securities.
These investments may be subject to numerous special and complex tax rules.
These rules could affect whether gains and losses recognized by the Portfolio
are treated as ordinary income or capital gain, accelerate the recognition of
income to the Portfolio and/or defer the Portfolio's ability to recognize
losses, and, in limited cases, subject the Portfolio to U.S. federal income tax
on income from certain of its foreign securities. In turn, these rules may
affect the amount, timing or character of the income distributed to you by the
fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
The fund is an open-end management investment company, commonly called a mutual
fund. The fund was organized as a California corporation on November 7, 1975,
and is registered with the SEC.
Certain Franklin Templeton Funds offer multiple classes of shares. The different
classes have proportionate interests in the same portfolio of investment
securities. They differ, however, primarily in their sales charge structures and
Rule 12b-1 plans. Please note that for selling or exchanging your shares, or for
other purposes, the fund's shares are considered Class A shares. Before January
1, 1999, the fund's shares were considered Class I shares.
The fund has cumulative voting rights. For board member elections, this means
the number of votes you will have is equal to the number of shares you own times
the number of board members to be elected. You may cast all of your votes for
one candidate or distribute your votes between two or more candidates.
The fund does not intend to hold annual shareholder meetings. The fund may hold
special meetings, however, for matters requiring shareholder approval. A meeting
may be called by the board to consider the removal of a board member if
requested in writing by shareholders holding at least 10% of the outstanding
shares. In certain circumstances, we are required to help you communicate with
other shareholders about the removal of a board member. A special meeting also
may be called by the board in its discretion.
From time to time, the number of fund shares held in the "street name" accounts
of various securities dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the fund, no other person holds beneficially or of record more
than 5% of the outstanding shares of the fund any class.
As of August 6, 1999, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of the fund. The
board members may own shares in other funds in the Franklin Templeton Group of
Funds.
BUYING AND SELLING SHARES
The fund continuously offers its shares through securities dealers who have an
agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer orders
and accounts with the fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity. Banks and financial institutions that
sell shares of the fund may be required by state law to register as securities
dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to obtain
information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
to accrue until the proceeds are collected, which may take a long period of
time. We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank. We may deduct any
applicable banking charges imposed by the bank from your account.
The offering of fund shares may be suspended at any time and resumed at any time
thereafter.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to securities dealers that sell shares of the Franklin Templeton Group
of Funds. This support is based primarily on the amount of sales of fund shares
and/or total assets with the Franklin Templeton Group of Funds. The amount of
support may be affected by: total sales; net sales; levels of redemptions; the
proportion of a securities dealer's sales and marketing efforts in the Franklin
Templeton Group of Funds; a securities dealer's support of, and participation
in, Distributors' marketing programs; a securities dealer's compensation
programs for its registered representatives; and the extent of a securities
dealer's marketing programs relating to the Franklin Templeton Group of Funds.
Financial support to securities dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain securities dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the rules of the National Association of Securities Dealers,
Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin Templeton
Funds and are afforded the opportunity to speak with portfolio managers.
Invitation to these meetings is not conditioned on selling a specific number of
shares. Those who have shown an interest in the Franklin Templeton Funds,
however, are more likely to be considered. To the extent permitted by their
firm's policies and procedures, registered representatives' expenses in
attending these meetings may be covered by Distributors.
EXCHANGE PRIVILEGE If a substantial number of shareholders should, within a
short period, sell their fund shares under the exchange privilege, the fund
might have to sell portfolio securities it might otherwise hold and incur the
additional costs related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the seventh day following the sale. The funds you are seeking to
exchange into may delay issuing shares pursuant to an exchange until that
seventh day. The sale of fund shares to complete an exchange will be effected at
net asset value at the close of business on the day the request for exchange is
received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at least
$50. For retirement plans subject to mandatory distribution requirements, the
$50 minimum will not apply. There are no service charges for establishing or
maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent amount
of shares in your account, generally on the 25th day of the month in which a
payment is scheduled. If the 25th falls on a weekend or holiday, we will process
the redemption on the next business day. When you sell your shares under a
systematic withdrawal plan, it is a taxable transaction.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the fund.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us by mail or by
phone at least seven business days before the end of the month preceding a
scheduled payment. The fund may discontinue a systematic withdrawal plan by
notifying you in writing and will automatically discontinue a systematic
withdrawal plan if all shares in your account are withdrawn or if the fund
receives notification of the shareholder's death or incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the U.S. Securities and Exchange
Commission (SEC). In the case of redemption requests in excess of these amounts,
the board reserves the right to make payments in whole or in part in securities
or other assets of the fund, in case of an emergency, or if the payment of such
a redemption in cash would be detrimental to the existing shareholders of the
fund. In these circumstances, the securities distributed would be valued at the
price used to compute the fund's net assets and you may incur brokerage fees in
converting the securities to cash. Redemptions in kind are taxable transactions.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates unless you specifically request them. This eliminates
the costly problem of replacing lost, stolen or destroyed certificates. If a
certificate is lost, stolen or destroyed, you may have to pay an insurance
premium of up to 2% of the value of the certificate to replace it.
All purchases of fund shares will be credited to you, in full and fractional
fund shares (rounded to the nearest 1/100 of a share), in an account maintained
for you by the fund's transfer agent. No share certificates will be issued for
fractional shares at any time. No certificates will be issued to you if you have
elected to redeem shares by check or by preauthorized bank or brokerage firm
account methods.
Any outstanding share certificates must be returned to the fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form and to send the certificate and assignment form in separate
envelopes.
GENERAL INFORMATION If dividend checks are returned to the fund marked "unable
to forward" by the postal service, we will consider this a request by you to
change your dividend option to reinvest all distributions. The proceeds will be
reinvested in additional shares at net asset value until we receive new
instructions.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks. The fund is not responsible for tracking down uncashed checks, unless a
check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to find
you from your account. These costs may include a percentage of the account when
a search company charges a percentage fee in exchange for its location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay certain
financial institutions that maintain omnibus accounts with the fund on behalf of
numerous beneficial owners for recordkeeping operations performed with respect
to such owners. For each beneficial owner in the omnibus account, the fund may
reimburse Investor Services an amount not to exceed the per account fee that the
fund normally pays Investor Services. These financial institutions also may
charge a fee for their services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
processing a large number of checks each month. Fees for special services will
not increase the fund's expenses.
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.
If you buy or sell shares through your securities dealer, we use the net asset
value next calculated after your securities dealer receives your request, which
is promptly transmitted to the fund.
For institutional accounts, there may be additional methods of buying or selling
fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the fund to have a potential property interest in the account, before executing
instructions regarding the account; (b) interplead disputed funds or accounts
with a court of competent jurisdiction; or (c) surrender ownership of all or a
portion of the account to the IRS in response to a notice of levy.
PRICING SHARES
When you buy shares, you pay the net asset value (NAV) per share. When you sell
shares, you receive the NAV minus any applicable contingent deferred sales
charge (CDSC).
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of shares
outstanding.
The fund calculates the NAV per share each business day at 3:00 p.m. pacific
time. The fund does not calculate the NAV on days the New York Stock Exchange
(NYSE) is closed for trading, which include New Year's Day, Martin Luther King
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The valuation of the Money Market 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 using a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the 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
using 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 a $1
share price, is permitted by a rule adopted by the U.S. Securities and Exchange
Commission (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 with remaining maturities
of 397 days or less. The Portfolio also must invest only in those U.S.
dollar-denominated securities that the manager, in accordance with procedures
adopted by the board, determines present minimal credit risks and that are rated
in one of the top two ratings by U.S. nationally recognized rating services (or
comparable unrated securities), or are instruments issued by an issuer that,
with respect to an outstanding issue of short-term debt that is comparable in
priority and protection, has received a rating within the two highest ratings.
Securities subject to floating or variable interest rates with demand features
that comply with applicable SEC rules may have stated maturities in excess of
397 days.
The board has established procedures designed to stabilize, to the extent
reasonably possible, the 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, 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 $1 per share based on amortized cost. The extent
of any deviation will be examined by the board. If a deviation exceeds 1/2 of
1%, the board will promptly consider what action, if any, will be initiated. If
the board determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, it will
take corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a net asset value per share by using
available market quotations.
THE UNDERWRITER
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares. Distributors
is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The table below shows the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended June
30,:
AMOUNT RECEIVED
IN CONNECTION WITH
REDEMPTIONS AND
REPURCHASES ($)
- -------------------------------------------------
1999 181,129
1998 0
1997 0
Except as noted, Distributors received no other compensation from the fund for
acting as underwriter.
PERFORMANCE
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied by
certain standardized performance information computed as required by the SEC.
Average annual total return, current yield and effective yield quotations used
by the fund are based on the standardized methods of computing performance
mandated by the SEC. An explanation of these and other methods used by the fund
to compute or express performance follows. Regardless of the method used, past
performance does not guarantee future results, and is an indication of the
return to shareholders only for the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by finding
the average annual rates of return over the periods indicated below that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The calculation assumes income dividends are reinvested at net asset value. The
quotation assumes the account was completely redeemed at the end of each period
and the deduction of all applicable charges and fees.
The average annual total returns for the indicated periods ended June 30, 1999,
were:
1 Year (%) 5 Years (%) 10 Years (%)
4.66 4.89 4.82
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of each period at the end of each period
CURRENT YIELD Current yield shows the income per share earned by the fund. It is
calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account with a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting deductions
from shareholder accounts, and dividing the difference by the value of the
account at the beginning of the base period to obtain the base period return.
The result is then annualized by multiplying the base period return by 365/7.
The current yield for the seven day period ended June 30, 1999, was 4.36%.
EFFECTIVE YIELD The fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The effective yield for the seven
day period ended June 30, 1999, was 4.46%.
The following SEC formula was used to calculate this figure:
365/7
Effective yield = [(Base period return + 1) ] - 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. Franklin Resources,
Inc. is the parent company of the advisors and underwriter of the Franklin
Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the fund
may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
These comparisons may include, but are not limited to, the following examples:
o IBC Money Fund Report(R) - industry averages for seven day annualized and
compounded yields of taxable, tax-free and government money funds.
o Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
o Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales
charges.
o 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.
o 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.
o 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.
o 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.
o 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.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of fluctuation
of principal value, a risk generally not present in an investment in a CD issued
by a bank. CDs are frequently insured by an agency of the U.S. government. An
investment in the fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the fund to calculate its figures. In addition,
there can be no assurance that the fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of the
oldest mutual fund organizations and now services more than 4 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 $222 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 106 U.S. based open-end investment companies to the public. The
fund may identify itself by its NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the New
York Stock Exchange. While many of them have similar investment goals, no two
are exactly alike. Shares of the fund are generally sold through securities
dealers, whose investment representatives are experienced professionals who can
offer advice on the type of investments suitable to your unique goals and needs,
as well as the risks associated with such investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has been
making necessary software changes to help the computer systems that service the
fund and its shareholders to be Year 2000 compliant. After completing these
modifications, comprehensive tests are conducted in one of Resources' U.S. test
labs to verify their effectiveness. Resources continues to seek reasonable
assurances from all major hardware, software or data-services suppliers that
they will be Year 2000 compliant on a timely basis. Resources is also developing
a contingency plan, including identification of those mission critical systems
for which it is practical to develop a contingency plan. However, in an
operation as complex and geographically distributed as Resources' business, the
alternatives to use of normal systems, especially mission critical systems, or
supplies of electricity or long distance voice and data lines are limited.
DESCRIPTION OF RATINGS
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted. Moody's commercial paper
ratings, which are also applicable to municipal paper investments, are opinions
of the ability of issuers to repay punctually their promissory obligations not
having an original maturity in excess of nine months. Moody's employs the
following designations for both short-term debt and commercial paper, all judged
to be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong. The
relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
F-5: Weak credit quality. Have characteristics suggesting a minimal degree of
assurance for timely payment and are vulnerable to near-term adverse changes in
financial and economic conditions.
D: Default. Actual or imminent payment default.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
