14
FRANKLIN TEMPLETON MONEY FUND II
Franklin Templeton
Money Fund Trust
PROSPECTUS
MAY 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Franklin Templeton Money Fund II (the "Fund") is an open-end,
diversified series of the Franklin Templeton Money Fund Trust
(the "Trust"), a management investment company. The Fund's
investment objectives are:
HIGH CURRENT INCOME LIQUIDITY
CAPITAL PRESERVATION
THE FUND, UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES,
SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS ASSETS IN
THE SHARES OF THE MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A
SEPARATE SERIES OF THE MONEY MARKET PORTFOLIOS ("MONEY MARKET"),
WHOSE INVESTMENT OBJECTIVES ARE THE SAME AS THAT OF THE FUND.
The Portfolio in turn invests primarily in various money market
instruments, such as: United States ("U.S.") government
securities, and other U.S. dollar denominated securities which
the Board of Trustees of Money Market has determined present
minimal credit risks and which have, as required by federal
securities laws, received a rating in one of the two highest
categories as determined by nationally recognized statistical
rating organizations ("NRSRO") which may include obligations of
U.S. regulated banking institutions and commercial paper of
domestic and foreign issuers, and corporate obligations maturing
in 397 days or less as described under "Investment Objective and
Policies of the Fund."
This Prospectus is intended to set forth in a clear and concise
manner information about the Fund and the Trust that a
prospective investor should know before investing. After reading
the Prospectus, it should be retained for future reference; it
contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to
have.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUND WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE
FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Fund
and the Trust, dated May 1, 1995, as may be amended from time to
time, provides a further discussion of certain areas in this
Prospectus and other matters which may be of interest to some
investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A
copy is available without charge from the Fund or the Fund's
principal underwriter, Franklin/Templeton Distributors, Inc.
("Distributors"), at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN
DESCRIBED IN ANY STATE IN WHICH THE OFFERING IS NOT AUTHORIZED.
NO SALES REPRESENTATIVE, DEALER, OR OTHER PERSON IS AUTHORIZED TO
GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS. FURTHER INFORMATION MAY BE OBTAINED
FROM THE UNDERWRITER.
CONTENTS PAGE
Expense Table
About the Fund
Investment Objectives and
Policies of the Fund
Risk Considerations
Administration of the Fund
Distributions to Shareholders
Taxation of the Fund
and Its Shareholders
How to Buy Shares of the Fund
How to Sell Shares of the Fund
Other Programs and Privileges
Available to Fund Shareholders
Purchasing Shares of the Fund in
Connection with Retirement Plans
Involving Tax-Deferred Investments
Exchange Privilege
Telephone Transactions
Valuation of Fund Shares
How to Get Information
Regarding an Investment in the Fund
Performance
General Information
Account Registrations
Important Notice Regarding
Taxpayer IRS Certifications
EXPENSE TABLE
The purpose of this table is to assist an investor in
understanding the various costs and expenses that a shareholder
will bear directly or indirectly in connection with an investment
in the Fund, including the expenses of the Portfolio in which the
Fund invests. The estimated annual operating expenses of the Fund
are based on contractual amounts, except for "Other Expenses of
the Fund", which are based on estimated amounts for the Fund's
current fiscal period. Such expenses for the Portfolio reflect
aggregate operating expenses, before fee waivers and expense
reductions, for the Portfolio's fiscal year ended June 30, 1994.
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Charge Imposed on Purchases NONE+
Maximum Sales Charge Imposed on Reinvested NONE
Dividends
Deferred Sales Charge 1.00%+
Exchange Fee (per transaction) $5.00*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administration Fees 0.61%**
(after fee waiver)
12b-1 Fees 0.65%^
Other Expenses of the Fund 0.35%
Other Expenses of the Portfolio 0.02%
Total Operating Expenses 1.63%**
(after fee waiver)
+ Shares redeemed within a "contingency period" of 18 months of
the calendar month following such investments are subject to a 1%
contingent deferred sales charge. See "How to Sell Shares of the
Fund - Contingent Deferred Sales Charge" for more information.
*$5.00 fee imposed only on Timing Accounts as described under
"Exchange Privilege" in the Prospectus. All other exchanges are
processed without a fee.
** Includes the contractual fees of the administrator for the
Fund of 0.46% and 0.15% accrued by the Portfolio's investment
manager. However, the investment manager of the Portfolio agreed
in advance to waive a portion of its management fees. With this
reduction, management fees were 0.13% of the average net assets
of the Portfolio. Total operating expenses of the Fund, including
expenses of the Portfolio, with this reduction equal 1.63% of the
Fund's average net assets.
^Consistent with National Association of Securities Dealers,
Inc.'s rules, it is possible that the combination of front-end
sales charges and Rule 12b-1 fees could cause long-term
shareholders to pay more than the economic equivalent of the
maximum front-end sales charges permitted under those same rules.
Investors should be aware that the preceding table is not
intended to reflect in precise detail the fees and expenses
associated with an individual's own investment in the Fund.
Rather the table has been provided only to assist investors in
gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters,
investors should refer to the appropriate sections of this
Prospectus.
EXAMPLE
As required by regulations of the SEC, the following example
illustrates the expenses that apply to a $1,000 investment in the
Fund over various time periods assuming (1) a 5% annual rate of
return and (2) redemption at the end of each time period.
1 YEAR 3 YEARS
$17 $51
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES
OF THE FUND AND THE PORTFOLIO, BEFORE FEE WAIVERS AND EXPENSE
REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE CONSIDERED A
REPRESENTATION OF FUTURE EXPENSES, WHICH MAY BE MORE OR LESS THAN
THOSE SHOWN. The operating expenses are borne by the Fund and
Portfolio and only indirectly by shareholders as a result of
their investment in the Fund. (See "Administration of the Fund"
in the Prospectus for a description of the Fund's and Portfolio's
expenses.) In addition, federal regulations require the example
to assume an annual return of 5%, but the Fund's actual return
may be more or less than 5%.
The preceding table summarizes the estimated aggregate fees and
expenses to be incurred by both the Fund and the Portfolio. The
Board of Trustees of the Fund considered the aggregate fees and
expenses to be paid by both the Fund and the Portfolio under the
Fund's policy of investing all of its assets in shares of the
Portfolio, and such fees and expenses the Fund would pay if it
invested directly in various types of money market instruments.
This arrangement, whereby the Fund invests all of its assets in
shares of the Portfolio, enables various institutional investors,
including the Fund and other investment companies, to pool their
assets, which may be expected to result in the achievement of a
variety of operating economies. Accordingly, the Board of
Trustees concluded that the aggregate expenses of the Fund and
the Portfolio were expected to be lower than the expenses that
would be incurred by the Fund if it invested directly in various
types of money market instruments. Of course, there is no
guarantee or assurance that asset growth and lower expenses will
be recognized. Franklin Advisers, Inc. ("Advisers"), however, has
voluntarily agreed to limit expenses so that in no event will
shareholders of the Fund incur higher expenses than if the Fund
invested directly in various types of money market instruments.
Further information regarding the Fund's and the Portfolio's fees
and expenses is included under "Administration of the Fund."
ABOUT THE FUND
Franklin Templeton Money Fund II is a diversified series of the
Franklin Templeton Money Fund Trust, an open-end management
investment company, commonly called a "mutual fund", which has
registered with the SEC under the Investment Company Act of 1940
(the "1940 Act"). The Fund is currently the Trust's only series.
The Trust is a Delaware business trust organized on January 30,
1995 and administered by Advisers.
The Fund attempts to maintain a stable net asset value of $1.00
per share (although there is no assurance that this will be
achieved).
Shares of the Fund may not be purchased directly. Shares may be
acquired only in exchange for Class II shares of other funds that
are members of the Franklin Templeton Funds, and as a result of
the reinvestment of income dividends and capital gains
distributions in additional shares of the Fund. All shares of the
Fund are acquired at the net asset value next determined after
receipt of an exchange request in proper form. Shares of the Fund
redeemed within 18 months of purchase of the Class II shares
which were exchanged for shares of the Fund are subject to a
1.00% contingent deferred sales charge. (See "How to Sell Shares
of the Fund" and "Exchange Privilege.")
GENERAL
Many funds in the Franklin Templeton Group have established a
multiple class fund structure, offering Class I and Class II
shares. This structure allows investors to consider which
schedule of sales charges, asset-based sales charges, and certain
other features best meet their investment needs. Generally, Class
II shares have lower initial sales charges than Class I shares
and higher yearly Rule 12b-1 fees. Also, contingent deferred
sales charges will generally be assessed on Class II shares
redeemed within eighteen months of purchase.
The Fund is intended to be a short-term or cash management
investment option for investors in Class II shares of other funds
in the Franklin Templeton Group. It is designed to be similar
and complementary to Clas II shares in certain respects, such as
in its method of distribution, including the absence of an
initial sales charge, the imposition of contingent deferred sales
charge ("CDSC") in certain circumstances and of Rule 12b-1
distribution plan.
INVESTMENT OBJECTIVES AND
POLICIES OF THE FUND
The investment objectives of the Fund are to obtain as high a
level of current income (in the context of the type of
investments available to the Fund) as is consistent with capital
preservation and liquidity. The Fund pursues its investment
objectives by investing all of its assets in the Portfolio, which
has the same investment objectives and substantially similar
policies and restrictions as the Fund. The Portfolio is a
separate diversified series of The Money Market Portfolios, an
open-end management investment company, managed by Advisers.
Shares of the Portfolio are acquired by the Fund at net asset
value with no sales charge. Accordingly, an investment in the
Fund is an indirect investment in the Portfolio. As with any
other investment, there is no assurance that the Fund's objective
will be attained.
SPECIAL INFORMATION REGARDING THE
FUND'S MASTER/FEEDER FUND STRUCTURE
The investment objectives of both the Fund and the Portfolio are
fundamental and may not be changed without shareholder approval.
The investment policies of the Fund, fundamental and non-
fundamental, are identical to those described herein with respect
to the Portfolio, except that in all cases, the Fund is permitted
to pursue such policies by investing in an open-end management
investment company with the same investment objectives and
substantially similar policies and limitations as the Fund. Any
additional exceptions are noted below. Information on
administration and expenses is included under "Administration of
the Fund." See the SAI for further information regarding the
Fund's and the Portfolio's investment restrictions.
An investment in the Fund may be subject to certain risks due to
the Fund's structure, such as the potential that upon redemption
by other future shareholders in the Portfolio, the Fund's
expenses may increase or the economies of scale which have been
achieved as a result of the structure may be diminished.
Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could have
effective voting control over the operation of the Portfolio.
Further, in the event that the shareholders of the Fund do not
approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio,
the Fund may be forced to withdraw its investment from the
Portfolio and seek another investment company with the same
objective and policies. If the Board of Trustees of the Fund
considers that it is in the best interest of the Fund to do so,
the Fund may withdraw its investment in the Portfolio at any
time. In that event, the Board of Trustees of the Fund would
consider what action to take, including the investment of all of
the assets of the Fund in another pooled investment entity having
substantially similar investment objectives and policies as the
Fund or the hiring of an investment advisor to manage the Fund's
investments. Either circumstance may cause an increase in Fund
expenses. Further, the Fund's structure is a relatively new
format which often results in certain operational and other
complexities. The Franklin organization, however, was one of the
first mutual fund complexes in the country to implement such a
structure, and the trustees do not believe that the additional
complexities outweigh the potential benefits to be gained by
shareholders.
The Franklin Group of Funds(Registered Trademark) has four other
funds which may invest in the Portfolio, three of which are
designed for institutional investors only. It is possible that in
the future other funds may be created which may likewise invest
in the Portfolio or existing funds may be restructured so that
they may invest in the Portfolio. Any such fund may be offered at
the same or a different public offering price; thus, an investor
in such fund may experience a different return from an investor
in another investment company which invests exclusively in the
Portfolio. The Fund or Advisers will forward to any interested
shareholder additional information, including a prospectus and
statement of additional information, if requested, regarding such
other institutions through which they may make investments in the
Portfolio. Investors interested in obtaining information about
such funds may contact the departments listed under "How to Get
Information Regarding an Investment in the Fund." The Portfolio
is a series of Money Market, a management investment company
registered under the 1940 Act. Money Market is a Delaware
business trust organized on July 10, 1992 and is authorized to
issue an unlimited number of shares of beneficial interest with a
par value of $.01 per share. All shares have one vote and, when
issued, are fully paid, non-assessable, and redeemable. Money
Market currently issues shares in two separate series; however,
additional series may be added in the future by the Board of
Trustees of Money Market, the assets and liabilities of which
will be separate and distinct from any other series.
Whenever the Fund, as an investor in the Portfolio, is asked to
vote on a matter relating to the Portfolio, the Fund will hold a
meeting of Fund shareholders and will cast its votes in the same
proportion as the Fund's shareholders have voted.
GENERAL
In accordance with procedures adopted pursuant to Rule 2a-7 under
the 1940 Act, the Portfolio limits its investments to those U.S.
dollar denominated instruments which the Board of Trustees of
Money Market determines present minimal credit risks and which
are, as required by the federal securities laws, rated in one of
the two highest rating categories as determined by nationally
recognized statistical rating agencies, or which are unrated and
of comparable quality, with remaining maturities of 397 calendar
days or less ("Eligible Securities"). The Portfolio maintains a
dollar weighted average maturity of the securities in its
portfolio of 90 days or less. The Portfolio will not invest more
than 5% of its total assets in Eligible Securities of a single
issuer, other than U.S. government securities, rated in the
highest category by the requisite number of rating agencies,
except that the Portfolio may exceed that limit as permitted by
Rule 2a-7 for a period of up to three business days; and the
Portfolio will not invest (a) the greater of 1% of the
Portfolio's total assets or $1 million in Eligible Securities
issued by a single issuer rated in the second highest category
and (b) more than 5% of its total assets in Eligible Securities
of all issuers rated in the second highest category. These
procedures are a fundamental policy of the Portfolio and the
Fund, except to the extent that the Fund invests all of its
assets in another registered investment company with
substantially similar investment objectives and policies as the
Fund.
Because the Portfolio limits its investments to high quality
securities, its portfolio will generally earn lower yields than
if the Portfolio purchased securities with a lower rating and
correspondingly greater risk.
As a matter of fundamental policy (which may not be changed
without shareholder approval), the Portfolio may not purchase any
securities other than obligations of the U.S. government, its
agencies or instrumentalities, if, immediately after such
purchase, more than 5% of the value of the Portfolio's total
assets would be invested in securities of any one issuer with
respect to 75% of the Portfolio's total assets, or more than 10%
of the outstanding voting securities of any one issuer would be
owned by the Portfolio, except to the extent that the Fund
invests all of its assets in another registered investment
company having substantially similar investment objectives and
policies as the Fund. As stated above in accordance with
procedures adopted pursuant to Rule 2a-7, the Portfolio will not
invest more than 5% of the Portfolio's total assets in Eligible
Securities of a single issuer, other than U.S. government
securities. The Portfolio is not limited with respect to its
investments in securities which are otherwise consistent with its
investment objective, which have a floating or variable rate of
interest.
U.S. GOVERNMENT SECURITIES
The Portfolio may invest without limit in U.S. government
securities, which consist of marketable fixed, floating and
variable rate securities issued or guaranteed by the U.S.
government, its agencies, or by various instrumentalities which
have been established or sponsored by the U.S. government ("U.S.
government securities"). Certain of these obligations, including
U.S. Treasury bills, notes and bonds and securities of the
Government National Mortgage Association (popularly called
"GNMAs" or "Ginnie Maes") and the Federal Housing Administration,
are issued or guaranteed by the U.S. government or carry a
quarantee 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 direct obligations of the U.S.
government, but involve sponsorship or guarantees by government
agencies or enterprises. These obligations include securities
that are supported by the right of the issuer to borrow from the
U.S. Treasury, such as obligations of the Federal Home Loan Bank,
and securities that are supported by the credit of the
instrumentality, such as Federal National Mortgage Association
("FNMA") bonds. In this connection, the Portfolio may use any
portion of its assets invested in U.S. government securities to
concurrently enter into repurchase agreements with respect to
such securities.
BANK OBLIGATIONS
The Portfolio may also invest without limit in bank obligations
consisting of fixed, floating or variable rate certificates of
deposit, time deposits, bankers' acceptances issued by banks and
savings institutions with assets of at least one billion dollars
and bank notes. Bank obligations may be obligations of U.S.
banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as
"Yankee Dollar Investments") and foreign branches of foreign
banks ("Foreign Bank Investments"). When investing in a bank
obligation issued by a branch, the parent bank must have assets
of at least five billion dollars. The Portfolio may invest only
up to 25% of its assets in obligations of foreign branches of
U.S. or foreign banks. The Portfolio may, however, invest more
than 25% of its assets in certain domestic bank obligations.
Investments in obligations of U.S. branches of foreign banks,
which are considered domestic banks, may only be made if such
branches have a federal or state charter to do business in the
U.S. and are subject to U.S. regulatory authorities. See
"Investment Objective and Policies of the Fund - Investment Risk
Considerations" for more information regarding these investments.
Time Deposits are non-negotiable deposits maintained in a foreign
branch of a U.S. or foreign banking institution for a specified
period of time at a stated interest rate. The Portfolio may not
invest more than 10% of its assets in Time Deposits with
maturities in excess of seven calendar days.
COMMERCIAL PAPER
The Portfolio may also invest without limit in commercial paper
of domestic or foreign issuers which is considered by the
Portfolio to present minimal credit risks and which is rated
within the two highest rating categories by NRSROs or, if
unrated, has been determined by the investment manager to be of
comparable quality to instruments that are Eligible Securities
pursuant to procedures approved by Money Market's Board of
Trustees. Commercial paper obligations may include variable
amount master demand notes that are obligations which permit the
investment of fluctuating amounts by the Portfolio at varying
rates of interest pursuant to direct arrangements between the
Portfolio, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Portfolio has the right to
increase the amount provided by the note agreement, or to
decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. The borrower is often a large
industrial or finance company which also issues commercial paper.
Typically, these notes provide that the interest rate is set
daily by the borrower; the rate is usually the same or similar to
the interest on commercial paper being issued by the borrower.
Because variable amount master demand notes are direct lending
arrangements between the lender and the borrower, it is not
generally contemplated that such instruments will be traded, and
there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at
face value plus accrued interest at any time. Accordingly, the
Portfolio's right to redeem is dependent on the ability of the
borrower to pay principal and interest on demand. In connection
with master demand note arrangements, the Portfolio's investment
manager will consider earning power, cash flow and other
liquidity ratios of the issuer. The Portfolio, which has no
specific limits on aggregate investments in master demand notes,
will invest in notes of only U.S. issuers. While master demand
notes, as such, are not typically rated by credit ratings
agencies, if not so rated, the Portfolio may invest in them only
if, at the time of an investment, the issuer meets the criteria
set forth above for all other commercial paper issuers.
CORPORATE OBLIGATIONS
The corpoate obligations which the Portfolio may purchase are
fixed, floating and variable rate bonds, debentures or notes of
domestic issuers which are considered by the Portfolio to be
Eligible Securities. The Portfolio is not restricted in the
aggregate amount of its assets that may be invested in such
securities. Such obligations must mature in 397 calendar days or
less. Generally speaking, the higher an instrument is rated, the
greater its safety and the lower its yield.
(For informational purposes, included in the SAI is an
explanation of ratings by two NRSROs, Standard & Poor's
Corporation and Moody's Investors Service.)
MUNICIPAL SECURITIES
The Portfolio may invest up to 10% of its assets in taxable
municipal securities, issued by or on behalf of states,
territories and possessions of the U.S. and the District of
Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is not exempt from
federal income tax, which are considered by the Portfolio to
present minimal credit risks and which are rated within the two
highest rating categories by nationally recognized statistical
rating organizations or, if unrated, have been determined by
Advisers to be of comparable quality to instruments that are
Eligible Securities pursuant to procedures approved by the Money
Market's Board of Trustees. Generally, municipal securities are
used to raise money for various public purposes such as
constructing public facilities and making loans to public
institutions. Taxable municipal bonds are generally issued to
provide funding for privately operated facilities.
REPURCHASE AGREEMENTS
The Portfolio may engage in repurchase transactions, in which the
Portfolio purchases a U.S. government security subject to resale
to a bank or dealer at an agreed-upon price and date. The
transaction requires the collateralization of the seller's
obligation by the transfer of securities with an initial market
value, including accrued interest, equal to at least 102% of the
dollar amount invested by the Portfolio in each agreement, with
the value of the underlying security marked-to-market daily to
maintain coverage of at least 100%. A default by the seller might
cause the Portfolio to experience a loss or delay in the
liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating
the collateral. The Portfolio, however, intends to enter into
repurchase agreements only with financial institutions such as
broker-dealers and banks which are deemed creditworthy by the
Portfolio's investment manager. A repurchase agreement is deemed
to be a loan by the Portfolio under the 1940 Act. The U.S.
government security subject to resale (the collateral) will be
held on behalf of the Portfolio by a custodian approved by the
Portfolio's Board of Trustees and will be held pursuant to a
written agreement.
ILLIQUID INVESTMENTS
It is the policy of the Portfolio that illiquid securities
(securities that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which
the Portfolio has valued the securities) may not constitute, at
the time of purchase, more than 10% of the value of the total net
assets of the Portfolio.
OTHER POLICIES
The Portfolio may borrow from banks for extraordinary or
emergency purposes only and pledge its assets for such loans in
amounts up to 5% of the Portfolio's total assets. No new
investments will be made by the Portfolio while any outstanding
loans exceed 5% of its total assets.
Depending on its view of market conditions and cash requirements,
the Portfolio may or may not hold securities purchased until
maturity. The yield on certain instruments held by the Portfolio
may decline if sold prior to maturity.
Whenever the Portfolio's investment manager believes market
conditions are such that yields could be increased by actively
trading the portfolio securities to take advantage of short-term
market variations, the Portfolio may do so without restriction or
limitation. The Portfolio may not invest in securities other than
the types of securities listed above and is subject to other
specific investment restrictions as detailed under "Additional
Information Regarding the Fund's Investment Objective and
Policies" in the SAI.
Consistent with procedures approved by the Board of Trustees and
subject to the following conditions, the Portfolio may lend its
portfolio securities to qualified securities dealers or other
institutional investors, provided that such loans do not exceed
25% of the value of the Portfolio's total assets at the time of
the most recent loan. The borrower must deposit with the
Portfolio's custodian collateral with an initial market value at
least 102% of the initial market value of the securities loaned,
including any accrued interest, with the value of the collateral
and loaned securities marked-to-market daily to maintain such
collateral coverage. Such collateral shall consist of cash,
securities issued by the U.S. Government, its agencies or
instrumentalities, or irrevocable letters of credit. The lending
of securities is a common practice in the securities industry.
The Portfolio engages in security loan arrangements with the
primary objective of increasing the Portfolio's income either
through investing the cash collateral in short-term interest
bearing obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, the Portfolio
continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral
should the borrower of the security fail financially.
The Fund may not purchase securities of any issuer having a
record, together with predecessors, of less than three years'
continuous operation, if, immediately after such purchase, more
than 5% of the Fund's total assets taken at market value would be
invested in such securities, except to the extent that all or
substantially all of the Fund's assets may be invested in another
registered investment company having substantially similar
investment objectives and policies as the Fund.
RISK CONSIDERATIONS
Any of the Portfolio's Eurodollar Investments, Yankee Dollar
Investments, Foreign Bank Investments or investments in
commercial paper of foreign issuers will involve risks that are
different from investments in obligations of domestic entities.
These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations, or other
governmental restrictions which might affect the payment of
principal or interest on securities the Portfolio holds. In
addition, there may be less publicly available information
regarding such foreign banks or foreign issuers of commercial
paper.
The Portfolio may also purchase and sell securities on a "when-
issued" and "delayed delivery" basis. These transactions are
subject to market fluctuation and the value at delivery may be
more or less than the purchase price. When the Portfolio is the
buyer in such a transaction, it will maintain, in a segregated
account with its custodian, cash or high-grade marketable
securities having an aggregate value equal to the amount of such
purchase commitments until payment is made. To the extent the
Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring
securities for its portfolio consistent with its investment
objectives and policies and not for the purpose of investment
leverage. In when-issued and delayed delivery transactions, the
Portfolio relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the
Portfolio to miss a price or yield considered to be advantageous.
Securities purchased on a when-issued or delayed delivery basis
do not generally earn interest until their scheduled delivery.
Also see "Special Information Regarding the Fund's Master/Feeder
Fund Structure."
ADMINISTRATION OF THE FUND
The Fund's Board of Trustees has the primary responsibility for
the overall management of the Fund and for electing the officers
of the Trust who are responsible for administering its day-to-day
operations. For information concerning the officers and Trustees
of the Fund and the officers and trustees of Money Market, see
"Officers and Trustees" in the SAI. The Board of Trustees, with
all disinterested trustees as well as the interested trustees
voting in favor, has adopted written procedures designed to deal
with potential conflicts of interest which may arise from the
Fund and Money Market having substantially the same Boards of
Trustees. The procedures call for an annual review of the Fund's
relationship with the Portfolio, and in the event a conflict is
deemed to exist, the boards may take action, up to and including
the establishment of a new board of trustees. The Board of
Trustees has determined that there are no conflicts of interest
presented by this arrangement at the present time. See "Appendix"
in the Fund's SAI for a summary of the conflict of interest
procedures.
Advisers serves as the Fund's administrator and as the
Portfolio's investment manager. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly
owned holding company, the principal shareholders of which are
Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources'
outstanding shares. Resources is engaged in various aspects of
the financial services industry through its various subsidiaries
(the "Franklin Templeton Group"). Advisers acts as investment
manager or administrator to 34 U.S. registered investment
companies (112 separate series) with aggregate assets of over $75
billion.
Advisers serves as the Fund's administrator pursuant to an
administration agreement, effective May 1, 1995. Pursuant to the
administration agreement, Advisers provides various
administrative, statistical, and other services to the Fund in
return for a monthly administration fee at the annual rate of
91/200 of 1% for the first $100 million of the Fund's average
daily net assets; 33/100 of 1% of the Fund's net assets over $100
million up to and including $250 million; and 7/25 of 1% of the
Fund's net assets in excess of $250 million.
The Fund is responsible for its own operating expenses including,
but not limited to, Advisers' administration fee; taxes, if any;
custodian, legal and auditing fees; fees and expenses of trustees
who are not members of, affiliated with or interested persons of
Advisers; salaries of any personnel not affiliated with Advisers;
insurance premiums; trade association dues; expenses of obtaining
quotations for calculating the value of the Fund's net assets;
printing and other expenses relating to the Fund's operations;
filing fees; brokerage fees and commissions, if any; costs of
registering and maintaining registration of the Fund's shares
under federal and state securities laws; plus any extraordinary
and non-recurring expenses which are not expressly assumed by
Advisers.
Advisers has voluntarily agreed in advance to waive a portion of
its administrative fee and make certain payments, if necessary,
to ensure that total aggregate operating expenses of the Fund are
not higher than if the Fund were not to invest all of its assets
in the Portfolio. This action by Advisers may be terminated at
any time.
The Portfolio has a management agreement with Advisers which
provides for the supervision and implementation of the
Portfolio's investment activities and certain administrative
services and facilities which are necessary to conduct the
Portfolio's business.
Under the management agreement with Advisers, the Portfolio is
obligated to pay Advisers a fee equal to an annual rate of 15/100
of 1% of the Portfolio's average net assets. The fee is computed
and paid monthly based on the average daily net assets of the
Portfolio during the month. The Portfolio is responsible for its
own operating expenses, including, but not limited to: Advisers'
fee; taxes, if any; legal and auditing fees; fees and costs of
its custodian; the fees and expenses of trustees who are not
members of, affiliated with or interested persons of Advisers;
salaries of any personnel not affiliated with Advisers; insurance
premiums, trade association dues, and expenses of obtaining
quotations for calculating the value of the Portfolio's net
assets; printing and other expenses relating to the Portfolio's
operations; filing fees; brokerage fees and commissions, if any;
costs of registering and maintaining registration of the
Portfolio's shares under federal and state securities laws; plus
any extraordinary and non-recurring expenses.
Advisers has limited its management fees and has assumed
responsibility for making payments to offset certain operating
expenses otherwise payable by the Portfolio. This action by
Advisers to limit its management fees and to assume
responsibility for payment of the expenses related to operations
of the Portfolio may be terminated by Advisers at any time.
For the fiscal years ended June 30, 1993 and 1994, Advisers has
agreed to waive management fees of $42,713, and $47,631,
respectively, to reduce the operating expenses of the Portfolio.
The actual management fees charged to the Portfolio for the
fiscal years ended June 30, 1993 and 1994, were $229,483, and
$415,665, respectively. This action by Advisers may be terminated
at any time.
Fund shareholders will bear a portion of the Portfolio's
operating expenses, including its management fee, to the extent
that the Fund, as a shareholder of the Portfolio, bears such
expenses. The portion of the Portfolio's expenses borne by the
Fund is dependent upon the number of other shareholders of the
Portfolio, if any. Advisers may, but is not obligated to, waive
all or any portion of the management fee due from the Portfolio
or the administration fee due from the Fund. This arrangement may
be terminated by Advisers at any time.
It is not anticipated that the Portfolio will incur a significant
amount of brokerage expenses because short-term money market
instruments are generally traded on a "net" basis, that is, in
principal transactions without the addition or deduction of
brokerage commissions or transfer taxes. To the extent that the
Portfolio does participate in transactions involving brokerage
commissions, it is Advisers' responsibility to select brokers
through which such transactions will be effected. Advisers tries
to obtain the best execution on all such transactions. If it is
felt that more than one broker is able to provide the best
execution, Advisers will consider the furnishing of quotations
and of other market services, research, statistical and other
data for Advisers and its affiliates, as well as the sale of
shares of the Fund, as factors in selecting a broker. Further
information is included under "Policies Regarding Brokers Used on
Portfolio Transactions" in the Fund's SAI.
Shareholder accounting and many of the clerical functions for the
Fund are performed by Franklin/Templeton Investor Services, Inc.
("Investor Services" or "Shareholder Services Agent"), in its
capacity as transfer agent and dividend-paying agent. Investor
Services is a wholly-owned subsidiary of Resources.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares dividends for each day that the Fund's net
asset value is calculated, payable to shareholders of record as
of the close of business the preceding day. The amount of
dividends may fluctuate from day to day and dividends may be
omitted on some days, depending on changes in the factors that
comprise the Fund's net investment income.
The Fund does not pay "interest" to its shareholders, nor is any
amount of dividends or return guaranteed in any way.
Dividends are automatically reinvested daily in the form of
additional shares of the Fund at the net asset value per share at
the close of business each day.
The Fund's daily dividend consists of the income dividends paid
by the Portfolio. The Portfolio's daily dividend includes accrued
interest and any original issue and market discount, plus or
minus any gain or loss on the sale of portfolio securities and
changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable net asset
value per share), less amortization of any premium paid on the
purchase of portfolio securities and the estimated expenses of
the Fund.
The federal income tax treatment of dividends and distributions
is the same whether received in cash or reinvested in Fund
shares. The SAI includes a further discussion of distributions.
DIVIDENDS IN CASH
Shareholders may request to have their dividends paid out monthly
in cash by filing written instructions with Investor Services.
For such shareholders, the shares reinvested and credited to
their account during the month will be redeemed as of the close
of business on the last business day of the month and the
proceeds will be paid to them in cash. By completing the "Special
Payment Instructions for Dividends" section of the Shareholder
Account Information and Revision form included with this
Prospectus, a shareholder may direct the selected distributions
to another one of the Franklin Templeton Funds, to another
person, or directly to a checking account. If the bank at which
the account is maintained is a member of the Automated Clearing
House, the payments may be made automatically by electronic funds
transfer. If this last option is requested, the shareholder
should allow at least 15 days for initial processing. Dividends
which may be paid in the interim will be sent to the address of
record. Additional information regarding automated fund transfers
may be obtained from Franklin's Shareholder Services Department.
TAXATION OF THE FUND AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations
that affect mutual funds and their shareholders. Additional
information on tax matters relating to the Fund and its
shareholders is included in the section entitled "Additional
Information Regarding Distributions and Taxes" in the SAI.
The Fund intends to qualify and elect to be treated as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Portfolio
intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Code. By
distributing all of their income and meeting certain other
requirements relating to the sources of their income and
diversification of their assets, the Fund and the Portfolio will
not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which the
shareholder receives from the Fund, as well as any distributions
derived from the excess of net short-term capital gain over net
long-term capital loss, are treated as ordinary income whether
the shareholder has elected to receive them in cash or in
additional shares.
The Fund will inform shareholders of the source of their
dividends and distributions at the time they are paid and will,
promptly after the close of each calendar year, advise them of
the tax status for federal income tax purposes of such dividends
and distributions.
Shareholders should consult their tax advisors with respect to
the applicability of state and local intangible property or
income taxes to their shares in the Fund and to distributions and
redemption proceeds received from the Fund.
Shareholders who are not U.S. persons for purposes of federal
income taxation should consult with their financial or tax
advisors regarding the applicability of U.S. withholding or other
taxes to distributions received by them from the Fund and the
application of foreign tax laws to these distributions.
HOW TO BUY SHARES OF THE FUND
Shares of the Fund may not be purchased directly from the Fund or
Distributors. Shares may be acquired only in exchange for Class
II shares of other funds that are members of the Franklin
Templeton Funds sold subject to a contingent deferred sales
charge. Shares may also be acquired as result of the
reinvestment of income dividends and capital gains distributions
in additional shares of the Fund. All shares of the Fund are
acquired at the net asset value next determined after receipt of
an exchange request in proper form and are subject to a 1.00%
contingent deferred sales charge if they are redeemed within 18
months of purchase of the Class II shares which were exchanged
for shares of the Fund. See "Contingent Deferred Sales Charge",
under "How to Sell Shares of the Fund." The minimum initial
investment is $100 and subsequent investments must be $25 or
more.
No drafts (checks) may be written on Fund accounts. No other
money market funds are available for Class II shareholders for
exchange purposes. The Fund and Distributors reserve the right to
reject any order for the acquisition of shares of the Fund. In
addition, the offering of shares of the Fund may be suspended by
the Fund at any time and resumed at any time thereafter. No
share certificates will be issued.
Securities laws of states in which the Fund's shares are offered
for sale may differ from the interpretations of federal law, and
banks and financial institutions offering Fund shares may be
required to register as dealers pursuant to state law.
If transactions in Fund shares with the assistance of certain
banks were deemed to be an impermissible activity for such bank
under the Glass-Steagall Act, or other federal laws, such
activities would likely be discontinued by such bank. Investors
utilizing such bank assistance would then be able to seek other
avenues to invest in Fund shares, such as securities dealers
registered with the SEC or from the Fund directly.
Plan of Distribution
The Fundffective May 1, 1994 (the "Effective Date"), the Fund
adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act, as approved by shareholders at a special
meeting held on April 22, has adopted a Plan of Distribution
(the "Plan") pursuant to Rule 12b-1 under the Investment Company
Act of 1940. Any portion of fees remaining after distribution to
securities dealers the Plan, the Fund may reimburse Distributors
or others for all expenses incurred by Distributors or others in
the promotion and distribution of the FundOs shares.up to the
maximum amount permitted under the Plan may be used by the Fund
to pay Distributors for routine ongoing promotion and
distribution expenses. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for
sales purposes, expenses of preparing and distributing sales
literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of
Distributors' overhead expenses attributable to the distribution
of Fund shares, as well as any distribution or service fees paid
to securities dealers or their firms or others who have executed
a servicing agreement with the Fund, Distributors or its
affiliates.affiliates.
The Plan also
Under the Plan, the Fund is permitted to pay to Distributors or
others, annual distribution fees, payable quarterly, of .50% of
the Fund's daily net assets per annum, in order to compensate
Distributors or others for providing distribution and related
services and bearing certain expenses of the Fund. All expenses
of distribution and marketing and related services over that
amount will be borne by Distributors, or others who have incurred
them, without reimbursement by the Fund. In addition to this
amount, quarterly under the Plan, the Fund shall pay an amount
equal to .15% per annum of the Fund's average daily net assets as
a servicing fee. This fee will be used to pay dealers or others
for, among other things, assisting in establishing and
maintaining customer accounts and records; assisting with
purchase and redemption requests; receiving and answering
correspondence; monitoring dividend payments from the Fund on
behalf of customers, and similar activities related to furnishing
personal services and maintaining shareholder accounts.
During the first year after the purchase of the Class II shares
which are exchanged for shares of the Fund, Distributors will
keep a portion of the Plan fees assessed on Fund shares to
partially recoup fees Distributors pays to securities dealers.
coversThe Plan also covers any payments to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund,
Advisers or Distributors, to the extent such payments are deemed
to be for the financing of any activity primarily intended to
result in the sale of shares issued by the Fund within the
context of Rule 12b-1. The payments under the Plan are included
in the maximum operating expenses which may be borne by the
Fund.the Fund. For more information, including a discussion of
the board's policies with regard to the amount of fees, please
see the SAI.
HOW TO SELL SHARES OF THE FUND
All or any part of a shareholder's investment may be converted
into cash by redeeming shares in any one or more of the methods
discussed below on any day the New York Stock Exchange (the
"Exchange") is open for trading. All shares are subject to a
1.00% contingent deferred sales charge if they are redeemed
within 18 months of purchase of the Class II shares which were
exchanged for shares of the Fund. See "Contingent Deferred Sales
Charge", herein. Regardless of the method of redemption, payment
for the shareholder's redeemed shares will be sent within seven
days after receipt of the redemption request in proper form.
Shareholders are requested to provide a telephone number(s) where
they may be reached during business hours, or in the evening if
preferred. Investor Services' ability to contact a shareholder
promptly when necessary will speed the processing of the
redemption.
Retirement account liquidations require the completion of certain
additional forms to ensure compliance with Internal Revenue
Service ("IRS") regulations. To liquidate a retirement account, a
shareholder or the shareholder's securities dealer may call
Franklin's Retirement Plans Department to obtain the necessary
forms.
Shares may be redeemed in any of the following ways:
1. BY TELEPHONE
A shareholder may redeem shares by telephoning the Fund at 1-
800/632-2301. Payment of redemption requests of $1,000 or less
(once per business day) will be sent by mail to the shareholder's
address as reflected on the Fund's records. For payments over
$1,000, the shareholder must complete the "Wire Redemptions
Privilege" section of the Shareholder Account Information and
Revision form Proceeds will then be wired directly to the
commercial bank or brokerage firm designated by the shareholder.
Wires will not be sent for redemption requests of $1,000 or less.
Shareholders may have redemption proceeds of over $1,000, up to
$50,000 per day per Fund account, subject to the Restricted
Account exception noted under "Telephone Transactions --
Restricted Accounts," sent directly to their address of record by
filing a completed Franklin Templeton Telephone Redemption
Authorization Agreement (the "Agreement") included with this
Prospectus. INFORMATION MAY ALSO BE OBTAINED BY WRITING TO THE
FUND OR INVESTOR SERVICES AT THE ADDRESS SHOWN ON THE COVER OR BY
CALLING THE NUMBER ABOVE. THE FUND AND INVESTOR SERVICES WILL
EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS GIVEN
BY TELEPHONE ARE GENUINE. THE FUND AND INVESTOR SERVICES MAY BE
LIABLE FOR ANY LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT
INSTRUCTIONS ONLY IF SUCH REASONABLE PROCEDURES ARE NOT FOLLOWED.
SHAREHOLDERS, HOWEVER, BEAR THE RISK OF LOSS IN CERTAIN CASES AS
DESCRIBED UNDER "TELEPHONE TRANSACTIONS - VERIFICATION
PROCEDURES."
Telephone redemption requests received before 3:00 p.m. Pacific
time on any business day will be processed that same day. The
redemption check will be sent within seven days, made payable to
all the registered owners on the account, and will be sent only
to the address of record. Wire payments will be transmitted the
next business day following receipt after the scheduled close of
the Exchange of a request for redemption in proper form.
Shareholders may wish to allow for longer processing time if they
want to assure that redemption proceeds will be available at a
specific time for a specific transaction. Shareholders may be
able to have redemption proceeds wired to an escrow account the
same day, provided that the request is received prior to 9:00
a.m. Pacific time.
Redemption instructions must include the shareholder's name and
account number and be called to the Fund. Redemption requests by
telephone will not be accepted within 30 days following an
address change by telephone. In that case, a shareholder should
follow the other redemption procedures set forth in this
Prospectus. Institutional accounts which wish to execute
redemptions in excess of $50,000 per day must complete an
Institutional Telephone Privileges Agreement which is available
from Franklin's Institutional Services Department by telephoning
1-800/321-8563.
During periods of drastic economic or market changes, it is
possible that the telephone redemption privilege may be difficult
to implement. In this event, shareholders should follow the other
redemption procedures discussed in this Prospectus. The telephone
redemption privilege may be modified or discontinued by the Fund
at any time upon 60 days' notice to shareholders.
2. BY MAIL
A shareholder may redeem all or a portion of his shares by
sending a letter to Investor Services, at the address shown on
the back cover of this Prospectus, requesting redemption.
IMPORTANT THINGS TO REMEMBER
WHEN REDEEMING SHARES
When selling Fund shares, the terms of the redemption request
will determine how the contingent deferred sales charge, if any,
is deducted. Redemption orders for a specific DOLLAR AMOUNT will
result in the redemption of enough shares to cover the contingent
deferred sales charge, if any, and the requested dollar amount.
If, however, a specific SHARE AMOUNT is requested, the contingent
deferred sales charge will be deducted from the amount of shares
requested to be redeemed. See the discussion of Contingent
Deferred Sales Charges which follows for more information.
Written requests for redemption must be signed by all registered
owners.
TO BE CONSIDERED IN PROPER FORM, SIGNATURE(S) MUST BE GUARANTEED
IF THE REDEMPTION REQUEST INVOLVES ANY OF THE FOLLOWING:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to someone other
than the registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address
other than the shareholder's address of record, preauthorized
bank account or brokerage firm account; or
(4) the Fund or Investor Services believes that a signature
guarantee would protect against potential claims based on the
transfer instructions, including, for example, when (a) the
current address of one or more joint owners of an account cannot
be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund, (c) the Fund has been
notified of an adverse claim, (d) the instructions received by
the Fund are given by an agent, not the actual registered owner,
(e) the Fund determines that joint owners who are married to each
other are separated or may be the subject of divorce proceedings,
or (f) the authority of a representative of a corporation,
partnership, association, or other entity has not been
established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor
institution" as defined under Rule 17Ad-15 under the Securities
Exchange Act of 1934. Generally, eligible guarantor institutions
include (1) national or state banks, savings associations,
savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national
securities exchanges, registered securities associations and
clearing agencies; (3) securities dealers which are members of a
national securities exchange or a clearing agency or which have
minimum net capital of $100,000; or (4) institutions that
participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion
program. A notarized signature will not be sufficient for the
request to be in proper form.
Liquidation requests of corporate, partnership, trust and
custodianship accounts, and accounts under court jurisdiction,
require the following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from
the authorized officer(s) of the corporation and (2) a corporate
resolution.
Partnership - (1) Signature guaranteed letter of instruction from
a general partner and (2) pertinent pages from the partnership
agreement identifying the general partners or a certification for
a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the
trustee(s) and (2) a copy of the pertinent pages of the trust
document listing the trustee(s) or a Certification for Trust if
the trustee(s) are not listed on the account registration.
Custodial (other than a retirement account) - Signature
guaranteed letter of instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the
applicable state law since these accounts have varying
requirements, depending upon the state of residence.
CONTINGENT DEFERRED SALES CHARGE
Unless one of the exceptions described below applies, Fund shares
redeemed within eighteen months of their purchase of the Class II
shares which were exchanged for shares of the Fund will generally
be assessed a contingent deferred sales charge of 1.00%. A
contingent deferred sales charge will not be assessed on Fund
shares held more than eighteen months from the purchase of the
Class II shares which were exchanged for shares of the Fund, or
on shares originally derived from reinvestment of dividends or
capital gains distributions.
In determining whether a contingent deferred sales charge is
applicable, a calculation is used which determines the lowest
possible charge against the shareholder's investment in the Fund.
It will be assumed that a redemption is made (i) first from
amounts representing capital appreciation of shares purchased
that are still subject to the contingent deferred sales charge,
(ii) then from shares derived from reinvestment of dividends and
distributions, (iii) then from shares held by the shareholder
which are no longer subject to a contingent deferred sales
charge, and iv) finally from shares subject to a contingent
deferred sales charge, on a first-in, first-out basis. For tax
purposes, a contingent deferred sales charge is treated as either
a reduction in redemption proceeds or an adjustment to the cost
basis of the shares redeemed.
All investments made during a calendar month, regardless of when
during the month the investment occurred, will age one month on
the last day of that month and each subsequent month during the
time such investment remains outstanding in Class II shares or in
the Fund. If a shareholder exchanges Class II shares of a fund
for the same class of shares in another fund, or the Fund, no
contingent deferred sales charge will be assessed in connection
with the exchange. Shares redeemed after eighteen months
(including periods during which such assets were invested in
Class II shares of other funds), are no longer subject to a
contingent deferred sales charge. See "Exchange Privilege" below
for more information regarding exchanges.
The contingent deferred sales charge is waived, as applicable,
for: exchanges; any account fees; distributions to participants
or to beneficiaries thereof in Trust Company qualified retirement
plans due to death, disability or attainment of age 59 1/2; tax-
free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans, including those due to
termination or plan transfer; redemptions through a Systematic
Withdrawal Plan of up to 1% monthly of an account's net asset
value (3% quarterly, 6% semiannually or 12% annually);
redemptions initiated by the Fund due to a shareholder's account
falling below the minimum specified account size; redemption
following the death of the shareholder or beneficial owner.
ADDITIONAL INFORMATION REGARDING REDEMPTIONS
For any information required about a proposed liquidation, a
shareholder may call Franklin's Shareholder Services Department
or the securities dealer may call Franklin's Dealer Services
Department.
Written requests for redemption should be sent to the Fund or
Investor Services at the address shown on the back cover of this
Prospectus.
Payment for written requests for redemption will be sent within
seven days after receipt of the request in proper form.
Redemptions will be made in cash at the net asset value per share
next determined after receipt by the Fund of a redemption request
in proper form, signature guarantees, and other documentation as
may be required by Investor Services. The amount received upon
redemption may be more or less than the shareholder's original
investment. Redemptions may be suspended under certain limited
circumstances pursuant to rules adopted by the SEC.
Wiring of redemption proceeds is a special service made available
to shareholders whenever possible. The offer of this service,
however, does not bind the Fund to meet any redemption request by
wire or in less than the seven-day period prescribed by law.
Neither the Fund nor its agents shall be liable to any
shareholder or other person for a redemption payment by wire
which for any reason may not be processed as described in this
section.
OTHER PROGRAMS AND PRIVILEGES
AVAILABLE TO FUND SHAREHOLDERS
CERTAIN OF THE PROGRAMS AND PRIVILEGES DESCRIBED IN THIS SECTION
MAY NOT BE AVAILABLE DIRECTLY FROM THE FUND TO SHAREHOLDERS WHOSE
SHARES ARE HELD, OF RECORD, BY A FINANCIAL INSTITUTION OR IN A
"STREET NAME" ACCOUNT, OR NETWORKED ACCOUNT THROUGH NATIONAL
SECURITIES CLEARING CORPORATION ("NSCC") (SEE THE SECTION
CAPTIONED "ACCOUNT REGISTRATIONS" IN THIS PROSPECTUS).
CONFIRMATIONS
A confirmation statement will be sent to each shareholder monthly
to reflect the daily dividends reinvested, as well as after each
transaction which affects the shareholder's account. This
statement will also show the total number of Fund shares owned by
the shareholder, including the number of shares in "plan balance"
for the account of the shareholder.
SYSTEMATIC WITHDRAWAL PLAN
A shareholder may establish a Systematic Withdrawal Plan and
receive regular periodic payments from the account, provided that
the net asset value of the shares held by the shareholder is at
least $5,000. There are no service charges for establishing or
maintaining a Systematic Withdrawal Plan. The minimum amount
which the shareholder may withdraw is $50 per withdrawal
transaction, although this is merely the minimum amount allowed
under the plan and should not be mistaken for a recommended
amount. Retirement accounts subject to mandatory distribution
requirements are not subject to the $50 minimum. The plan may be
established on a monthly, quarterly, semiannual or annual basis.
If the shareholder establishes a plan, any capital gain
distributions and income dividends paid by the Fund will be
reinvested for the shareholder's account in additional shares at
net asset value. Payments will then be made from the liquidation
of shares at net asset value on the day of the transaction (which
is generally the first business day of the month in which the
payment is scheduled) with payment generally received by the
shareholder three to five days after the date of liquidation. By
completing the "Special Payment Instructions for Distributions"
section of the Shareholder Account Information and Revision form
included with this Prospectus, a shareholder may direct the
selected withdrawals to another of the Franklin Templeton Funds,
to another person, or directly to a checking account. If the bank
at which the account is maintained is a member of the Automated
Clearing House, the payments may be made automatically by
electronic funds transfer. If this last option is requested, the
shareholder should allow at least 15 days for initial processing.
Payments made in the interim will be sent to the address of
record. Liquidation of shares may reduce or possibly exhaust the
shares in the shareholder's account, to the extent withdrawals
exceed shares earned through dividends. If the withdrawal amount
exceeds the total plan balance, the account will be closed and
the remaining balance will be sent to the shareholder. As with
other redemptions, a liquidation to make a withdrawal payment is
a sale for federal income tax purposes. Because the amount
withdrawn under the plan may be more than the shareholder's
actual yield or income, part of the payment may be a return of
the shareholder's investment.
The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional shares of the Fund would be
disadvantageous because of the sales charge on the additional
purchases. Also, redemptions of shares may be subject to a
contingent deferred sales charge if the shares are redeemed
within 18 months of the calendar month of the original purchase
date. The shareholder should ordinarily not make additional
investments of less than $5,000 or three times the annual
withdrawals under the plan during the time such a plan is in
effect.
The contingent deferred sales charge is waived for share
redemptions of up to 1% monthly of an account's net asset value
(12% annually, 6% semi-annually, 3% quarterly). For example, if
the account maintained an annual balance of $10,000, only $1,200
could be withdrawn through a once-yearly Systematic Withdrawal
Plan free of charge; and amounts over that $1,200 would be
assessed a 1% (or applicable) contingent deferred sales charge.
A Systematic Withdrawal Plan may be terminated on written notice
by the shareholder or the Fund, and it will terminate
automatically if all shares are liquidated or withdrawn from the
account, or upon the Fund's receipt of notification of the death
or incapacity of the shareholder. Shareholders may change the
amount (but not below the specified minimum) and schedule of
withdrawal payments, or suspend one such payment by giving
written notice to Investor Services at least seven business days
prior to the end of the month preceding a scheduled payment.
Share certificates may not be issued while a Systematic
Withdrawal Plan is in effect.
MULTIPLE ACCOUNTS FOR FIDUCIARIES
Special procedures have been designed for banks and other
institutions wishing to open multiple accounts in the Fund.
Further information is included in the Fund's SAI.
RIGHTS OF ACCUMULATION
The cost or current value (whichever is higher) of the shares in
the Fund will be included in determining the sales charge
discount to which an investor may be entitled when purchasing
Class I shares of one of the Franklin Templeton Funds which are
sold with a front-end sales charge. This feature does not apply
to purchases of Class II shares, which are subject a 1% sales
charge and a to a 1% contingent deferred sales charge if redeemed
within 18 months of purchase. Included for these aggregation
purposes are (a) the mutual funds in the Franklin Group of Funds
(Registered Trademark) except Franklin Valuemark Funds and
Franklin Government Securities Trust (the "Franklin Funds"), (b)
other investment products underwritten by Distributors or its
affiliates (although certain investments may not have the same
schedule of sales charges and/or may not be subject to reduction)
and (c) the U.S. mutual funds in the Templeton Group of Funds
except Templeton Capital Accumulator Fund, Inc., Templeton
Variable Annuity Fund, and Templeton Variable Products Series
Fund (the "Templeton Funds"). (Franklin Funds and Templeton Funds
are collectively referred to as the "Franklin Templeton Funds.")
Fund shares will also be included toward the completion of a
Letter of Intent with respect to any of the Class I shares
offered by any of the Franklin Templeton Funds which are sold
with a sales charge.
To assist shareholders in obtaining additional information
regarding these programs, a list of telephone numbers is included
in "How to Get Information Regarding an Investment in the Fund."
PURCHASING SHARES OF THE FUND IN CONNECTION WITH
RETIREMENT PLANS INVOLVING TAX-DEFERRED INVESTMENTS
Shares of the Fund may be used for individual or employer-
sponsored retirement plans involving tax-deferred investments.
The Fund may be used as an investment vehicle for an existing
retirement plan, or Franklin Templeton Trust Company ( the "Trust
Company") may provide the plan documents and serve as custodian
or trustee.
The Trust Company, an affiliate of Distributors, can serve as
custodian or trustee for retirement plans. Brochures for the
Trust Company plans contain important information regarding
eligibility, contribution and deferral limits and distribution
requirements. Please note that an application other than the
Shareholder Account Information and Revisions form contained in
this Prospectus must be used to establish a retirement plan
account with the Trust Company. To obtain a retirement plan
brochure or application, call toll free 1-800/DIAL BEN (1-800/342-
5236).
Please see "How to Sell Shares of the Fund" for specific
information regarding redemptions from retirement plan accounts.
Specific forms are required to be completed for distributions
from Franklin Templeton Trust Company retirement plans.
Individuals and plan sponsors should consult with legal, tax or
benefits and pension plan consultants before choosing a
retirement plan. In addition, retirement plan investors should
consider consulting their investment representatives or advisors
concerning investment decisions within their plans.
INSTITUTIONAL ACCOUNTS
There may be additional methods of purchasing, redeeming or
exchanging shares of the Fund available to institutional
accounts. For further information, contact Franklin's
Institutional Services Department at 1-800/321-8563.
EXCHANGE PRIVILEGE
The Franklin Templeton Funds consist of a number of funds with
various investment objectives and policies. The shares of many of
such funds are offered to the public in multiple classes and are
subject to a front-end or contingent deferred sales charges. If a
shareholder's investment objective or outlook for the securities
markets changes, the Fund shares may be exchanged for Class II
shares of Franklin Templeton Funds (as defined under "Rights of
Accumulation") which are eligible for sale in the shareholder's
state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums.
Shareholders are entitled to exchange their shares at net asset
value for shares of the same class of another fund in the
Franklin Templeton Funds. Exchanges of shares of other funds in
the Franklin Templeton Funds for shares of the Fund are generally
taxable and shareholders will generally recognize gains and
losses on such exchanges. All exchanges are subject to the
minimum investment amount. No exchanges between different classes
of shares will be allowed. For this purpose the Fund's shares
are treated as Class II shares.
A contingent deferred sales charge will not be imposed on
exchanges of Fund shares for Class II shares of other funds or on
exchanges of Class II shares of other funds for Fund shares. If
the exchanged shares were subject to a contingent deferred sales
charge in the original fund, and the acquired shares are
subsequently redeemed within eighteen months of the purchase date
of the original shares, a contingent deferred sales charge will
be imposed.
When an account has some shares subject to the contingent
deferred sales load, and some that are not, the shares will be
transferred proportionately from each type of shares into the new
fund. Shares free from a contingent deferred sales charge are
referred to as "free shares," shares which were originally
subject to a contingent deferred sales charge but to which the
contingent deferred sales charge no longer applies are called
"matured shares," and shares still subject to the contingent
deferred sales charge are referred to as "CDSC liable shares",
and each represents a different type of share for purposes of
exchanging into a new fund. CDSC liable share held for different
periods of time are considered different types of CDSC liable
shares. For instance, if a shareholder has $1,000 in free shares,
$2,000 in matured shares, and $3,000 in CDSC liable shares, and
the shareholder exchanges $3,000 into a new fund, $500 will be
exchanged from free shares, $1000 from matured shares, and $1500
from CDSC liable shares. Similarly, if CDSC liable shares have
been purchased at different periods, a proportionate amount will
be taken from shares held for each period. If, for example, this
shareholder holds $1000 in shares bought 3 months ago, $1000
bought 6 months ago, and $1000 bought 9 months ago, $500 in each
of these shares will be exchanged into the new fund.
To the extent shares are exchanged proportionately, as opposed to
another method, such as first-in first-out, or free-shares
followed by CDSC liable shares, the exchanged shares may, in some
instances, be CDSC liable even though a redemption of such
shares, as discussed elsewhere herein, may no longer be subject
to a CDSC. The proportional method is believed by management to
more closely meet and reflect the expectations of Class II
shareholders in the event shares are redeemed during the
contingency period. For federal income tax purposes, the cost
basis of shares redeemed or exchanged is determined under the
Code without regard to the method of transferring shares chosen
by the Fund.
Transfers between identically registered accounts in the same
Fund are treated as non-monetary and non-taxable events, and are
not subject to a contingent deferred sales charge. The
transferred shares will continue to age from the date of original
purchase. Like exchanges, shares will be moved proportionately
from each type of shares in the original account.
Exchanges may be made in any of the following ways:
EXCHANGES BY MAIL
Send written instructions signed by all account owners. The
transaction will be effective upon receipt of the written
instructions.
EXCHANGES BY TELEPHONE
SHAREHOLDERS, OR THEIR INVESTMENT REPRESENTATIVE OF RECORD, IF
ANY, MAY EXCHANGE SHARES OF THE FUND BY TELEPHONE BY CALLING
INVESTOR SERVICES AT 1-800/632-2301 OR THE AUTOMATED FRANKLIN
TELEFACTS(REGISTERED TRADEMARK) SYSTEM (DAY OR NIGHT) AT 1-
800/247-1753. IF THE SHAREHOLDER DOES NOT WISH THIS PRIVILEGE
EXTENDED TO A PARTICULAR ACCOUNT, THE FUND OR INVESTOR SERVICES
SHOULD BE NOTIFIED.
The Telephone Exchange Privilege allows a shareholder to effect
exchanges from the Class of Fund shares currently held into the
same class of an identically registered account in one of the
other available Franklin Templeton Funds. The Fund and Investor
Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Please refer
to "Telephone Transactions - Verification Procedures."
During periods of drastic economic or market changes, it is
possible that the Telephone Exchange Privilege may be difficult
to implement and the TeleFACTS option may not be available. In
this event, shareholders should follow the other exchange
procedures discussed in this section, including the procedures
for processing exchanges through securities dealers.
EXCHANGES THROUGH SECURITIES DEALERS
As is the case with all purchases of the Fund's shares, Investor
Services will accept exchange orders by telephone or by other
means of electronic transmission from securities dealers who
execute a dealer or similar agreement with Distributors. The use
of the term "securities dealer" shall include other financial
institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and
accounts with the Fund. Such reference, however, is for
convenience only and does not indicate a legal conclusion of
capacity. See also "Exchanges By Telephone" above. A securities
dealer may charge a fee for handling an exchange.
ADDITIONAL INFORMATION REGARDING EXCHANGES
Shares of the Fund acquired other than pursuant to the Exchange
Privilege or the reinvestment of dividends with respect to such
shares, may be exchanged at the offering price of one of the
other Franklin Templeton Funds. Such offering price includes the
applicable sales charge of the fund into which the shares are
being exchanged. Exchanges will be effected at the respective net
asset values or offering prices of the funds involved at the
close of business on the day on which the request is received in
proper form.
There are many differences among the funds in the Franklin
Templeton Fund. Before making an exchange, a shareholder should
obtain and review a current prospectus of the fund into which the
shareholder wishes to transfer.
The Exchange Privilege may be modified or discontinued by the
Fund at any time upon 60 days' written notice to shareholders.
RETIREMENT ACCOUNTS
Franklin Templeton IRA and 403(b) retirement accounts may
accomplish exchanges by contacting the Fund directly. Certain
restrictions may apply, however, to other types of retirement
plans. See "Restricted Accounts" under "Telephone Transactions."
TIMING ACCOUNTS
Accounts which are administered by allocation or market timing
services to purchase or redeem shares based on predetermined
market indicators ("Timing Accounts") will be charged a $5.00
administrative service fee per each such exchange. All other
exchanges are without charge.
RESTRICTIONS ON EXCHANGES
In accordance with the terms of their respective prospectuses,
certain funds do not accept or may place differing limitations
than those below on exchanges by Timing Accounts.
The Fund reserves the right to temporarily or permanently
terminate the exchange privilege or reject any specific purchase
order for any Timing Account or any person whose transactions
seem to follow a timing pattern who: (i) makes an exchange
request out of the Fund within two weeks of an earlier exchange
request out of the Fund, or (ii) makes more than two exchanges
out of the Fund per calendar quarter, or (iii) exchanges shares
equal in value to at least $5 million, or more than 1% of the
Fund's net assets. Accounts under common ownership or control,
including accounts administered so as to redeem or purchase
shares based upon certain predetermined market indicators, will
be aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of
exchange requests by any Timing Account, person, or group if, in
Advisers' judgment, the Fund would be unable to invest
effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if
the Fund receives or anticipates simultaneous orders affecting
significant portions of the Fund's assets. In particular, a
pattern of exchanges that coincide with a "market timing"
strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated in "How to Buy
Shares of the Fund," reserve the right to refuse any order for
the purchase of shares.
TELEPHONE TRANSACTIONS
Shareholders of the Fund and their investment representative of
record, if any, may be able to execute various transactions by
calling Investor Services at 1-800/632-2301.
All shareholders will be able to: (i) effect a change in address,
(ii) change a dividend option (see "Restricted Accounts" below),
(iii) transfer Fund shares in one account to another identically
registered account in the Fund, and (iv) exchange Fund shares as
described in this Prospectus by telephone. In addition,
shareholders who complete and file an Agreement as described
under "How to Sell Shares of the Fund - By Telephone" will be
able to redeem shares of the Fund.
VERIFICATION PROCEDURES
The Fund and Investor Services will employ reasonable procedures
to confirm that instructions communicated by telephone are
genuine. These will include: recording all telephone calls
requesting account activity by telephone, requiring that the
caller provide certain personal and/or account information
requested by the telephone service agent at the time of the call
for the purpose of establishing the caller's identification, and
sending a confirmation statement on redemptions to the address of
record each time account activity is initiated by telephone. So
long as the Fund and Investor Services follow instructions
communicated by telephone which were reasonably believed to be
genuine at the time of their receipt, neither they nor their
affiliates will be liable for any loss to the shareholder caused
by an unauthorized transaction. The Fund and Investor Services
may be liable for any losses due to unauthorized or fraudulent
instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or
accept telephone transaction privileges. In any instance where
the Fund or Investor Services is not reasonably satisfied that
instructions received by telephone are genuine, the requested
transaction will not be executed, and neither the Fund nor
Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
RESTRICTED ACCOUNTS
Telephone redemptions and dividend option changes may not be
accepted on Trust Company retirement accounts. To assure
compliance with all applicable regulations, special forms are
required for any distribution, redemption, or dividend payment.
While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain
restrictions may apply to other types of retirement plans.
Changes to dividend options must also be made in writing.
To obtain further information regarding distribution or transfer
procedures, including any required forms, retirement account
shareholders may call to speak to a Retirement Plan Specialist at
1-800/527-2020 for Franklin accounts or 1-800/354-9191 (press "2"
when prompted to do so) for Templeton accounts.
GENERAL
During periods of drastic economic or market changes, it is
possible that the telephone transaction privileges will be
difficult to execute because of heavy telephone volume. In such
situations, shareholders may wish to contact their registered
investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this
Prospectus.
Neither the Fund nor Investor Services will be liable for any
losses resulting from the inability of a shareholder to execute a
telephone transaction.
The telephone transaction privilege may be modified or
discontinued by the Fund at any time upon 60 days' written notice
to shareholders.
VALUATION OF FUND SHARES
The net asset value of the shares of the Fund is determined by
the Fund at 3:00 p.m. Pacific time each day that the Exchange is
open for business. The net asset value per share is calculated by
adding the value of all of the Fund's portfolio holdings (i.e.,
shares of the Portfolio) and other assets, deducting the Fund's
liabilities, and dividing the result by the number of Fund shares
outstanding.
The valuation of the portfolio securities held by the Portfolio
is based upon their amortized cost value, which does not take
into account unrealized capital gain or loss. This involves
valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the
market value of the instrument. The Portfolio's use of amortized
cost, which facilitates the maintenance of the Portfolio's per
share net asset value of $1.00, is permitted by Rule 2a-7.
Further information is included under "Determination of Net Asset
Value" in the SAI.
HOW TO GET INFORMATION REGARDING AN INVESTMENT IN THE FUND
Any questions or communications regarding a shareholder's account
should be directed to Investor Services at the address shown on
the back cover of this Prospectus.
From a touch tone phone, Franklin and Templeton shareholders may
access an automated system (day or night) which offers the
following features.
By calling the Franklin TeleFACTS (Registered Trademark) system,
Fund and Templeton Class I or II shares and Franklin Class II
shares shareholders may obtain current price, yield or other
performance information regarding the Franklin Class I and Class
II shareholders; obtain account information and request duplicate
confirmation or year-end statements, money fund checks, if
applicable, and deposit slips.
Share prices and account information specific to Templeton Class
I or II shares and Franklin Class II shares may also be accessed
on TeleFACTS by Franklin Class I and Class II shareholders.
The TeleFACTS system is accessible by calling 1-800/247-1753. The
Star Service is accessible by calling 1-800/654-0123. The
Franklin code for the Fund, which will be needed to access system
information is 511. The system's automated operator will prompt
the caller with easy to follow step-by-step instructions from the
main menu. Other features may be added in the future.
To assist shareholders and securities dealers wishing to speak
directly with a representative, the following is a list of the
various Franklin departments, telephone numbers and hours of
operation to call. The same numbers may be used when calling from
a rotary phone:
DEPARTMENT NAME TELEPHONE NO. HOURS OF OPERATION (PACIFIC TIME)
(MONDAY THROUGH FRIDAY)
Shareholder Services 1-800/632-2301 6:00 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 6:00 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 6:00 a.m. to 8:00 p.m.
8:30 a.m. to 5:00 p.m. (Saturday)
Retirement Plans 1-800/527-2020 6:00 a.m. to 5:00 p.m.
TDD (hearing 1-800/851-0637 6:00 a.m. to 5:00 p.m.
impaired)
In order to ensure that the highest quality of service is being
provided, telephone calls placed to or by representatives in
Franklin's service departments may be accessed, recorded and
monitored. These calls can be determined by the presence of a
regular beeping tone.
PERFORMANCE
Advertisements, sales literature and communications to
shareholders may contain various measures of the Fund's
performance, including quotations of its current and effective
yield.
Current yield as prescribed by the SEC is an annualized
percentage rate which reflects the change in value of a
hypothetical account based on the income received from the Fund
during a seven-day period. It is computed by determining the net
change, excluding capital changes, in the value of a hypothetical
pre-existing account having a balance of one share at the
beginning of the period. A hypothetical charge reflecting
deductions from shareholder accounts for administrative fees or
shareholder services fees, for example, is subtracted from the
value of the account at the end of the period, and the difference
is divided by the value of the account at the beginning of the
base period to obtain the base period return. The result is then
annualized. Effective yield is computed in the same manner except
that the annualization of the return for the seven-day period
reflects the results of compounding (that is, the effect of
reinvesting dividends paid on both the original share and those
acquired from the reinvestment of such dividends).
In each case, performance figures are based upon past performance
and will reflect all recurring charges against Fund income. Such
quotations will reflect the value of any additional shares
purchased with dividends from the original share and any
dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other
investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment
may earn in the future or what the Fund's performance may be in
any future period.
GENERAL INFORMATION
REPORTS TO SHAREHOLDERS
The Fund's fiscal year ends June 30. Annual Reports containing
audited financial statements of the Fund, including the auditors'
report, and Semi-Annual Reports containing unaudited financial
statements are automatically sent to shareholders. Additional
copies may be obtained, without charge, upon request to the Fund
at the telephone number or address set forth on the cover page of
this Prospectus.
Additional information on Fund performance is included in the
Fund's Annual Report to Shareholders and the SAI.
ORGANIZATION
The Fund is currently the only series of the Trust, which was
organized as a Delaware business trust on January 30, 1995. The
Trust is authorized to issue an unlimited number of shares of
beneficial interest, with a par value of $.01 per share in
various series, or classes thereof. All shares have one vote,
and, when issued, are fully paid, non-assessable, and redeemable.
Currently, the Trust issues shares in one series with one class.
Additional series or classes may be added in the future by the
Board of Trustees. All shares of the fund have equal voting,
dividend and liquidation rights. The shares have non-cumulative
voting rights, which means that holders of more than 50% of the
shares voting for the election of trustees can elect 100% of the
trustees if they choose to do so. The Trust does not intend to
hold annual meetings; it may, however, hold special shareholder
meetings for such purposes as changing fundamental investment
restrictions, approving a new management or administration
agreement or any other matters which are required to be acted on
by shareholders under the 1940 Act. A meeting may also be called
by a majority of the Board of Trustees or by shareholders holding
at least ten percent of the shares entitled to vote at the
meeting. Shareholders may receive assistance in communicating
with other shareholders in connection with the election or
removal of trustees such as that provided in Section 16(c) of the
1940 Act. Whenever the Fund is requested to vote on a matter
relating to the Portfolio, the Fund will hold a meeting of Fund
shareholders and will cast its vote in the same proportion as the
Fund's shareholders have voted.
REDEMPTIONS BY THE FUND
The Fund reserves the right to redeem, at net asset value, shares
of any shareholder whose account has a value of less than one-
half of the required minimum investment, but only where the value
of such account has been reduced by the shareholder's prior
voluntary redemption of shares and has been inactive (except for
the reinvestment of distributions) for a period of at least six
months, provided advance notice is given to the shareholder. More
information is included in the SAI.
OTHER INFORMATION
The Fund may impose a $10 charge for each returned item, against
any shareholder account which, in connection with the purchase of
Fund shares, submits a check or a draft which is returned unpaid
to the Fund.
Distribution or redemption checks sent to shareholders do not
earn interest or any other income during the time such checks
remain uncashed, and neither the Fund nor its affiliates will be
liable for any loss to the shareholder caused by the
shareholder's failure to cash such check(s).
Shares of the Fund may or may not constitute a legal investment
for investors whose investment authority is restricted by
applicable law or regulation. SUCH INVESTORS SHOULD CONSULT THEIR
OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE
SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond
offerings into the Fund should consult with expert counsel to
determine the effect, if any, of various payments made by the
Fund or its investment manager on arbitrage rebate calculations.
"Cash" payments from the Fund may be made by check, draft or
wire. The Fund has no facility to receive, or pay out, cash in
the form of currency.
ACCOUNT REGISTRATIONS
An account registration should reflect the investor's intentions
as to ownership.
Accounts should not be registered in the name of a minor, either
as sole or co-owner of the account. Transfer or redemption for
such an account may require court action to obtain release of the
funds until the minor reaches the legal age of majority. The
account should be registered in the name of one "Adult" as
custodian for the benefit of the "Minor" under the Uniform
Transfer or Gifts to Minors Act.
A trust designation such as "trustee" or "in trust for" should
only be used if the account is being established pursuant to a
legal, valid trust document. Use of such a designation in the
absence of a legal trust document may cause difficulties and
require court action for transfer or redemption of the funds.
Shares registered as joint tenants or "Jt Ten" shall mean "as
joint tenants with rights of survivorship" and not "as tenants in
common."
Except as indicated, a shareholder may transfer an account in the
Fund carried in "street" or "nominee" name by the shareholder's
securities dealer to a comparably registered Fund account
maintained by another securities dealer. Both the delivering and
receiving securities dealers must have executed dealer or similar
agreements on file with Distributors. Unless such agreement has
been executed and is on file with Distributors, the Fund will not
process the transfer and will so inform the shareholder's
delivering securities dealer. To effect the transfer, a
shareholder should instruct the securities dealer to transfer the
account to a receiving securities dealer and sign any documents
required by the securities dealer(s) to evidence consent to the
transfer. Under current procedures, the account transfer may be
processed by the delivering securities dealer and the Fund after
the Fund receives authorization in proper form from the
shareholder's delivering securities dealer. In the future it may
be possible to effect such transfers electronically through the
services of the NSCC.
The Fund may conclusively accept instructions from an owner or
the owner's nominee listed in publicly available nominee lists,
regardless of whether the account was initially registered in the
name of or by the owner, the nominee, or both. If a securities
dealer or other representative is of record on an investor's
account, the investor will be deemed to have authorized the use
of electronic instructions on the account, including, without
limitation, those initiated through the services of the NSCC, to
have adopted as instruction and signature any such electronic
instructions received by the Fund and the Shareholder Services
Agent and to have authorized them to execute the instructions
without further inquiry. At the present time, such services which
are available, include the NSCC's "Networking," "Fund/SERV," and
"ACATS" systems.
Any questions regarding an intended registration should be
answered by the securities dealer handling the investment, or by
calling Franklin's Fund Information Department.
IMPORTANT NOTICE REGARDING
TAXPAYER IRS CERTIFICATIONS
Pursuant to the Code and U.S. Treasury regulations, the Fund may
be required to report to the IRS any taxable dividend, capital
gain distribution, or other reportable payment and withhold 31%
of any such payments made to individuals and other non-exempt
shareholders who have not provided a correct taxpayer
identification number ("TIN") and made certain required
certifications that appear in the Shareholder Account Information
and Revision form. A shareholder may also be subject to backup
withholding if the IRS or a securities dealer notifies the Fund
that the TIN furnished by the shareholder is incorrect or that
the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a TIN along with the required
certifications and (2) close an account by redeeming its shares
in full at the then-current net asset value upon receipt of
notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a
shareholder who has completed an "awaiting TIN" certification to
provide the Fund with a certified TIN within 60 days after
opening the account.
FRANKLIN TEMPLETON MONEY FUND II
Franklin Templeton
Money Fund Trust
STATEMENT OF
ADDITIONAL INFORMATION
May 1[], 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
CONTENTS PAGE
The Fund (See also Prospectus
"About the Fund")
Additional Information Regarding
the Fund's Investment Objective
and Policies (See also the Prospectus
"Investment Objective and Policies
of the Fund")
Officers and Trustees
Administration and Other Services
(See also the Prospectus "Administration
of the Fund")
Policies Regarding Brokers Used on Portfolio
Transactions
Determination of Net Asset Value
(See also the Prospectus "Valuation
of Fund Shares")
Additional Information Regarding
Purchases and Redemptions of
Fund Shares
Additional Information Regarding
Distributions and Taxes
The Fund's Underwriter
General Information
Appendices
Financial Statements
A Prospectus for Franklin Templeton Money Fund II (the "Fund"),
an open-end, diversified series of the Franklin Templeton Money
Fund Trust (the "Trust"), a management investment company, dated
May 1 [], 1995, as may be amended from time to time, which
provides the basic information a prospective investor should know
before investing in the Fund may be obtained without charge from
the Fund or the Fund's principal underwriter, Franklin/Templeton
Distributors, Inc. ("Distributors"), at the address shown above
or by calling 1-800/DIAL BEN.
As explained in the Prospectus, The Fund offers only one class of
shares. The Fund is intended to be made available primarily as a
short-term or cash management investment option for investors in
Class II shares of other funds in the Franklin Templeton Group.
The distribution structure of the Fund and such Funds offering
Class II shares is similar and compliimentary in several
respects, including provions regarding contingent deferred sales
charges and Rule 12b-1 fees.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN THAT
SET FORTH IN THE PROSPECTUS. THIS STATEMENT IS INTENDED TO
PROVIDE AN INVESTOR WITH ADDITIONAL INFORMATION REGARDING THE
ACTIVITIES AND OPERATIONS OF THE FUND, AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S CURRENT PROSPECTUS.
THE FUND
Franklin Templeton Money Fund II is the only series of the Trust,
an open-end, diversified management investment company. The Trust
is a Delaware business trust organized on January []30, 1995.
Shares of the Fund may not be purchased directly. Shares may be
acquired only in exchange for Class II shares of other Franklin
Templeton Funds, and as result of the reinvestment of income
dividends and capital gains distributions in additional shares of
the Fund. The investment objectives of the Fund are capital
preservation, high current income, and liquidity. The Fund
invests all of its assets in The Money Market Portfolio (the
"Portfolio"). The Portfolio is a series of The Money Market
Portfolios, a separate open-end management investment company,
and is not part of the Fund. The Portfolio's assets will
generally be invested in money market instruments of various
types.
ADDITIONAL INFORMATION REGARDING THE
FUND'S INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Prospectus, the investment objective of the Fund
is to obtain for its investors the highest level of current
income consistent with liquidity and the preservation of capital.
The Fund seeks to achieve this objective by investing all of its
assets in the Portfolio. The Portfolio in turn invests primarily
in various types of money market instruments, such as U.S.
government and federal agency and instrumentality obligations,
certificates of deposit, bankers' acceptances, time deposits of
major financial institutions, high grade commercial paper, high
grade short-term corporate obligations, and repurchase agreements
(secured by U.S. government securities). The achievement of the
Portfolio's objective will depend on market conditions generally
and on its investment manager's analytical and portfolio
management skills. It should also be noted that because the
Portfolio is limiting its investments to high quality securities,
there will be a generally lower yield than if the Portfolio
purchased securities with a lower rating and correspondingly
greater risk. The value of the securities held will fluctuate
inversely with interest rates, and therefore there is no
assurance that the Portfolio's or the Fund's objective will be
achieved. The investment objective and policies of the Fund as
set forth herein are fundamental, and may not be changed without
the approval of a majority of the Fund's outstanding shares.
As stated in the Prospectus, the Portfolio may make loans of its
portfolio securities in accordance with guidelines adopted by the
Portfolio's Board of Trustees. The lending of securities is a
common practice in the securities industry. The Portfolio will
engage in security loan arrangements with the primary objective
of increasing the Portfolio's income either through investing the
cash collateral in short-term, interest bearing obligations or by
receiving loan premiums from the borrower. The Portfolio will
continue to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral
should the borrower of the security fail financially. The
Portfolio will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in
which its shares are qualified for sale. Loans will be subject to
termination by the Portfolio in the normal settlement time,
currently five business days after notice, or by the borrower on
one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the
borrowed securities which occurs during the term of the loan
inures to the Portfolio and its shareholders. The Portfolio may
pay reasonable finders', borrowers', administrative and custodial
fees in connection with a loan of its securities.
Because the Portfolio will not purchase any instrument with a
remaining maturity of greater than 397 calendar days, it is not
expected that there will be any reportable annual portfolio
turnover rate.
In addition, because of short-term variations in market or
business conditions, management's revised evaluation of a
portfolio security, or the need to obtain cash to meet
redemptions, the Portfolio may sell portfolio securities prior to
maturity. The Portfolio may also invest in deposits fully insured
by the U.S. government or its agencies or instrumentalities. Such
deposits may include deposits in banking and savings institutions
up to the limit (currently $100,000 per depository) of the
insurance on principal provided by the Federal Deposit Insurance
Corporation. Such deposits are frequently combined in larger
units by an intermediate bank or other institution.
The Fund has adopted the following restrictions as additional
fundamental policies of the Fund, which means that they may not
be changed without the approval of a majority of the outstanding
voting securities of the Fund. Under the Investment Company Act
of 1940 (the "1940 Act"), a "vote of a majority of the
outstanding voting securities" of the Fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares
of the Fund, or (2) 67% or more of the shares of the Fund present
at a shareholders' meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by
proxy. These restrictions provide that the Fund MAY NOT:
1. Borrow money or mortgage or pledge any of its assets, except
that borrowings (and a pledge of assets therefor) for
extraordinary 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 objectives and
policies of the Portfolio, (b) to the extent the entry into a
repurchase agreement is deemed to be a loan, or (c) by the loan
of its portfolio securities in accordance with the policies
described above.
3. Acquire, lease or hold real estate, including real estate
limited partnerships, 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, except that it
may purchase, hold and dispose of "obligations with puts
attached," or interests in oil, gas, or other mineral leases or
exploration or development programs.
6. Purchase securities in private placements or in other
transactions, for which there are legal or contractual
restrictions on resale, 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
objective 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 objectives 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
trustees, or any firm of which any officer or trustee 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,
trustees, or investment adviser own beneficially more than 1/2 of
1% of the securities of such issuer and all such officers and
trustees 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 its current 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.
If a percentage restriction contained herein is adhered to at the
time of investment, a later increase or decrease in percentage
resulting from a change in values of portfolio securities or
amount of net assets will not be considered a violation of any of
the foregoing restrictions.
As noted in the Prospectus, the Portfolio's trustees have elected
to value the Portfolio's assets in accordance with Rule 2a-7
under the 1940 Act. This rule also imposes various restrictions
on the Portfolio which are, in some cases, more restrictive than
the Portfolio's other stated fundamental policies and investment
restrictions. The rule provides that any fund which holds itself
out as a money market fund must follow certain portfolio
provisions of the rule regarding the maturity and quality of each
portfolio investment, and the diversity of such investments. The
restrictions imposed by Rule 2a-7 are fundamental policies of the
Portfolio and the Portfolio must comply with these provisions
unless its shareholders vote to change its policy of being a
money market fund. Notwithstanding the policy regarding options
set forth in Investment Restriction No. 5, the Fund will engage
in such transactions, if at all, only as permitted under
applicable state and federal law.
OFFICERS AND TRUSTEES
The Board of Trustees has the responsibility for the overall
management of the Fund, including general supervision and review
of its investment activities. The trustees, in turn, elect the
officers of the Fund who are responsible for administering the
day-to-day operations of the Fund. The affiliations of the
officers and trustees and their principal occupations for the
past five years are listed below. Trustees who are deemed to be
"interested persons" of the Fund, as defined in the 1940 Act, are
indicated by an asterisk (*).
Frank H. Abbott, III (74)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment
company); and director, trustee or managing general partner, as
the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
Harris J. Ashton (62)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board,
General Host Corporation (nursery and craft centers); Director,
RBC Holdings, Inc. (a bank holding company) and Bar-S Foods; and
director, trustee or managing general partner, as the case may
be, of 54 of the investment companies in the Franklin Templeton
Group of Funds.
S. Joseph Fortunato (52)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director
of General Host Corporation; director, trustee or managing
general partner, as the case may be, of 56 of the investment
companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director,
Berkeley Science Corporation (a venture capital company); and
director, trustee or managing general partner, as the case may
be, of 29 of the investment companies in the Franklin Group of
Funds (Registered Trademark).
*Charles B. Johnson (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the
Board and Director, Franklin Advisers, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton
Investor Services, Inc. and General Host Corporation; and officer
and/or director, trustee or managing general partner, as the case
may be, of most other subsidiaries of Franklin Resources, Inc.
and of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (54)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee
Executive Vice President and Director, Franklin Resources, Inc.
and Franklin Templeton Distributors, Inc.; President and
Director, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director, trustee or
managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 42 of the
investment companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66) []
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which
are General Partners of Peregrine Ventures and Peregrine Ventures
II (venture capital firms); Chairman of the Board and Director,
Quarterdeck Office Systems, Inc.; Director, FischerIImaging
Corporation; and director or trustee, as the case may be, of 25
of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (66)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services);
Director, Fund American Enterprises Holdings, Inc., Martin
Marietta Corporation, MCI Communications Corporation, MedImmune,
Inc. (biotechnology), Infovest Corporation (information
services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner,
as the case may be, of 51 of the investment companies in the
Franklin Templeton Group of Funds; formerly, Chairman, Hambrecht
and Quist Group, Director, H & Q Healthcare Investors, and
President, National Association of Securities Dealers, Inc.
Harmon E. Burns (50)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin
Resources, Inc.; Executive Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services,
Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee of 41 of the investment companies in the
Franklin Templeton Group of Funds.
Kenneth V. Domingues (62)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards and
Managing General Partner
Senior Vice President, Franklin Resources, Inc., Franklin
Advisers, Inc., and Franklin Templeton Distributors, Inc.;
officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and Oofficer and/or
managing general partner, as the case may be, of 36 of the
investment companies in the Franklin Group of Funds.
Martin L. Flanagan (34)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer,
Franklin Resources, Inc.; Executive Vice President, Templeton
Worldwide, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc.; Senior
Vice President, Franklin/Templeton Investor Services, Inc.;
officer of most other subsidiaries of Franklin Resources, Inc.;
and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Deborah R. Gatzek (46)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President - Legal, Franklin Resources, Inc. and
Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 36 of the investment companies in
the Franklin Group of Funds.
Diomedes Loo-Tam (55)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 36 of the
investment companies in the Franklin Group of Funds.
Edward V. McVey (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 31 of the investment companies
in the Franklin Group of Funds.
Thomas J. Runkel (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Employee of Franklin Advisers, Inc. and officer of three of the
funds in the Franklin Group of Funds.
Richard C. Stoker (63)
11615 Spring Ridge Rd.
Potomac, Maryland 20854
Vice President
Senior Vice President, Franklin Templeton Distributors, Inc.;
Vice President, Franklin Management, Inc.; and officer of four of
the funds in the Franklin Group of Funds.
R. Martin Wiskemann (67)
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, Treasurer and Director, ILA Financial Services,
Inc. and Arizona Life Insurance Company of America; and officer
and/or director, as the case may be, of 19 of the investment
companies in the Franklin Group of Funds.
The officers and trustees of the Fund are also officers and
trustees of The Money Market Portfolios, except as follows:
Charles E. Johnson, President and Trustee of The Money Market
Portfolios is not an officer or trustee of the Fund; Rupert H.
Johnson, Jr. is President and Trustee of the Fund and Vice
President and Trustee of The Money Market Portfolios; and Richard
C. Stoker and Thomas J. Runkel, Vice Presidents of the Fund are
not officers or trustees of The Money Market Portfolios.
Charles E. Johnson (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
President and Trustee of The Money Market Portfolios
President and Chief Executive Officer of Templeton Worldwide,
Inc.; Senior Vice President and Director, Franklin Resources,
Inc.; Senior Vice President, Franklin Templeton Distributors,
Inc.; President and Director, Franklin Institutional Services
Corporation; officer and/or director, as the case may be, of some
of the subsidiaries of Franklin Resources, Inc. and officer
and/or director or trustee, as the case may be, of 24 of the
investment companies in the Franklin Templeton Group of Funds.
Trustees not affiliated with the Fund's administrator are not now
but may, in the future, be paid fees of $500 per month plus $500
per meeting attended and be reimbursed for expenses incurred in
connection with attending such meetings. As indicated above,
certain of the trustees and officers hold positions with other
companies in the Franklin Templeton Group. As indicated above,
certain of the trustees and officers hold positions with other
companies in the Franklin Group of Fundsr and the Templeton Funds
("Franklin Templeton Funds"). The following table shows, among
other things, the total fees paid to the Fund's non-interested
trustees by other Franklin Templeton Funds for which they serve
as directors, trustees or managing general partners.
Number of Total Compensation
Franklin From Franklin
Templeton Templeton Funds*,
Funds on which including the
Name Each Served Trust *
Frank H. Abbott, 30 $176,870
III
Harris J. Ashton 54 $319,925
S. Joseph 56 $336,065
Fortunato
David W. 29 $153,300
Garbellano
Frank W.T. LaHaye 25 $150,817
Gordon S. Macklin 51 $303,685
* For the calendar and fiscal year ended December 31, 1994. The
Fund commenced operations on May []1, 1995. Accordingly, the
trustees received no compensations from the Fund made no payments
ffor the indicated period.
Non -affiliated trustees are also reimbursed for expenses
incurred in connection with attending Board meetings, paid pro
rata by each Franklin Templeton Fund for which they serve. No
officer or trustee received any other compensation directly from
the Fund.
Certain officers or trustees 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. Charles B. Johnson and Rupert H. Johnson, Jr. are
brothers and the father and uncle, respectively, of Charles E.
Johnson.
ADMINISTRATION AND OTHER SERVICES
The administrator of the Fund is Franklin Advisers, Inc.
("Advisers"). Advisers is a wholly-owned subsidiary of Franklin
Resources, Inc. ("Resources"), a publicly owned holding company
whose shares are listed on the New York Stock Exchange
("Exchange"). Resources owns several other subsidiaries which are
involved in investment management and shareholder services.
Advisers and other subsidiary companies of Resources currently
manage over $114 billion in assets for more than 3.7 million
shareholders. The preceding table indicates those officers and
trustees who are also affiliated persons of Distributors and
Advisers.
The Board of Trustees, with all disinterested trustees as well as
the interested trustees voting in favor, has adopted written
procedures designed to deal with potential conflicts of interest
which may arise from the fact of having substantially the same
persons serving on the Fund's Board of Trustees and The Money
Market Portfolios' Board of Trustees. The Board of Trustees has
determined that there are no conflicts of interest presented by
this arrangement at the present time. See Appendix A for a
summary of these procedures.
The Fund has entered into an administration agreement with
Advisers, effective May 1[], 1995, which provides for various
administrative, statistical, and other services for the Fund.
Pursuant to the administration agreement, the Fund is obligated
to pay Advisers (as administrator) a monthly fee equal to an
annual rate of 91/200 of 1% for the first $100 million of it's
average daily net assets; 33/100 of 1% of its net assets over
$100 million up to and including $250 million; and 7/25 of 1% of
its net assets in excess of $250 million.
Pursuant to a separate management agreement with The Money Market
Portfolios, Advisers provides investment research and portfolio
management services, including the selection of securities for
the Portfolio to purchase, hold or sell, and the selection of
brokers or dealers through whom the Portfolio's security
transactions are executed. Advisers' activities are subject to
the review and supervision of the Board of Trustees of The Money
Market Portfolios to whom Advisers renders periodic reports of
the investment activities of the Portfolio. Under the terms of
the management agreement, Advisers furnishes the Portfolio with
office space and office furnishings, facilities and equipment
required for managing the business affairs of the Portfolio;
maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain
telephone and other mechanical services. Advisers is covered by
fidelity insurance on its officers, directors and employees for
the protection of the Portfolio and the Fund. The Portfolio bears
all expenses related to its operation. The Portfolio, in which
the Fund invests all of its assets, is obligated to pay Advisers
a monthly fee equal to an annual rate of 15/100 of 1% of the
Portfolio's average net assets.
The management agreement specifies that the management fee will
be reduced to the extent necessary to comply with the most
stringent limits prescribed by any state in which the Portfolio's
shares are offered for sale. The most stringent current state
restriction limits a fund's allowable aggregate operating
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) in any fiscal
year to 2.5% of the first $30 million of average net assets of
the fund, 2% of the next $70 million of average net assets of the
fund and 1.5% of average net assets of each fund in excess of
$100 million. The Fund bears all expenses related to its
operation, as discussed in the Prospectus. Expense reductions
have not been necessary based on state requirements. There is no
management agreement for the Fund.
As noted in the Prospectus, Advisers has voluntarily agreed in
advance to waive a portion of its management fees from the
Portfolio and/or its administration fee from the Fund to ensure
that the total aggregate operating expenses of the Fund and the
Portfolio are not higher than what the Fund's total operating
expenses would have been under the terms of the management
agreement with the Fund.
The management agreement for the Portfolio is in effect until
February 28, 1996. Thereafter, it may continue in effect for
successive annual periods, provided such continuance is
specifically approved at least annually by a vote of The Money
Market Portfolios' Board of Trustees or by a vote of the holders
of a majority of the outstanding voting securities of the
Portfolio, and in either event by a majority vote of the trustees
of The Money Market Portfolios who are not parties to the
management agreement or interested persons of any such party
(other than as trustees of The Money Market Portfolios), cast in
person at a meeting called for that purpose. The management
agreement may be terminated without penalty at any time by the
Portfolio or by Advisers on 60 days' written notice and will
automatically terminate in the event of its assignment as defined
in the 1940 Act.
The contractual management fees which would have been incurred by
the Portfolio absent a fee reduction by Advisers for the
Portfolio's fiscal year ended June 30, 1994 and the five-month
period ended November 30, 1994, were $463,296 and $675,587
respectively. The management fees actually paid by the Portfolio
to Advisers for the Portfolio's fiscal year ended June 30, 1994
and the five-month period ended November 30, 1994, were $415,665
and $643,157, respectively.
Franklin/Templeton Investor Services, Inc. ("Investor Services"
or "Shareholder Services Agent"), a wholly-owned subsidiary of
Resources, is the shareholder servicing agent for the Fund and
acts as the Fund's transfer agent and dividend-paying agent.
Investor Services is compensated on the basis of a fixed fee per
account.
Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities
and other assets of the Portfolio and the cash assets of the
Fund. With respect to its other assets and securities, the Fund
acts as its own custodian. The custodians does not participate in
decisions relating to the purchase and sale of portfolio
securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Fund's independent auditors.
POLICIES REGARDING BROKERS USED
ON PORTFOLIO TRANSACTIONS
The Fund will not incur any brokerage or other costs in
connection with its purchase or redemption of shares of the
Portfolio. Under the Portfolio's management agreement with
Advisers, the selection of brokers and dealers to execute
transactions in the Portfolio's securities is made by Advisers in
accordance with criteria set forth in the management agreement
and any directions which the Board of Trustees of The Money
Market Portfolios may give.
Advisers makes the investment decisions and arranges for the
placement of buy and sell orders and the execution of portfolio
transactions for the Portfolio. In executing portfolio
transactions, Advisers seeks the most favorable prices consistent
with the best execution of the orders. So long as Advisers
believes it is obtaining the best execution, it will give
consideration in placing portfolio transactions to broker-dealers
furnishing research, statistical or factual information or wire
or other services to the Portfolio or Advisers, including
appraisals or valuations of portfolio securities of the
Portfolio. While the information and services provided by broker-
dealers are useful in varying degrees and would generally reduce
the amount of research or services otherwise performed by
Advisers and thus reduce its expenses, they are of indeterminable
value and will not reduce the management fees payable to Advisers
by the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio
may or may not purchase securities with the expectation of
holding them to maturity, although its general policy is to hold
securities to maturity. The Portfolio may, however, sell
securities prior to maturity to meet redemptions or as a result
of a revised management evaluation of the issuer. The Portfolio
does not anticipate that it will incur a significant amount of
brokerage expense because brokerage commissions are not normally
incurred on investments in short-term money market instruments
which are generally traded on a "net" basis, that is, in
principal amounts without the addition or deduction of brokerage
commissions or transfer taxes. During the fiscal years ended June
30, 1993 and 1994, and the five month period ended November 30,
1994, the Portfolio paid no brokerage commissions.
Purchases of portfolio securities may be made directly from
issuers or from underwriters. Where possible, purchase and sale
transactions will be effected through dealers (including banks)
which specialize in the types of securities which the Portfolio
will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for
their own account. Purchases from underwriters will include a
concession paid by the issuer to the underwriter and purchases
from dealers will include the spread between the bid and the ask
price. If the execution and price offered by more than one dealer
or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other
services as mentioned above. No broker or dealer affiliated with
the Fund, the Portfolio, or with Advisers may purchase securities
from, or sell securities to, the Fund or the Portfolio.
If purchases or sales of securities of the Portfolio and one or
more other investment companies or clients supervised by Advisers
are considered at or about the same time, transactions in such
securities will be allocated among the several investment
companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds
and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly 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 and to
negotiate lower brokerage commissions will be beneficial to the
Portfolio.
As of June 30, 1994, the Portfolio did not own securities of its
regular broker-dealers.
DETERMINATION OF NET ASSET VALUE
As noted in the Prospectus, the net asset value per share for
purposes of both the purchase and redemption of shares is
determined by the Fund on each day that the Exchange is open for
business. Valuation is currently made as of 3:00 p.m. Pacific
time. As of the date hereof, the Fund is informed that the
Exchange intends to close in observance of the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day. Net asset value per share of the Fund is calculated by
adding the value of all securities and other assets in the Fund's
portfolio (i.e., shares of the Portfolio), deducting the Fund's
liabilities, and dividing by the number of shares outstanding.
The valuation of the Portfolio's portfolio securities (including
any securities held in the separate account maintained for when-
issued securities) is based upon their amortized cost, which does
not take into account unrealized capital gains or losses. This
involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. 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 utilizing a method of valuation based upon market
prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Portfolio
resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher yield than would result from investment
in a fund utilizing solely market values, and existing investors
in the Portfolio would receive less investment income. The
converse would apply in a period of rising interest rates.
The Portfolio's use of amortized cost, which facilitates the
maintenance of the Portfolio's per share net asset value of
$1.00, is permitted by a rule adopted by the Securities and
Exchange Commission ("SEC"). Pursuant to this rule, the Portfolio
must adhere to certain conditions. The Portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less,
only purchase instruments having remaining maturities of 397
calendar days or less, and invest only in those United States
dollar-denominated instruments that The Money Market Portfolios'
Board of Trustees determines present minimal credit risks and
which are, as required by the federal securities laws, rated in
one of the two highest rating categories as determined by
nationally recognized statistical rating agencies, instruments
deemed comparable in quality to such rated instruments, or
instruments, the issuers of which, with respect to an outstanding
issue of short-term debt that is comparable in priority and
protection, have received a rating within the two highest
categories of nationally recognized statistical rating agencies.
As discussed in the Prospectus, securities subject to floating or
variable interest rates with demand features in compliance with
applicable rules of the SEC may have stated maturities in excess
of one year.
The trustees of The Money Market Portfolios have agreed to
establish procedures designed to stabilize, to the extent
reasonably possible, the Portfolio's price per share as computed
for the purpose of sales and redemptions at $1.00. Such
procedures will include review of the Portfolio's portfolio
holdings by the trustees, at such intervals as they may deem
appropriate, to determine whether the Portfolio's net asset value
calculated by using available market quotations deviates from
$1.00 per share based on amortized cost. The extent of any
deviation will be examined by the trustees. If such deviation
exceeds 1/2 of 1%, the trustees will promptly consider what
action, if any, will be initiated. In the event the trustees
determine that a deviation exists which may result in material
dilution or other unfair results to investors or existing
shareholders, they will take such corrective action as they
regard as necessary and appropriate, which may include the sale
of portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity,
withholding dividends, redemptions of shares in kind, or
establishing a net asset value per share by using available
market quotations.
ADDITIONAL INFORMATION
REGARDING PURCHASES AND
REDEMPTIONS OF FUND SHARES
EFFECTIVENESS OF PURCHASE ORDERS
The purchase price for shares of the Fund is the net asset value
of such shares next determined after receipt and acceptance of a
an exchange request in proper form. Once shares of the Fund are
purchased, they begin earning income immediately, and income
dividends will start being credited to the investor's account on
the day following the effective date of acquisition and continue
through the day all shares in the account are redeemed.
Request received by the Fund prior to 3:00 p.m. Pacific time on
any business day are normally effective on the same day. Request
received by the Fund after that time will normally be effective
on the next business day.
SHAREHOLDER ACCOUNTING
All purchases of Fund shares will be credited to the shareholder
in full and fractional shares of the Fund (rounded to the nearest
1/1000 of a share) in an account maintained for the shareholder
by the Fund's transfer agent. Share certificates will not be
issued. To open an account in the name of a corporation, a
resolution of the corporation's Board of Directors will be
required.
The Fund reserves the right to reject any order for the purchase
of shares of the Fund and to waive minimum investment
requirements. In addition, the offering of shares of the Fund may
be suspended at any time and resumed at any time thereafter.
The Fund may impose a $10 charge for each returned item ,
against any shareholder account which, in connection with the
purchase of Fund shares, submits a check or a draft which is
returned unpaid to the Fund.
SHAREHOLDER REDEMPTIONS
All requests for redemption should be sent to the Fund, c/o
Franklin/Templeton Investor Services, Inc., 777 Mariners Island
Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
Redemptions will be made in cash at the net asset value per share
next determined after receipt by the Fund of a redemption request
in proper form, including all signature guarantees, and other
documentation as may be required by the transfer agent. The
amount received upon redemption may be more or less than the
shareholder's original investment.
As discussed in the prospectus, Fund shares redeemed within
eighteen months of their purchase will generally be assessed a
contingent deferred sales charge of 1.00%. A contingent deferred
sales charge will not be assessed on Fund Shares held more than
eighteen months, or on shares originally derived from
reinvestment of dividends or capital gains distributions.
In determining whether a contingent deferred sales charge is
applicable, a calculation is used which determines the lowest
possible charge against the shareholder's investment in the Fund.
It will be assumed that a redemption is made (I) first from
amounts representing capital appreciation of shares purchased
that are still subject to the contingent deferred sales charge,
(ii) then from shares derived from reinvestment of dividends and
distributions, (iii) then from shares held by the shareholder
which are no longer subject to a contingent deferred sales
charge, and iv) finally from shares subject to a contingent
deferred sales charge, on a first-in, first-out basis.
The Fund will waive the contingent deferred sales charge for:
exchanges; distributions to participants in qualified retirement
plans due to death, disability of attainment of age 59 1/2; tax-
free returns of excess contributions to employee benefit plans;
distributions from employee benefit plans; redemptions through
Systematic Withdrawal Plans of up to 1% monthly, 3% quarterly, 6%
semiannually or 12% annually of the account value; and
redemptions initiated by the Fund due to a shareholder's account
falling below the mninimum specified account size.
The Fund will make payment for all redemptions within seven days
after receipt of such redemption request in proper form. The Fund
reserves the right, however, to suspend redemptions or postpone
the date of payment (1) for any periods during which the Exchange
is closed (other than for the customary weekend and holiday
closings), (2) when trading in the markets the Fund usually
utilizes is restricted or an emergency exists, as determined by
the SEC, so that disposal of the Fund's investments or the
determination of the Fund's net asset value is not reasonably
practicable, or (3) for such other periods as the SEC, by order,
may permit for the protection of the Fund's shareholders.
In connection with exchanges (see Prospectus "Exchange
Privilege"), it should be noted that since the proceeds from the
sale of shares of an investment company generally are not
available until the fifth business day following the redemption,
the Fund reserves the right to delay acquiring the shares of
another investment company pursuant to an exchange until said
fifth business day. The redemption of shares of the Fund to
complete an exchange for shares of any of the investment
companies will be effected at the close of business on the day
the request for exchange is received in proper form.
Use of the exchange privilege in conjunction with market timing
services offered through numerous securities dealers has become
increasingly popular as a means of capital management. In the
event that a substantial portion of the Fund's shareholders
should, within a short period, elect to redeem their shares of
the Fund pursuant to the exchange privilege, the Fund might have
to liquidate portfolio securities it might otherwise hold and
incur the additional costs related to such transactions.
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 such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for
redemption in excess of such amounts, the trustees reserve the
right to make payments in whole or in part in securities or other
assets of the Fund from which the shareholder is redeeming 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 such circumstances, the securities distributed would be
valued at the price used to compute the Fund's net asset value.
Should the Fund do so, a shareholder may incur brokerage fees in
converting the securities to cash.
As a condition of qualifying its securities for sell in the state
of Texas, the Fund has undertaken that, consistent with its by-
laws and applicable law, whenever the trustees of the Fund
determine that it is advisable to make a redemption in whole or
in part in securities of the Fund, such securities will be in
readily marketable securities, to the extent available.
REDEMPTIONS BY THE FUND
Due to the relatively high cost of handling small investments,
the Fund reserves the right to implement a policy whereby the
Fund would redeem, involuntarily, at net asset value, the shares
of any shareholder whose account has a value of less than one-
half of the initial minimum investment required for that
shareholder, but only where the value of such account has been
reduced by prior voluntary redemption of shares. Until further
notice, it is the present policy of the Fund not to exercise this
right with respect to any shareholder whose account has a value
of $50 or more. In any event, before the Fund implements such
policy and redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the
shares in the account is less than the minimum amount and allow
the shareholder 30 days to make an additional investment in an
amount which will increase the value of the account to at least
$100.
SPECIAL SERVICES
The Fund's Shareholder Services Agent may charge separate fees to
shareholders, to be negotiated directly with such shareholders,
for providing special services in connection with their accounts.
Such fees for special services to such shareholders will not
increase the expenses borne by the Fund.
Investor Services may pay certain financial institutions which
maintain omnibus accounts with the Fund on behalf of numerous
beneficial owners for recordkeeping operations performed with
respect to such beneficial owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an
amount not to exceed the per account fee which the Fund normally
pays Investor Services. Such financial institutions may also
charge a fee for their services directly to their clients.
ADDITIONAL INFORMATION
REGARDING DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Distributions and distribution adjustments resulting from
realized gains and losses on the sale of portfolio securities or
from unrealized appreciation or depreciation in the value of
portfolio securities are required by the Portfolio to maintain a
$1.00 net asset value and may result in under or over
distributions of investment company taxable income by the
Portfolio to the Fund.
The Fund's daily dividend is derived from the income dividends
paid by the Portfolio. The Portfolio may also derive capital
gains and losses in connection with sales or other dispositions
of its portfolio securities, which are then taken into account in
determining distributions to the Fund, which may then be
distributed to Fund shareholders. Because the Portfolio, however,
under normal circumstances invests in short-term securities, it
does not expect to realize any long-term capital gains or losses.
Any net short-term or long-term capital gains which are realized
by the Portfolio (adjusted for any daily amounts of unrealized
appreciation or depreciation reported above and taking into
account any capital loss carryovers) will generally be
distributed to the Fund once each year and may be distributed
more frequently if necessary in order to avoid federal excise
taxes. Any distributions of capital gain to Fund shareholders
will also be reinvested in the form of additional Fund shares at
net asset value, unless the shareholder has previously elected on
the Shareholder Account Information and Revision form or filed
written instructions with the Fund's transfer agent to have them
paid in cash.
As noted in the Prospectus, the Fund declares dividends for each
day that the Fund's net asset value is calculated equal to all of
its daily income dividends from the Portfolio, payable to
shareholders of record as of the close of business the preceding
day.
Shareholders who so request may have their dividends paid out
monthly in cash. The shares reinvested and credited to their
account during the month will be redeemed as of the close of
business on the last bank business day of the month and the
proceeds will be paid to them in cash. If a shareholder withdrew
the entire amount in an account at any time during the month,
all dividends accrued with respect to such account during the
month to the time of withdrawal would be paid in the same manner
and at the same time as the proceeds of withdrawal. The Fund
shareholder will receive a monthly summary of the account,
including information as to dividends reinvested or paid.
The Board of Trustees reserves the right to revise the above
dividend policy or postpone the payment of dividends, if
warranted in its judgment, due to unusual circumstances, such as
a large expense, loss or unexpected fluctuation in net assets.
Dividend checks which are returned to the Fund marked "unable to
forward" by the postal service will be deemed to be a request to
change the dividend option and the proceeds will be reinvested in
additional shares until new instructions are received.
The Fund may deduct from a shareholder's account the costs of its
efforts to locate a shareholder if the shareholder's mail is
returned as undeliverable or the Fund is otherwise unable to
locate the shareholder or verify the current mailing address.
These costs may include a percentage of the account when a search
company charges a percentage fee in exchange for its location
services.
TAXATION
As stated in the Prospectus, the Fund intends to qualify and
elect and the Portfolio has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue
Code of 1986, (the "Code"), as amended. The trustees reserve the
right not to maintain the qualification of the Fund as a
regulated investment company if they determine such course of
action to be beneficial to the shareholders. In such case, the
Fund will be subject to federal and possibly state corporate
taxes on its taxable income and gains derived from the Portfolio,
and distributions to shareholders will be ordinary dividend
income to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their
taxable ordinary income earned during the calendar year and at
least 98% of their capital gain net income earned during the
twelve-month period ending October 31 of each year (in addition
to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in
order to avoid the imposition of a federal excise tax. Under
these rules, certain distributions which are declared in December
but which, for operational reasons, may not be paid to the
shareholder until the following January, will be treated for tax
purposes as if paid by the Fund and received by the shareholder
on December 31 of the calendar year in which they are declared.
The Fund intends as a matter of policy to declare and pay these
dividends in December to avoid the imposition of this tax, but
does not guarantee that its distributions will be sufficient to
avoid any or all federal excise taxes.
Distributions to Fund shareholders, which are derived from the
Portfolio from the excess of net long-term capital gain over net
short-term capital loss, are treated as long-term capital gain
regardless of the length of time the shareholder has owned Fund
shares and regardless of whether such distributions are received
in cash or in additional shares.
Many states grant tax-free status to dividends paid to
shareholders of mutual funds from interest income earned by the
fund from direct obligations of the U.S. government, subject in
some states to minimum investment requirements that must be met
by the fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements
collateralized by U.S. government securities do not generally
qualify for tax-free treatment. At the end of each calendar year,
the Fund will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment.
Shareholders should then consult with their own tax advisors with
respect to the application of their state and local laws to these
distributions.
Since the Fund's income is derived from income dividends of the
Portfolio, rather than qualifying dividend income derived from
certain domestic corporations, no portion of the Fund's
distributions will generally be eligible for the corporate
dividends-received deduction.
The sale of shares of the Fund, either by redemption or exchange,
is a taxable event and may result in a capital gain or loss. Any
loss incurred on the sale or exchange of the Fund's shares, held
for six months or less, will be treated as a long-term capital
loss to the extent of capital gain dividends received with
respect to such shares. However, since the Fund seeks to maintain
a stable $1.00 share price for both purchases and redemptions,
shareholders are not expected to realize a capital gain or loss
upon sale.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement in effect until []April 30,
19976, Distributors acts as principal underwriter in a continuous
public offering for shares of the Fund.
Distributors pays the expenses of 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 underwriting agreement will continue in effect for successive
annual periods provided that its continuance is specifically
approved at least annually by a vote of the Fund's Board of
Trustees or by a vote of the holders of a majority of the Fund's
outstanding voting securities, and in either event by a majority
vote of the Fund's trustees who are not parties to the
underwriting agreement or interested persons of any such party
(other than as trustees of the Fund), cast in person at a meeting
called for that purpose. The underwriting agreement terminates
automatically in the event of its assignment and may be
terminated by either party on 90 days' written notice.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") pursuant to
Rule 12b-1 under the 1940 Act (the "Plan") whereby the Fund may
pay up to a maximum of 0.65% per annum of its average daily net
assets for expenses incurred in the promotion and distribution of
its shares.
Pursuant to the Plan, the Fund is permitted to pay to
Distributors or others annual distribution fees, each payable
quarterly (up to the maximum as stated above) in order to
compensate Distributors or others for providing distribution and
related services and bearing certain expenses of the Fund,
including, but not limited to, the printing of prospectuses and
reports used for sales purposes, expenses of preparing and
distributing sales literature and related expenses,
advertisements, and other distribution-related expenses,
including a prorated portion of Distributors' overhead expenses
attributable to the distribution of Fund shares, as well as any
distribution or service fees paid to securities dealers or their
firms or others who have executed a servicing agreement with the
Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are
entitled under the Plan, the Plan also provides that to the
extent the Fund, Advisers or Distributors or other parties on
behalf of the Fund, Advisers or Distributors, make payments that
are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of the Fund
within the context of Rule 12b-1 under the 1940 Act, then such
payments shall be deemed to have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which
include payments made under the Plan, plus any other payments
deemed to be made pursuant to the Plan, exceed the amount
permitted to be paid pursuant to the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4.
The terms and provisions of the Plan relating to required
reports, term, and approval are consistent with Rule 12b-1. The
Plan does not permit unreimbursed expenses incurred in a
particular year to be carried over to or reimbursed in subsequent
years.
To the extent fees are for distribution or marketing functions,
as distinguished from administrative servicing or agency
transactions, certain banks will not be entitled to participate
in the Plan as a result of applicable federal law prohibiting
certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to
receive fees under the Plan for administrative servicing or for
agency transactions. If a bank were prohibited from providing
such services, its customers who are shareholders would be
permitted to remain shareholders of the Fund, and alternate means
for continuing the servicing of such shareholders would be
sought. In such an event, changes in the services provided might
occur and such shareholders might no longer be able to avail
themselves of any automatic investment or other services then
being provided by the bank. It is not expected that shareholders
would suffer any adverse financial consequences as a result of
any of these changes. Securities laws of states in which the
Fund's shares are offered for sale may differ from the
interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required
to register as dealers pursuant to state law.
The Plan was approved by shareholders on []April 28, 1995 and by
the trustees of the Fund, including those trustees who are not
interested persons, as defined in the 1940 Act, at a meeting of
the fund's Board of Trustees, on April 18, 1995. The Plan is
effective for an initial period through April 30[], 1996 and is
renewable annually by a vote of the Fund's Board of Trustees,
including a majority vote of the trustees who are non-interested
persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan, cast in person at a
meeting called for that purpose. It is also required that the
selection and nomination of such trustees be done by the non-
interested trustees. The Plan and any related agreement may be
terminated at any time, without any penalty, by vote of a
majority of the non-interested trustees on not more than 60 days'
written notice, by Distributors on not more than 60 days' written
notice, by any act that constitutes an assignment of the
Administration agreement with the Advisers or by vote of a
majority of the Fund's outstanding shares. Distributors or any
dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written
notice.
The Plan and any related agreements may not be amended to
increase materially the amount to be spent for distribution
expenses without approval by a majority of the Fund's outstanding
shares, and all material amendments to the Plan or any related
agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of
voting on any such amendment.
Distributors is required to report in writing to the Board of
Trustees at least quarterly on the amounts and purpose of any
payment made under the Plan and any related agreements, as well
as to furnish the Board of Trustees with such other information
as may reasonably be requested in order to enable the Board of
Trustees to make an informed determination of whether the Plan
should be continued.
GENERAL INFORMATION
PERFORMANCE
As noted in the Prospectus, the Fund may, from time to time,
quote various performance figures to illustrate the Fund's past
performance.
CURRENT YIELD
Current yield reflects the interest income per share earned by
the Fund's portfolio investments.
Current yield is computed by determining the net change,
excluding capital changes, in the value of a hypothetical pre-
existing account having a balance of one share at the beginning
of the period, 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, and then annualizing the result
by multiplying the base period return by (365/7).
EFFECTIVE YIELD
Effective yield is computed in the same manner except that the
annualization of the return for the seven-day period reflects the
results of compounding by adding one to the base period return,
raising the sum to a power equal to 365 divided by seven, and
subtracting one from the result.
Effective yield is obtained by using the SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
COMPARISONS
To help investors better evaluate how an investment in the Fund
might satisfy their investment objective, advertisements and
other materials regarding the Fund may discuss various measures
of Fund performance as reported by various financial
publications. Materials may also compare performance (as
calculated above) to performance as reported by other
investments, indices, and averages. Such comparisons may include,
but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report (Registered Trademark) -
Industry averages for seven-day annualized and compounded yields
of taxable, tax-free, and government money funds.
b) Bank Rate Monitor - A weekly publication which reports various
bank investments such as CD rates, average savings account rates
and average loan rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed
Income Fund Performance Analysis and Lipper - Mutual Fund Yield
Survey - measure total return and average current yield for the
mutual fund industry and rank individual mutual fund performance
over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - A weekly publication
which reviews yield spread changes in the major sectors of the
money, government agency, futures, options, mortgage, corporate,
Yankee, Eurodollar, municipal, and preferred stock markets and
summarizes changes in banking statistics and reserve aggregates.
e) Consumer Price Index (or Cost of Living Index), published by
the U.S. Bureau of Labor Statistics - a statistical measure of
change, over time, in the price of goods and services, in major
expenditure groups.
f) Stocks, bonds, Bills, and Inflation published by Ibbotson
Associates - a historical measure of yield, price, and total
return for common and small company stock, long term government
bonds, Treasury bills, and inflation.
g) Financial publications: The Wall Street Journal and Business
Week, Changing Times, Financial World, Forbes, Fortune, and Money
Magazines - provide performance statistics over specified time
periods.
In assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the
reported indices and averages is not identical to the Fund's
portfolio, that the indices and averages are generally unmanaged,
and that the items included in the calculations of such 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 this performance as compared to such other
averages.
The Fund may include in its advertising or sales material
information relating to investment objectives and performance
results of funds belonging to the Templeton Funds. Resources is
the parent company of the advisers and underwriter of both the
Franklin Funds and Templeton Funds.
OTHER FEATURES AND BENEFITS
The Fund may help investors achieve various investment goals,
such as accumulating money for retirement, saving for a down
payment on a home, college cost and/or other long-term goals. The
Franklin College Costs Planner may assist an investor 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 an investor through the
steps to start a retirement savings program. Of course, an
investment in the Fund cannot guarantee that such goals will be
met.
REPORTS TO SHAREHOLDERS
As noted in the prospectus, the Fund sends annual and semi-annual
reports to its shareholders regarding the Fund's performance and
its portfolio holdings. Shareholders who would like to receive a
quarterly report on portfolio holdings of the Portfolio may phone
our Fund Information Department, at the number set forth in the
prospectus under "How to Get Information Regarding an Investment
in the Fund."
MISCELLANEOUS INFORMATION
The Fund is a member of the Franklin Templeton Group, one of the
largest mutual fund organizations in the United States and may be
considered in a program for diversification of assets. Founded in
1947, Franklin, one of the oldest mutual fund organizations, has
managed mutual funds for over 47 years and now services more than
2.5 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 Worldwide,
Inc., a pioneer in international investing. Together, the
Franklin Templeton Group has over $114 billion in assets under
management for more than 3.7 million shareholder accounts and
offers over 111 U.S.-based mutual funds. The Fund may identify
itself by its NASDAQ or CUSIP number.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin
number one in service quality for five of the past seven years.
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, the only entity holding beneficially or of record
more than 5% of the Fund's outstanding shares is Franklin
Resources, Inc., 777 Mariners Island Boulevard, San Mateo,
California 94404 which provided the initial capital of the Fund.
Access persons of the Franklin Templeton Group, as defined in SEC
Rule 17(j) under the 1940 Act, who are employees of Franklin
Resources, Inc. or its theirsubsidiaries, are permitted to engage
in personal securities transactions subject to the following
general restrictions and procedures: (1) the trade must receive
advance clearance from a Compliance Officer and must be completed
within 24 hours after this clearance; (2) copies of all brokerage
confirmations must be sent to the Compliance Officer and within
10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the Compliance
Officer; (3) in addition to items (1) and (2), access persons
involved in preparing and making investment decisions must file
annual reports of their securities holdings each January and also
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.
OWNERSHIP AND AUTHORITY DISPUTES
In the event of disputes involving multiple claims of ownership
or authority to control a shareholder's 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, prior to
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 Internal Revenue Service in response to a
Notice of Levy.
APPENDIX A
SUMMARY OF PROCEDURES TO MONITOR CONFLICTS OF INTEREST
The Board of Trustees of The Money Market Portfolios, on behalf
of its series ("master fund[s]"), and the Board of Trustees of
the Fund ("feeder fund"), (both of which, except in the case of
one trustee, are composed of the same individuals) recognize that
there is the potential for certain conflicts of interest to arise
between the master fund and the feeder fund in this format. Such
potential conflicts of interest could include, among others: the
creation of additional feeder funds with different fee
structures; the creation of additional feeder funds which could
have controlling voting interests in any pass-through voting
which could affect investment and other policies; a proposal to
increase fees at the master fund level; and any consideration of
changes in fundamental policies at the master fund level which
may or may not be acceptable to a particular feeder fund.
In recognition of the potential for conflicts of interest to
develop, the Board of Trustees of the Trust and The Money Market
Portfolio have adopted certain procedures, pursuant to which i)
management of the master fund and the feeder fund will, on a
yearly basis, report to each board, including the independent
members of each board, on the operation of the master/feeder fund
structure; ii) the independent trustees will have ongoing
responsibility for reviewing all proposals at the master fund
level to determine whether any proposal presents a potential for
a conflict of interest and to the extent any other potential
conflicts arise prior to the normal annual review, they will act
promptly to review the potential conflict; iii) if the
independent trustees determine that a situation or proposal
presents a potential conflict, they will request a written
analysis from the master fund management describing whether such
apparent potential conflict of interest will impede the operation
of the constituent feeder fund and the interests of the feeder
fund's shareholders; and iii) upon receipt of the analysis, such
trustees shall review the analysis and present their conclusion
to the full boards.
If no actual conflict is deemed to exist, the independent
trustees will recommend that no further action be taken. If the
analysis is inconclusive, they may submit the matter to and be
guided by the opinion of an independent legal counsel issued in a
written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following courses of action: i)
suggest a course of action designed to eliminate the potential
conflict of interest; ii) if appropriate, request that the full
boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected
feeder fund no longer invest in its designated master fund and
propose either a search for a new master fund in which to invest
the feeder fund's assets or the hiring of an investment manager
to manage the feeder fund's assets in accordance with its
objectives and policies; iv) recommend to the boards that a new
group of trustees be recommended to the shareholders of the Trust
and The Money Market Portfolios for approval; or v) recommend
such other action as may be considered appropriate.
APPENDIX B
A-1, A-2 AND PRIME-1, PRIME-2
COMMERCIAL PAPER RATINGS:
Commercial paper rated by Standard & Poor's Corporation, a
nationally recognized statistical rating organizations ("NRSRO"),
has the following characteristics: Liquidity ratios are adequate
to meet cash requirements. Long-term senior debt is rated "A" or
better. The issuer has access to at least two additional channels
of borrowing. Basic earnings and cash flow have an upward trend
with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of
management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's commercial paper is
rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial
paper ratings assigned by Moody's Investor Services, Inc.
("Moody's"). Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of
the issuer; (2) economic evaluation of the issuer's industry or
industries and an appraisal of speculative-type risks which may
be inherent in certain areas; (3) evaluation of the issuer's
products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of
earnings over a period of ten years; (7) financial strength of a
parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations, and
preparations to meet such obligations, which may be present or
may arise as a result of public interest questions. Relative
strength or weakness of the above factors determines whether the
issuer's commercial paper is rated Prime-1 or Prime-2.
Coopers & Lybrand L.L.P.
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustee of
Franklin Templeton Money Fund Trust:
We have audited the accompanying statement of assets and
liabilities of Franklin Templeton Money fund Trust as of April
13, 1995. This financial statement is the responsibility of the
Trust's management. Our responsibility is to express an opinion
on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statement is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. Our
procedures included confirmation of cash held as of April 13,
1995 with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the financial position
of Franklin Templeton Money Fund Trust as of April 13, 1995 in
conformity with generally accepted accounting principles.
San Francisco, California
April 17, 1995
FRANKLIN TEMPLETON MONEY FUND TRUST
FRANKLIN TEMPLETON MONEY FUND II
Statement of Assets and Liabilities
April 13, 1995
Assets:
Cash held by custodian $100,000
_______
Net Assets $100,000
_______
Shares of beneficial interest, $0.01 par value,
unlimited shares authorized 100,000
_______
Net asset value per share $ 1.00
______
Net asset value, and redemption price
per share ($100,000/100,000) $ 1.00
______
Note: Franklin Templeton Money Fund II ("the Fund") is an open-
end, diversified series of the Franklin Templeton Money Fund
Trust, a management investment company registered under the
Investment Company Act of 1940 and organized a Delaware business
trust on January 30, 1995. As part of its organization, the Fund
has issued, in a private placement, 100,000 shares of beneficial
interest to Franklin Resources, Inc. at $1.00 per share. These
shares have been designated as "initial shares".
