PROSPECTUS
FRANKLIN
TEMPLETON MONEY FUND
FRANKLIN TEMPLETON
MONEY FUND TRUST
CLASS B & C
INVESTMENT STRATEGY INCOME
NOVEMBER 1, 1999
[Insert Franklin Templeton Ben Head]
The SEC has not approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
CONTENTS
THE FUND
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INFORMATION ABOUT THE FUND YOU SHOULD
KNOW BEFORE INVESTING
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2 Goal and Strategies
3 Main Risks
5 Performance
6 Fees and Expenses
8 Management
9 Distribution and Taxes
10 Financial Highlights
YOUR ACCOUNT
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INFORMATION ABOUT ACCOUNT TRANSACTIONS
AND SERVICES
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11 Buying Shares
13 Investor Services
15 Selling Shares
18 Account Policies
20 Questions
FOR MORE INFORMATION
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WHERE TO LEARN MORE ABOUT THE FUND
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Back Cover
THE FUND
[Insert graphic of bullseye and arrows] GOAL AND STRATEGIES
GOAL The fund's investment goal is to provide investors with as high a level
of current income as is consistent with the preservation of shareholders'
capital and liquidity. The fund also tries to maintain a stable
$1 share price.
PRINCIPAL INVESTMENTS The fund normally invests in high-quality, short-term
money market securities of domestic and foreign issuers, including U.S.
government securities, repurchase agreements, bank obligations and commercial
paper.
U.S. GOVERNMENT SECURITIES include marketable fixed, floating and variable
rate securities issued or guaranteed by the U.S. government or its agencies,
or by various instrumentalities that have been established or sponsored by
the U.S. government.
A REPURCHASE AGREEMENT is an agreement to buy a security and then to sell the
security back after a short period of time (generally, less than seven days)
at a higher price.
BANK OBLIGATIONS, and instruments secured by bank obligations, include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, bank notes and bankers' acceptances.
COMMERCIAL PAPER typically refers to short-term obligations of banks,
corporations and other borrowers with maturities of up to 270 days.
The fund maintains a dollar-weighted average portfolio maturity of 90 days or
less and only buys securities:
o with remaining maturities of 397 days or less, and
o that the manager determines present minimal credit risks and are rated
in the top two short-term ratings by U.S. nationally recognized rating
services (or comparable unrated securities).
[Insert graphic of chart with line going up and down] MAIN RISKS
INCOME Since the fund can only distribute what it earns, the fund's
distributions to shareholders may decline when interest rates fall. Because
the fund limits its investments to high-quality, short-term securities, its
portfolio generally will earn lower yields than a portfolio with
lower-quality, longer-term securities subject to more risk.
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Income risk is the risk that a fund's income will decrease due to falling
interest rates.
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CREDIT There is the possibility that an issuer will be unable to make
interest payments and repay principal. Changes in an issuer's financial
strength or in a security's credit rating may affect a security's value.
INTEREST RATE When interest rates rise, security prices fall. The opposite is
also true: security prices rise when interest rates fall. In general,
securities with longer maturities are more sensitive to these price changes.
MARKET A security's value may be reduced by market activity or
the results of supply and demand. This is a basic risk associated with all
securities. When there are more sellers than buyers, prices tend to fall.
Likewise, when there are more buyers than sellers, prices tend to rise.
YEAR 2000 When evaluating current and potential portfolio positions, Year
2000 is one of the factors the manager considers.
The manager will rely upon public filings and other statements made by
issuers about their Year 2000 readiness. Issuers in countries outside the
U.S. may be more susceptible to Year 2000 risks and may not be required to
make the same level of disclosure about Year 2000 readiness as is required in
the U.S. The manager, of course, cannot audit each issuer and its major
suppliers to verify their Year 2000 readiness.
If an issuer in which the fund is invested is adversely affected by Year 2000
problems, it is likely that the price of its securities also will be
adversely affected. Please see page 8 for more information.
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Mutual fund shares are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other agency of the
U.S. government. Although the fund tries to maintain a $1 share price, it is
possible to lose money by investing in the fund.
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MASTER/FEEDER STRUCTURE The fund seeks to achieve its investment goal by
investing all of its assets in shares of The Money Market Portfolio
(Portfolio). The Portfolio has the same investment goal and substantially
similar investment policies as the fund. The fund buys shares of the
Portfolio at net asset value. An investment in the fund is an indirect
investment in the Portfolio.
It is possible that the fund may have to withdraw its investment in the
Portfolio if the Portfolio changes its investment goal or if the fund's Board
of Trustees, at any time, considers it to be in the fund's best interest.
More detailed information about the fund, its policies, risks and short-term
debt ratings can be found in the fund's Statement of Additional Information
(SAI).
[Insert graphic of bull and bear] PERFORMANCE
This bar chart and table show the volatility of the fund's returns, which is
one indicator of the risks of investing in the fund. The bar chart shows
changes in the fund's returns from year to year over the past 3 calendar
years. The table shows the fund's average annual total returns. Of course,
past performance cannot predict or guarantee future results.
CLASS C ANNUAL TOTAL RETURNS1
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BEST
QUARTER:
Q3 '98
1.09%
WORST QUARTER:
Q2 '96
1.01%
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AVERAGE ANNUAL TOTAL RETURNS
For the periods ended December 31, 1998
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96 97 98
4.22% 4.36% 4.37%
YEAR
SINCE
INCEPTION
1 Year (5/1/95)
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Franklin Templeton Money Fund - Class C 3.37% 4.25%
1. As of September 30, 1999, the fund's year-to-date return was 2.97%.
All fund performance assumes reinvestment of dividends.
To obtain the fund's current yield information, please call 1-800/DIAL BEN(R).
[Insert graphic of percentage sign] FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the fund.
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS B 1 CLASS C 2
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Maximum sales charge (load) on purchases None None
Maximum deferred sales charge (load) 4.00% 1.00%
Exchange fee 3 $5.00 $5.00
Please see "Selling Shares" on page 15 for an explanation of how and when the
deferred sales charge applies.
ANNUAL FUND OPERATING EXPENSES (EXPENSES DEDUCTED FROM FUND ASSETS) 4
CLASS B 1 CLASS C 2
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Management fees 5 0.60% 0.60%
Distribution and service (12b-1) fees 6 0.60% 0.56%
Other expenses 0.26% 0.26%
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Total annual fund operating expenses5 1.46% 1.42%
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1. The fund began offering Class B shares on January 1, 1999. Annual fund
operating expenses are based on the expenses for Class C for the fiscal year
ended June 30, 1999. The Rule 12b-1 fees are based on the maximum fees
allowed under Class B's Rule 12b-1 plan.
2. Before January 1, 1999, Class C shares were designated Class II.
3. This fee is for market timers (see page 19).
4. The annual fund operating expenses shown and included in the example below
reflect the expenses of both the fund and the Money Market Portfolio.
5. For the fiscal year ended June 30, 1999, the manager had agreed in advance
to limit its management fees and to assume as its own expense certain
expenses otherwise payable by the fund. With this reduction, management fees
were 0.40% and total annual fund operating expenses were 1.26% for Class B
and 1.22% for Class C. The manager may end this arrangement at any time upon
notice to the fund's Board of Trustees.
6. Because of the distribution and service (12b-1) fees, over the long term
you may indirectly pay more than the equivalent of the maximum permitted
initial sales charge.
EXAMPLE
This example can help you compare the cost of investing in the fund with the
cost of investing in other mutual funds. It assumes:
o You invest $10,000 for the periods shown;
o Your investment has a 5% return each year; and
o The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
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If you sell your shares at the end of
the period:
CLASS B $549 $762 $997 $1,347
CLASS C $245 $449 $776 $1,702
If you do not sell your shares:
CLASS B $149 $462 $797 $1,347
CLASS C $145 $449 $776 $1,702
[Insert graphic of briefcase] MANAGEMENT
Franklin Advisers, Inc. (Advisers), 777 Mariners Island Blvd., San Mateo, CA
94404, is the Portfolio's investment manager and the fund's administrator.
Together, Advisers and its affiliates manage over $222 billion
in assets.
The Portfolio pays Advisers a fee for managing the Portfolio's assets and
making its investment decisions. For the fiscal year ended June 30, 1999, the
fund's share of the Portfolio's management fees was 0.15% of the fund's
average daily net assets.
YEAR 2000 PROBLEM The fund's business operations depend on a worldwide
network of computer systems that contain date fields, including securities
trading systems, securities transfer agent operations and stock market links.
Many of the systems currently use a two digit date field to represent the
date, and unless these systems are changed or modified, they may not be able
to distinguish the Year 1900 from the Year 2000 (commonly referred to as the
Year 2000 problem). In addition, the fact that the Year 2000 is a leap year
may create difficulties for some systems.
When the Year 2000 arrives, the fund's operations could be adversely affected
if the computer systems used by the manager, its service providers and other
third parties it does business with are not Year 2000 ready. For example, the
fund's portfolio and operational areas could be impacted, including
securities trade processing, interest and dividend payments, securities
pricing, shareholder account services, reporting, custody functions and
others. The fund could experience difficulties in effecting transactions if
any of its foreign subcustodians, or if foreign broker-dealers or foreign
markets are not ready for Year 2000.
The manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to address their
Year 2000 problems. Of course, the fund's ability to reduce the effects of
the Year 2000 problem is also very much dependent upon the efforts of third
parties over which the fund and the manager may have no control.
[Insert graphic of dollar signs and stacks of coins] DISTRIBUTIONS AND TAXES
INCOME DISTRIBUTIONS The fund typically pays income dividends each day that
its net asset value is calculated. Your account may begin to receive
dividends on the day after we receive your investment and will continue to
receive dividends through the day we receive a request to sell your shares.
The amount of these dividends will vary and there is no guarantee the fund
will pay dividends.
TAX CONSIDERATIONS In general, fund distributions are taxable to you as
ordinary income. This is true whether you reinvest your distributions in
additional fund shares or receive them in cash.
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BACKUP WITHHOLDING
By law, the fund must withhold 31% of your taxable distributions and proceeds
if you do not provide your correct social security or taxpayer identification
number, or if the IRS instructs the fund to do so.
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Every January, you will receive a statement that shows the tax status of
distributions you received for the previous year. Distributions declared in
December but paid in January are taxable as if they were paid
in December.
For tax purposes, an exchange of your fund shares for shares of a different
Franklin Templeton Fund is the same as a sale. Because the fund expects to
maintain a stable $1 share price, you should not have any gain or loss if you
sell your fund shares.
Fund distributions generally will be subject to state and local income tax.
It is anticipated that no portion of fund distributions will qualify for
exemption from state and local taxes as dividends paid from interest earned
on direct obligations of the U.S. government. Non-U.S. investors may be
subject to U.S. withholding and estate tax. You should consult your tax
advisor about the federal, state, local or foreign tax consequences of your
investment in the fund.
[Insert graphic of dollar bill] FINANCIAL HIGHLIGHTS
This table presents the fund's financial performance for the past five years.
This information has been audited by PricewaterhouseCoopers LLP.
CLASS B YEAR ENDED JUNE 30,
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1999 1 1998 1997 1996 1995 2
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PER SHARE DATA ($)
Net asset value, beginning of year 1.00
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Net investment income .019
Distributions from net investment (.019)
income
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Net asset value, end of year 1.00
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Total return (%) 3 1.88
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 762
Ratios to average net assets: (%)
Expenses 5 1.26 4
Expenses excluding waiver and
payments by affiliate 5 1.46 4
Net investment income 3.73 4
CLASS C
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PER SHARE DATA ($)
Net asset value, beginning of year 1.00 1.00 1.00 1.00 1.00
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Net investment income .040 .043 .042 .039 .007
Distributions from net investment (.040) (.043) (.042) (.039)(.007)
income
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Net asset value, end of year 1.00 1.00 1.00 1.00 1.00
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Total return (%) 3 4.08 4.43 4.29 3.96 0.73
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year ($ x 1,000) 77,667 38,538 9,724 4,510 152
Ratios to average net assets: (%)
Expenses 5 1.22 1.25 1.25 1.40 1.83 4
Expenses excluding waiver and
payments by affiliate 5 1.42 1.45 1.59 2.67 1.84 4
Net investment income 4.00 4.39 4.26 4.00 4.42 4
1. For the period January 1, 1999 (effective date) to June 30, 1999, for
Class B.
2. For the period April 13, 1995 (effective date) to June 30, 1995, for Class C.
3. Total return does not reflect contingent deferred sales charge, and is not
annualized for periods less than one year.
4. Annualized.
5. The expense ratio includes the fund's share of the Portfolio's allocated
expenses.
YOUR ACCOUNT
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BUYING SHARES
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The FRANKLIN TEMPLETON FUNDS include all of the Franklin Templeton U.S.
registered mutual funds, except Franklin Templeton Variable Insurance
Products Trust, Templeton Capital Accumulator Fund, Inc., and Templeton
Variable Products Series Fund.
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You may buy shares of the fund only in exchange for Class B or C shares of
other Franklin Templeton Funds sold subject to a contingent deferred sales
charge or through the reinvestment of dividends. Shares of the fund may not
be purchased directly. Unlike other money funds, the fund does not have check
writing privileges.
MINIMUM INVESTMENTS
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Initial Additional
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Regular accounts $1,000 $50
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UGMA/UTMA accounts $100 $50
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Retirement accounts no minimum no minimum
(other than IRAs, IRA rollovers,
Education IRAs or Roth IRAs)
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IRAs, IRA rollovers, Education IRAs $250 $50
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or Roth IRAs
Broker-dealer sponsored $250 $50
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wrap account programs
Full-time employees, officers, trustees $100 $50
and directors of Franklin Templeton
entities, and their immediate family members
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PLEASE NOTE THAT YOU MAY ONLY BUY SHARES OF A FUND ELIGIBLE
FOR SALE IN YOUR STATE OR JURISDICTION.
DISTRIBUTION AND SERVICE (12B-1) FEES Class B has a distribution plan,
sometimes known as a Rule 12b-1 plan, that allows the fund to pay
distribution and other fees of up to 0.65% per year for the sale of Class B
shares and for services provided to shareholders. Dealers may be eligible to
receive up to 0.15% of these fees from the date of purchase.
Class C also has a distribution plan that allows the fund to pay distribution
and other fees of up to 0.65% per year for the sale of Class C shares and for
services provided to shareholders. During the first year after the initial
purchase of the Class C shares that were exchanged for shares of the fund,
dealers may be eligible to receive up to 0.15% of these fees.
Because these fees are paid out of the assets of each class on an on-going
basis, over time these fees will increase the cost of your investment and may
cost you more than paying other types of sales charges.
BUYING SHARES
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
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[Insert graphic of Contact your Contact your investment
hands shaking] investment representative
THROUGH YOUR representative
INVESTMENT
REPRESENTATIVE
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[Insert graphic of Call Shareholder Call Shareholder
two arrows pointing Services at the Services at the number
in opposite number below, or send below or our automated
directions] signed written TeleFACTS system, or
BY EXCHANGE instructions. The send signed written
TeleFACTS(R) TeleFACTS system instructions.
1-800/247-1753 cannot be used to
(around-the-clock open a new account. (Please see page 14 for
access) information on
(Please see page 14 exchanges.)
for information on
exchanges.)
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of person with a headset] INVESTOR SERVICES
DISTRIBUTION OPTIONS You may reinvest distributions you receive from the fund
in an existing account in the same share class* of the fund or another
Franklin Templeton Fund. Any initial sales charges or contingent deferred
sales charges (CDSCs) will not apply if you reinvest your distributions
within 365 days. You can also have your distributions deposited in a bank
account, or mailed by check. Deposits to a bank account may be made by
electronic funds transfer.
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For Franklin Templeton Trust Company retirement plans, special forms may be
needed to receive distributions in cash. Please call 1-800/527-2020 for
information.
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Please indicate on your revision form the distribution option you have
chosen, otherwise we will reinvest your distributions in the same share class
of the fund. If you choose not to reinvest your distributions, the fund will
distribute distributions paid during the month as directed on the last
business day of each month.
*Shareholders may reinvest their distributions in Class A shares of any other
Franklin Templeton money fund.
RETIREMENT PLANS Franklin Templeton offers a variety of retirement plans for
individuals and businesses. These plans require separate applications and
their policies and procedures may be different than those described in this
prospectus. For more information, including a free retirement plan brochure
or application, please call Retirement Plan Services at 1-800/527-2020.
TELEFACTS(R) Our TeleFACTS system offers around-the-clock access to information
about your account or any Franklin Templeton Fund. This service is available
from touch-tone phones at 1-800/247-1753. For a free TeleFACTS brochure, call
1-800/DIAL BEN.
TELEPHONE PRIVILEGES You will automatically receive telephone privileges when
you open your account, allowing you and your investment representative to
sell or exchange your shares and make certain other changes to your account
by phone.
For accounts with more than one registered owner, telephone privileges also
allow the fund to accept written instructions signed by only one owner for
transactions and account changes that could otherwise be made by phone. For
all other transactions and changes, all registered owners must sign the
instructions.
As long as we take certain measures to verify telephone requests, we will not
be responsible for any losses that may occur from unauthorized requests. Of
course, you can decline telephone exchange or redemption privileges on your
account application.
EXCHANGE PRIVILEGE You can exchange shares between most Franklin Templeton
Funds within the same class, generally without paying any additional sales
charges.
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An EXCHANGE is really two transactions: a sale of one fund and the purchase
of another. In general, the same policies that apply to purchases and sales
apply to exchanges, including minimum investment amounts. Exchanges also have
the same tax consequences as ordinary sales and purchases.
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Generally exchanges may only be made between identically registered accounts,
unless you send written instructions with a signature guarantee. Any CDSC
will continue to be calculated from the date of your initial investment and
will not be charged at the time of the exchange. The purchase price for
determining a CDSC on exchanged shares will be the price you paid for the
original shares.
Frequent exchanges can interfere with fund management or operations and drive
up costs for all shareholders. To protect shareholders, there are limits on
the number and amount of exchanges you may make (please see "Market Timers"
on page 19).
SYSTEMATIC WITHDRAWAL PLAN This plan allows you to automatically sell your
shares and receive regular payments from your account. A CDSC may apply to
withdrawals that exceed certain amounts. Certain terms and minimums apply. To
sign up, complete the appropriate section of the revision form.
[Insert graphic of certificate] SELLING SHARES
You can sell your shares at any time.
SELLING SHARES IN WRITING Generally, requests to sell $100,000 or less can be
made over the phone or with a simple letter. Sometimes, however, to protect
you and the fund we will need written instructions signed by all registered
owners, with a signature guarantee for each owner, if:
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A SIGNATURE GUARANTEE helps protect your account against fraud. You can
obtain a signature guarantee at most banks and securities dealers.
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A notary public CANNOT provide a signature guarantee.
o you are selling more than $100,000 worth of shares
o you want your proceeds paid to someone who is not a registered owner
o you want to send your proceeds somewhere other than the address of
record, or preauthorized bank or brokerage firm account
We also may require a signature guarantee on instructions we receive from an
agent, not the registered owners, or when we believe it would protect the
fund against potential claims based on the instructions received.
SELLING RECENTLY PURCHASED SHARES If you sell shares recently purchased with
a check or draft, we may delay sending you the proceeds until your check or
draft has cleared, which may take seven business days or more. A certified or
cashier's check may clear in less time.
REDEMPTION PROCEEDS Your redemption check will be sent within seven days
after we receive your request in proper form. We are not able to receive or
pay out cash in the form of currency. Redemption proceeds may be delayed if
we have not yet received your signed account application.
RETIREMENT PLANS You may need to complete additional forms to sell shares in
a Franklin Templeton Trust Company retirement plan. For participants under
age 591/2, tax penalties may apply. Call Retirement Plan Services at
1-800/527-2020 for details.
CONTINGENT DEFERRED SALES CHARGE (CDSC) For Class B shares, there is a CDSC
if you sell your shares within six years from the date of purchase of the
shares that were exchanged for shares of the fund, as described in the table
below.
IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
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1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
For Class C shares, there is a 1% CDSC on any shares you sell within 18
months from the date of purchase of the shares that were exchanged for shares
of the fund.
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The HOLDING PERIOD FOR THE CDSC begins on the day you buy your shares. Your
shares will age one month on that same date the next month and each following
month.
For example, if you buy shares on the 18th of the month, they will age one
month on the 18th day of the next month and each following month.
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The CDSC for each class is based on the current value of the shares being
sold or their net asset value when purchased, whichever is less. To keep your
CDSC as low as possible, each time you place a request to sell shares we will
first sell any shares in your account that are not subject to a CDSC. If
there are not enough of these to meet your request, we will sell the shares
in the order they were purchased.
CDSC WAIVERS. The CDSC for each class may be waived for certain redemptions
and distributions. If you would like information about available sales charge
waivers, call your investment representative or call Shareholder Services at
1-800/632-2301. A list of available sales charge waivers also may be found in
the Statement of Additional Information (SAI).
SELLING SHARES
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TO SELL SOME OR ALL OF YOUR SHARES
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[Insert graphic of hands Contact your investment
shaking] representative
THROUGH YOUR INVESTMENT
REPRESENTATIVE
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[Insert graphic of envelope] Send written instructions to
BY MAIL Investor Services. Corporate,
partnership or trust accounts may
need to send additional documents.
Specify the fund, the account number
and the dollar value or number of
shares you wish to sell. Be sure to
include all necessary signatures and
any additional documents, as well as
signature guarantees if required.
A check will be mailed to the
name(s) and address on the account,
or otherwise according to your
written instructions.
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[Insert graphic of phone] As long as your transaction is for
BY PHONE $100,000 or less, and you have not
1-800/632-2301 changed your address by phone within
the last 15 days, you can sell your
shares by phone.
A check will be mailed to the
name(s) and address on the account.
Written instructions, with a
signature guarantee, are required to
send the check
to another address or to make it
payable to another person.
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[Insert graphic of three You can call or write to have
lightning bolts] redemption proceeds sent to a bank
BY ELECTRONIC FUNDS TRANSFER account. See the policies above for
(ACH) selling shares by mail or phone.
Before requesting to have redemption
proceeds sent to a bank account,
please make sure we have your bank
account information on file. If we
do not have this information, you
will need to send written
instructions with your bank's name
and address, a voided check or
savings account deposit slip, and a
signature guarantee if the ownership
of the bank and fund accounts is
different.
If we receive your request in proper
form by 3:00 p.m. pacific time,
proceeds sent by ACH generally will
be available within two to three
business days.
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[Insert graphic of two arrows Obtain a current prospectus for the
pointing in opposite fund you are considering.
directions]
BY EXCHANGE Call Shareholder Services at the
number below or our automated
TeleFACTS(R) TeleFACTS system, or send signed
1-800/247-1753 written instructions. See the
(around-the-clock access) policies above for selling shares by
mail or phone.
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FRANKLIN TEMPLETON INVESTOR SERVICES P.O. BOX 997151,
SACRAMENTO, CA 95899-9983
CALL TOLL-FREE: 1-800/632-2301
(MONDAY THROUGH FRIDAY 5:30 A.M. TO 5:00 P.M., PACIFIC TIME
SATURDAY 6:30 A.M. TO 2:30 P.M., PACIFIC TIME)
[Insert graphic of paper and pen] ACCOUNT POLICIES
CALCULATING SHARE PRICE When you buy shares, you pay the net asset value
(NAV) per share. When you sell shares, you receive the NAV minus any
applicable contingent deferred sales charge (CDSC).
The fund calculates its NAV per share at 3:00 p.m. pacific time, each day the
New York Stock Exchange is open. Each class's NAV is calculated by dividing
its net assets by the number of its shares outstanding. The fund's assets are
generally valued at their amortized cost.
Requests to buy and sell shares are processed at the NAV next calculated
after we receive your request in proper form.
ACCOUNTS WITH LOW BALANCES If the value of your account falls below $250 ($50
for employee and UGMA/UTMA accounts) because you sell some of your shares, we
may mail you a notice asking you to bring the account back up to its
applicable minimum investment amount. If you choose not to do so within 30
days, we may close your account and mail the proceeds to the address of
record. You will not be charged a CDSC if your account is closed for this
reason.
STATEMENTS AND REPORTS You will receive statements that show your account
transactions. You also will receive the fund's financial reports every six
months. To reduce fund expenses, we try to identify related shareholders in a
household and send only one copy of the financial reports. If you need
additional copies, please call 1-800/DIAL BEN.
If there is a dealer or other investment representative of record on your
account, he or she also will receive statements and other information about
your account directly from the fund.
STREET OR NOMINEE ACCOUNTS You may transfer your shares from the street or
nominee name account of one dealer to another, as long as both dealers have
an agreement with Franklin Templeton Distributors, Inc. We will process the
transfer after we receive authorization in proper form from your delivering
securities dealer.
JOINT ACCOUNTS Unless you specify a different registration, accounts with two
or more owners are registered as "joint tenants with rights of survivorship"
(shown as "Jt Ten" on your account statement). To make any ownership changes
to a joint account, all owners must agree in writing, regardless of the law
in your state.
MARKET TIMERS The fund may restrict or refuse exchanges by market timers. If
accepted, each exchange by a market timer will be charged $5 by
Franklin/Templeton Investor Services, Inc., the fund's transfer agent. You
will be considered a market timer if you have (i) requested an exchange out
of the fund within two weeks of an earlier exchange request, or (ii)
exchanged shares out of the fund more than twice in a calendar quarter, or
(iii) exchanged shares equal to at least $5 million, or more than 1% of the
fund's net assets, or (iv) otherwise seem to follow a timing pattern. Shares
under common ownership or control are combined for these limits.
ADDITIONAL POLICIES Please note that the fund maintains additional policies
and reserves certain rights, including:
o The fund may refuse any order to buy shares, including any purchase
under the exchange privilege.
o At any time, the fund may change its investment minimums or waive or
lower its minimums for certain purchases.
o The fund may modify or discontinue the exchange privilege on 60 days'
notice.
o In unusual circumstances, we may temporarily suspend redemptions, or
postpone the payment of proceeds, as allowed by federal securities laws.
o For redemptions over a certain amount, the fund reserves the right to
make payments in securities or other assets of the fund, in the case of an
emergency or if the payment by check, wire or electronic funds transfer
would be harmful to existing shareholders.
o To permit investors to obtain the current price, dealers are responsible
for transmitting all orders to the fund promptly.
[Insert graphic of question mark] QUESTIONS
If you have any questions about the fund or your account, you can write to us
at P.O. Box 997151, Sacramento, CA 95899-9983. You can also call us at one of
the following numbers. For your protection and to help ensure we provide you
with quality service, all calls may be monitored or recorded.
HOURS (PACIFIC TIME,
DEPARTMENT NAME TELEPHONE NUMBER MONDAY THROUGH FRIDAY)
- ----------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
6:30 a.m. to 2:30 p.m. (Saturday)
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plan Services 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
FOR MORE INFORMATION
You can learn more about the fund in the following documents:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes a discussion of recent market conditions and fund strategies,
financial statements, detailed performance information, portfolio holdings,
and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Contains more information about the fund, its investments
and policies. It is incorporated by reference (is legally a part of this
prospectus).
For a free copy of the current annual/semiannual report or the SAI, please
contact your investment representative or call us at the number below.
Franklin(R)Templeton(R)
1-800/DIAL BEN(R) (1-800/342-5236)
TDD (Hearing Impaired) 1-800/851-0637
www.franklintempleton.com
You can also obtain information about the fund by visiting the SEC's Public
Reference Room in Washington, D.C. (phone 1-800/SEC-0330) or by sending your
request and a duplicating fee to the SEC's Public Reference Section,
Washington, D.C. 20549-6009. You can also visit the SEC's Internet site at
http://www.sec.gov.
Investment Company Act file #811-8962 511 P 11/99
FRANKLIN
TEMPLETON
MONEY FUND
FRANKLIN TEMPLETON MONEY FUND TRUST - CLASS B & C
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1999
[Insert Franklin Templeton Ben Head]
P.O. Box 997151, Sacramento, CA 95899-9983 1-800/DIAL BEN(R)
This Statement of Additional Information (SAI) is not a prospectus. It
contains information in addition to the information in the fund's prospectus.
The fund's prospectus, dated November 1, 1999, which we may amend from time
to time, contains the basic information you should know before investing in
the fund. You should read this SAI together with the fund's prospectus.
The audited financial statements and auditor's report in the fund's Annual
Report to Shareholders, for the fiscal year ended June 30, 1999, are
incorporated by reference (are legally a part of this SAI).
For a free copy of the current prospectus or annual report, contact your
investment representative or call 1-800/DIAL BEN (1-800/342-5236).
- -------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
- -------------------------------------------------------------------------------
o are not federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by, any
bank;
o are subject to investment risks, including the possible loss of
principal.
- -------------------------------------------------------------------------------
511 SAI 11/99
CONTENTS
Goal and Strategies ...................... 2
Risks .................................... 5
Officers and Trustees .................... 6
Management and Other Services ............ 8
Portfolio Transactions ................... 9
Distributions and Taxes .................. 10
Organization, Voting Rights
and Principal Holders ................... 11
Buying and Selling Shares ................ 12
Pricing Shares ........................... 14
The Underwriter .......................... 15
Performance .............................. 16
Miscellaneous Information ................ 18
Description of Ratings ................... 18
GOAL AND STRATEGIES
The fund's investment goal is to provide investors with as high a level of
current income as is consistent with the preservation of shareholders' capital,
and liquidity. This goal is fundamental, which means it may not be changed
without shareholder approval. The fund also tries to maintain a stable $1 share
price.
U.S. GOVERNMENT SECURITIES Some U.S. government securities, including U.S.
Treasury bills, notes and bonds and securities of the Government National
Mortgage Association and the Federal Housing Administration, are issued or
guaranteed by the U.S. government or carry a guarantee that is supported by
the full faith and credit of the U.S. government. Other U.S. government
securities are issued or guaranteed by federal agencies or
government-sponsored enterprises and are not considered direct obligations of
the U.S. government. Instead, they involve sponsorship or guarantees by
government agencies or enterprises. For example, some securities are
supported by the right of the issuer to borrow from the U.S. Treasury, such
as obligations of the Federal Home Loan Bank. Others, such as obligations of
the Federal National Mortgage Association, are supported only by the credit
of the instrumentality.
BANK OBLIGATIONS The fund may invest in obligations
of U.S. banks, foreign branches of U.S. or foreign banks, and U.S. branches
of foreign banks. These obligations may include deposits that are fully
insured by the U.S. government, its agencies or instrumentalities, such as
deposits in banking and savings institutions up to the current limit of the
insurance on principal provided by the Federal Deposit Insurance Corporation.
Deposits are frequently combined in larger units by an intermediate bank or
other institution.
The fund will invest in these obligations or instruments issued by banks and
savings institutions with assets of at least $1 billion. Time deposits are
non-negotiable deposits that are held in a banking institution for a
specified time at a stated interest rate. The fund may not invest more than
10% of its assets in time deposits with more than seven days to maturity.
The fund may invest in an obligation issued by a branch of a bank only if the
parent bank has assets of at least $5 billion, and may invest only up to 25%
of its assets in obligations of foreign branches of U.S. or foreign banks.
The fund may, however, invest more than 25% of its assets in certain domestic
bank obligations, including U.S. branches of foreign banks.
VARIABLE MASTER DEMAND NOTES are a type of commercial paper in which the fund
may invest. They are direct arrangements between a lender and a borrower that
allow daily changes to the amount borrowed and to the interest rate. The
fund, as lenders, may increase or decrease the amount provided by the note
agreement, and the borrower may repay up to the full amount of the note
without penalty. Typically, the borrower may also set the interest rate
daily, usually at a rate that is the same or similar to the interest rate on
other commercial paper issued by the borrower. The fund does not have any
limit on the amount of its assets that may be invested in variable master
demand notes and may invest only in variable master demand notes of U.S.
issuers.
Because variable master demand notes are direct lending arrangements between
the lender and the borrower, they generally are not traded and do not have a
secondary market. They are, however, redeemable at face value plus accrued
interest at any time, although the fund's ability to redeem a note is
dependent on the ability of the borrower to pay the principal and interest on
demand. When determining whether to invest in a variable master demand note,
the manager considers, among other things, the earnings power, cash flow and
other liquidity ratios of the issuer.
ASSET-BACKED SECURITIES in which the fund may invest are typically commercial
paper backed by the loans or accounts receivable of an entity, such as a bank
or credit card company. The issuer intends to repay using the assets backing
the securities (once collected). Therefore, repayment depends largely on the
cash flow generated by the assets backing the securities. Sometimes the
credit support for these securities is limited to the underlying assets. In
other cases, it may be provided by a third party through a letter of credit
or insurance guarantee.
Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payment,
the securities may contain elements of credit support. The credit support
falls into two categories: liquidity protection and protection against
ultimate default on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in
a timely fashion. Protection against ultimate default ensures payment on at
least a portion of the assets in the pool. This protection may be provided
through guarantees, insurance policies or letters of credit obtained from
third parties, through various means of structuring the transaction or
through a combination of these approaches. The degree of credit support
provided on each issue is based generally on historical information
respecting the level of credit risk associated with the payments. Delinquency
or loss that exceeds the anticipated amount could adversely impact the return
on an investment in an asset-backed security.
CORPORATE OBLIGATIONS may include fixed, floating and variable rate bonds,
debentures or notes.
COMMERCIAL PAPER The fund may invest in commercial paper of domestic or
foreign issuers.
STRIPPED SECURITIES are the separate income and principal components of debt
securities. Once the securities have been stripped they are referred to as
zero coupon securities. Their risks are similar to those of other money
market securities although they may be more volatile. Stripped securities do
not make periodic payments of interest prior to maturity and the stripping of
the interest coupons causes them to be offered at a discount from their face
amount. This results in the securities being subject to greater fluctuations
in response to changing interest rates than interest-paying securities of
similar maturities.
The fund only intends to buy stripped securities that are issued or guaranteed
by the U.S. Treasury or by an agency or instrumentality of the U.S. government.
MUNICIPAL SECURITIES The fund may invest up to 10% of its assets in taxable
municipal securities. Municipal securities are issued by or on behalf of
states, territories or possessions of the U.S., the District of Columbia, or
their political subdivisions, agencies or instrumentalities. They are
generally issued to raise money for various public purposes, such as
constructing public facilities and making loans to public institutions.
Certain types of municipal securities are issued to provide funding for
privately operated facilities and are generally taxable.
DIVERSIFICATION The fund is a diversified fund. As fundamental policies: (a)
the fund may not buy a security if, with respect to 75% of its total assets,
more than 5% would be invested in the securities of any one issuer, and (b)
the fund may not invest in a security if the fund would own more than 10% of
the outstanding voting securities of any one issuer. These limitations do not
apply to obligations issued or guaranteed by the U.S. government or its
instrumentalities.
As a money market fund, however, the fund must follow certain procedures
required by federal securities laws that may be more restrictive than some of
the fund's other policies or investment restrictions. With respect to
diversification, these procedures require that the fund not invest more than
5% of its total assets in securities of a single issuer, other than U.S.
government securities, although it may invest up to 25% of its total assets
in securities of a single issuer that are rated in the highest rating
category for a period of up to three business days after purchase. The fund
also must not invest more than (a) the greater of 1% of its total assets or
$1 million in securities issued by a single issuer that are rated in the
second highest rating category; and (b) 5% of its total assets in securities
rated in the second highest rating category. These procedures are fundamental
policies of the Portfolio and the fund, except to the extent that the fund
invests all of its assets in another registered investment company with the
same investment objective and substantially similar policies as the fund.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security take place at a future date. Since the market price
of the security may fluctuate during the time before payment and delivery,
the fund assumes the risk that the value of the security at delivery may be
more or less than the purchase prices. When the fund is the buyer in the
transaction, it will maintain cash or liquid securities, with an aggregate
value equal to the amount of its purchase commitments, in a segregated
account with its custodian bank until payment is made. The fund will not
engage in when-issued and delayed-delivery transactions for investment
leverage purposes.
REPURCHASE AGREEMENTS The fund generally will have a portion of its assets in
cash or cash equivalents for a variety of reasons, including waiting for a
special investment opportunity or taking a defensive position. To earn income
on this portion of its assets, the fund may enter into repurchase agreements.
Under a repurchase agreement, the fund agrees to buy securities guaranteed as
to payment of principal and interest by the U.S. government or its agencies
from a qualified bank or broker-dealer and then to sell the securities back
to the bank or broker-dealer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer
to the fund's custodian securities with an initial market value of at least
102% of the dollar amount invested by the fund in each repurchase agreement.
The manager will monitor the value of such securities daily to determine that
the value equals or exceeds the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the bank or broker-dealer, including possible delays or restrictions upon
the fund's ability to sell the underlying securities. The fund will enter
into repurchase agreements only with parties who meet certain
creditworthiness standards, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the repurchase transaction.
The fund may invest in commercial paper of domestic or foreign issuers.
LOANS OF PORTFOLIO SECURITIES To generate additional income, the fund may
lend certain of its portfolio securities to qualified banks and
broker-dealers. These loans may not exceed 331/3% of the value of the fund's
total assets, measured at the time of the most recent loan. For each loan,
the borrower must maintain with the fund's custodian collateral (consisting
of any combination of cash, securities issued by the U.S. government and its
agencies and instrumentalities, or irrevocable letters of credit) with a
value at least equal to 102% of the current market value of the loaned
securities. The fund retains all or a portion of the interest received on
investment of the cash collateral or receives a fee from the borrower. The
fund also continues to receive any distributions paid on the loaned
securities. The fund may terminate a loan at any time and obtain the return
of the securities loaned within the normal settlement period for the security
involved.
Where voting rights with respect to the loaned securities pass with the
lending of the securities, the manager intends to call the loaned securities
to vote proxies, or to use other practicable and legally enforceable means to
obtain voting rights, when the manager has knowledge that, in its opinion, a
material event affecting the loaned securities will occur or the manager
otherwise believes it necessary to vote. As with other extensions of credit,
there are risks of delay in recovery or even loss of rights in collateral in
the event of default or insolvency of the borrower. The fund will loan its
securities only to parties who meet creditworthiness standards approved by
the fund's board of directors, i.e., banks or broker-dealers that the manager
has determined present no serious risk of becoming involved in bankruptcy
proceedings within the time frame contemplated by the loan.
BORROWING The fund may borrow up to 5% of its total assets from banks for
temporary or emergency purposes. The fund will not make any new investments
while any outstanding loans exceed 5% of its total assets.
ILLIQUID INVESTMENTS The fund's policy is not to invest more than 10% of its
net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the fund has valued them.
OTHER LIMITATIONS The fund may not invest more than 5% of its total assets in
securities of companies, including predecessors, that have been in continuous
operation for less than three years. The fund also may not invest more than
25% of its total assets in any particular industry, although it may invest
more than 25% of its assets in certain domestic bank obligations. These
limitations do not apply to U.S. government securities, federal agency
obligations, or repurchase agreements fully collateralized by U.S. government
securities. There are, however, certain tax diversification requirements that
may apply to investments in repurchase agreements and other securities that
are not treated as U.S. government securities under the Internal Revenue Code.
MASTER/FEEDER STRUCTURE The fund seeks to achieve its investment goal by
investing all of its assets in shares of The Money Market Portfolio
(Portfolio). The Portfolio has the same investment goal and substantially
similar investment policies as the fund, except, in all cases, the fund may
pursue its policies by investing in a mutual fund with the same investment
goal and substantially similar policies and restrictions as the fund. The
investment goal of the Portfolio also is fundamental and may not be changed
without shareholder approval.
The fund's structure, where it invests all of its assets in the Portfolio, is
sometimes known as a "master/feeder" structure. By investing all of its
assets in shares of the Portfolio, the fund, other mutual funds and
institutional investors can pool their assets. This may result in asset
growth and lower expenses, although there is no guarantee this will happen.
If the fund, as a shareholder of the Portfolio, has to vote on a matter
relating to the Portfolio, it will hold a meeting of fund shareholders and
will cast its votes in the same proportion as the fund's shareholders voted.
INVESTMENT RESTRICTIONS The fund has adopted the following restrictions as
fundamental policies. This means they may only be changed if the change is
approved by (i) more than 50% of the fund's outstanding shares or (ii) 67% or
more of the fund's shares present at a shareholder meeting if more than 50%
of the fund's outstanding shares are represented at the meeting in person or
by proxy, whichever is less.
The fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefore) for 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 objective and policies of the Portfolio, (b)
to the extent the entry into a repurchase agreement is deemed to be a loan,
or (c) by the loan of its portfolio securities in accordance with the
policies described 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, or interests in oil, gas, or other
mineral leases or exploration or development programs except that it may
purchase, hold and dispose of "obligations with puts attached," or write
covered call options in accordance with its stated investment policies.
6. Purchase securities in private placements or in other transactions, for
which there are legal or contractual restrictions on resale, except that, to
the extent of this restriction is applicable, the fund may purchase, in
private placements shares of another registered investment company having the
same investment objective 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
objective and policies as the fund.
9. Invest in any issuer for purposes of exercising control or management,
except that, to the extent this restriction is applicable, all or
substantially all of the assets of the fund may be invested in another
registered investment company having the same investment objective 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 advisor 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 the Prospectus, state otherwise, and
further does not apply to the extent that the fund invests all of its assets
in another registered investment company having the same investment objective
and policies.
The Portfolio's investment restrictions are the same as the fund's, except as
necessary to reflect the fund's policy to invest all of its assets in shares
of the Portfolio.
If a bankruptcy or other extraordinary event occurs concerning a particular
security the fund owns, the fund may receive stock, real estate, or other
investments that the fund would not, or could not, buy. If this happens, the
fund intends to sell such investments as soon as practicable while maximizing
the return to shareholders.
Generally, the policies and restrictions discussed in this SAI and in the
prospectus apply when the fund makes an investment. In most cases, the fund
is not required to sell a security because circumstances change and the
security no longer meets one or more of the fund's policies or restrictions.
If a percentage restriction or limitation is met at the time of investment, a
later increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities will not be considered a violation of the
restriction or limitation.
RISKS
FOREIGN SECURITIES The value of foreign (and U.S.) securities is affected by
general economic conditions and individual company and industry earnings
prospects. While foreign securities may offer significant opportunities for
gain, they also involve additional risks that can increase the potential for
losses in the fund.
The political, economic and social structures of some countries the fund
invests in may be less stable and more volatile than those in the U.S. The
risks of investing in these countries include the possibility of the
imposition of exchange controls, expropriation, restrictions on removal of
currency or other assets, nationalization of assets and punitive taxes.
There may be less publicly available information about a foreign company or
government than about a U.S. company or public entity. Certain countries'
financial markets and services are less developed than those in the U.S. or
other major economies. As a result, they may not have uniform accounting,
auditing and financial reporting standards and may have less government
supervision of financial markets. Foreign securities markets may have
substantially lower trading volumes than U.S. markets, resulting in less
liquidity and more volatility than experienced in the U.S. Transaction costs
on foreign securities markets are generally higher than in the U.S. The
settlement practices may be cumbersome and result in delays that may affect
portfolio liquidity. The fund may have greater difficulty exercising rights,
pursuing legal remedies, and obtaining judgments with respect to foreign
investments in foreign courts than with respect to domestic issuers in U.S.
courts.
DERIVATIVES The fund's transactions in stripped securities involve certain
risks. These risks include, among others, the risk that the price movements
in the underlying securities correlate with price movements in the relevant
portion of the fund's portfolio, or that there may be a negative correlation
that would result in a loss on both the underlying security and the
derivative security. The fund bears the risk in the same amount as the
instrument it has purchased.
MASTER/FEEDER STRUCTURE There are some risks associated with the fund's
master/feeder structure. If other shareholders in the Portfolio sell their
shares, the fund's expenses may increase. Additionally, any economies of
scale the fund has achieved as a result of the structure may be diminished.
Institutional investors in the Portfolio that have a greater pro rata
ownership interest in the Portfolio than the fund could also have effective
voting control.
If the Portfolio changes its investment goal or any of its fundamental
policies and fund shareholders do not approve the same change for the fund,
the fund may need to withdraw its investment from the Portfolio. Likewise, if
the board of trustees considers it to be in the fund's best interest, it may
withdraw the fund's investment from the Portfolio at any time. If either
situation occurs, the board will decide what action to take. Possible
solutions might include investing all of the fund's assets in another pooled
investment entity with the same investment goal and policies as the fund, or
hiring an investment manager to manage the fund's investments. Either
circumstance could increase the fund's expenses.
OFFICERS AND TRUSTEES
The Franklin Templeton Money Fund Trust has a board of trustees. The board is
responsible for the overall management of the trust, including general
supervision and review of the fund's investment activities. The board, in
turn, elects the officers of the trust who are responsible for administering
the trust's day-to-day operations. The board also monitors the fund to ensure
no material conflicts exist among share classes. While none is expected, the
board will act appropriately to resolve any material conflict that may arise.
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the trust, and principal occupations during
the past five years are shown below.
Frank H. Abbott, III (78)
1045 Sansome Street, San Francisco, CA 94111
TRUSTEE
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and formerly, Director, MotherLode Gold
Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food
processing) (until 1996).
Harris J. Ashton (67)
191 Clapboard Ridge Road, Greenwich, CT 06830
TRUSTEE
Director, RBC Holdings, Inc. (bank holding company) and Bar-S Foods (meat
packing company); director or trustee, as the case may be, of 47 of the
investment companies in the Franklin Templeton Group of Funds; and formerly,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
S. Joseph Fortunato (67)
Park Avenue at Morris County, P.O. Box 1945
Morristown, NJ 07962-1945
TRUSTEE
Member of the law firm of Pitney, Hardin, Kipp & Szuch; and director or
trustee, as the case may be, of 49 of the investment companies in the
Franklin Templeton Group
of Funds.
*Charles B. Johnson (66)
777 Mariners Island Blvd., San Mateo, CA 94404
CHAIRMAN OF THE BOARD AND TRUSTEE
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Investment Advisory Services, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and Franklin Templeton
Services, Inc.; officer and/or director or trustee, as the case may be, of
most of the other subsidiaries of Franklin Resources, Inc. and of 48 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (59)
777 Mariners Island Blvd., San Mateo, CA 94404
PRESIDENT AND TRUSTEE
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.
and Franklin Investment Advisory Services, Inc.; Senior Vice President,
Franklin Advisory Services, LLC; Director, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 51 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (70)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014
TRUSTEE
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); director or trustee, as the case may be,
of 27 of the investment companies in the Franklin Templeton Group of Funds;
and FORMERLY, Director, Fischer Imaging Corporation (medical imaging
systems), Digital Transmission Systems, Inc. (wireless communications) and
Quarterdeck Corporation (software firm), and General Partner, Peregrine
Associates, which was the General Partner of Peregrine Ventures (venture
capital firm).
Gordon S. Macklin (71)
8212 Burning Tree Road, Bethesda, MD 20817
TRUSTEE
Director, Fund American Enterprises Holdings, Inc. (holding company), Martek
Biosciences Corporation, MCI WorldCom (information services), MedImmune, Inc.
(biotechnology), Spacehab, Inc. (aerospace services) and Real 3D (software);
director or trustee, as the case may be, of 47 of the investment companies in
the Franklin Templeton Group of Funds; and FORMERLY, Chairman, White River
Corporation (financial services) and Hambrecht and Quist Group (investment
banking), and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (54)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Executive Vice President and Director, Franklin Resources, Inc., Franklin
Templeton Distributors, Inc. and Franklin Templeton Services, Inc.; Executive
Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc. and Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (39)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.,
Franklin/Templeton Investor Services, Inc. and Franklin Mutual Advisers, LLC;
Executive Vice President, Chief Financial Officer and Director, Templeton
Worldwide, Inc.; Executive Vice President, Chief Operating Officer and
Director, Templeton Investment Counsel, Inc.; Executive Vice President and
Chief Financial Officer, Franklin Advisers, Inc.; Chief Financial Officer,
Franklin Advisory Services, LLC and Franklin Investment Advisory Services,
Inc.; President and Director, Franklin Templeton Services, Inc.; officer
and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 51 of
the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (50)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT AND SECRETARY
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, LLC and Franklin Mutual Advisers, LLC;
Vice President, Chief Legal Officer and Chief Operating Officer, Franklin
Investment Advisory Services, Inc.; and officer of 52 of the investment
companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (60)
777 Mariners Island Blvd., San Mateo, CA 94404
TREASURER AND PRINCIPAL ACCOUNTING OFFICER
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (62)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Thomas J. Runkel (41)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer of four of the investment companies in the Franklin Templeton Group
of Funds.
R. Martin Wiskemann (72)
777 Mariners Island Blvd., San Mateo, CA 94404
VICE PRESIDENT
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; Vice President and
Director, ILA Financial Services, Inc.; and officer and/or director or
trustee, as the case may be, of 15 of the investment companies in the
Franklin Templeton Group of Funds.
*This board member is considered an "interested person" under federal
securities laws.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The fund currently does not pay fees to noninterested board members. Board
members who serve on the audit committee of the trust and other funds in the
Franklin Templeton Group of Funds receive a flat fee of $2,000 per committee
meeting attended, a portion of which is allocated to the trust. Members of a
committee are not compensated for any committee meeting held on the day of a
board meeting. Noninterested board members also may serve as directors or
trustees of other funds in the Franklin Templeton Group of Funds and may
receive fees from these funds for their services. The fees payable to
noninterested board members by the trust are subject to reductions resulting
from fee caps limiting the amount of fees payable to board members who serve
on other boards within the Franklin Templeton Group of Funds. The following
table provides the total fees paid to noninterested board members by the
Franklin Templeton Group of Funds.
NUMBER OF
BOARDS IN
TOTAL FEES THE FRANKLIN
RECEIVED FROM TEMPLETON
THE FRANKLIN GROUP
TEMPLETON OF FUNDS
GROUP ON WHICH
NAME OF FUNDS 1 ($) EACH SERVES 2
- ----------------------------------------------------------------------
Frank H. Abbott, III 159,051 27
Harris J. Ashton 361,157 47
Robert F. Carlson 78,052 9
S. Joseph Fortunato 367,835 49
Frank W.T. LaHaye 163,753 27
Gordon S. Macklin 361,157 47
1. For the calendar year ended December 31, 1998.
2. We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the board members are responsible. The Franklin Templeton Group of
Funds currently includes 54 registered investment companies, with
approximately 157 U.S. based funds or series.
Noninterested board members are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or board members who are shareholders of Franklin Resources, Inc.
may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries.
Board members historically have followed a policy of having substantial
investments in one or more of the funds in the Franklin Templeton Group of
Funds, as is consistent with their individual financial goals. In February
1998, this policy was formalized through adoption of a requirement that each
board member invest one-third of fees received for serving as a director or
trustee of a Templeton fund in shares of one or more Templeton funds and
one-third of fees received for serving as a director or trustee of a Franklin
fund in shares of one or more Franklin funds until the value of such
investments equals or exceeds five times the annual fees paid such board
member. Investments in the name of family members or entities controlled by a
board member constitute fund holdings of such board member for purposes of
this policy, and a three year phase-in period applies to such investment
requirements for newly elected board members. In implementing such policy, a
board member's fund holdings existing on February 27, 1998, are valued as of
such date with subsequent investments valued at cost.
The board, with approval of all noninterested and interested board members,
has adopted written procedures designed to deal with potential conflicts of
interest that may arise from the fund and the Money Market Portfolio having
substantially the same boards. These procedures call for an annual review of
the fund's relationship with the Portfolio. If a conflict exists, the boards
may take action, which may include the establishment of a new board. The
board has determined that there are no conflicts of interest at the present
time.
MANAGEMENT AND OTHER SERVICES
MANAGER AND SERVICES PROVIDED The Money Market Portfolio's manager is
Franklin Advisers, Inc. The manager is a wholly owned subsidiary of Franklin
Resources, Inc. (Resources), a publicly owned company engaged in the
financial services industry through its subsidiaries. Charles B. Johnson and
Rupert H. Johnson, Jr. are the principal shareholders of Resources.
The manager provides investment research and portfolio management services,
and selects the securities for the Portfolio to buy, hold or sell. The
manager also selects the brokers who execute the Portfolio's portfolio
transactions. The manager provides periodic reports to the board, which
reviews and supervises the manager's investment activities. To protect the
Portfolio, the manager and its officers, directors and employees are covered
by fidelity insurance.
The manager and its affiliates manage numerous other investment companies and
accounts. The manager may give advice and take action with respect to any of
the other funds it manages, or for its own account, that may differ from
action taken by the manager on behalf of the Portfolio. Similarly, with
respect to the Portfolio, the manager is not obligated to recommend, buy or
sell, or to refrain from recommending, buying or selling any security that
the manager and access persons, as defined by applicable federal securities
laws, may buy or sell for its or their own account or for the accounts of any
other fund. The manager is not obligated to refrain from investing in
securities held by the Portfolio or other funds it manages. Of course, any
transactions for the accounts of the manager and other access persons will be
made in compliance with the Portfolio's code of ethics.
Under the Portfolio's code of ethics, employees of the Franklin Templeton
Group who are access persons may engage in personal securities transactions
subject to the following general restrictions and procedures: (i) the trade
must receive advance clearance from a compliance officer and must be
completed by the close of the business day following the day clearance is
granted; (ii) copies of all brokerage confirmations and statements must be
sent to a compliance officer; (iii) all brokerage accounts must be disclosed
on an annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) above, file
annual reports of their securities holdings each January and inform the
compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they
are recommending a security in which they have an ownership interest for
purchase or sale by a fund or other client.
MANAGEMENT FEES The Portfolio pays the manager a fee equal to an annual rate
of 0.15 of 1% of the value of the Portfolio's average daily net assets.
The fee is computed at the close of business on the last business day of each
month according to the terms of the management agreement.
For the last three fiscal years ended June 30, the Portfolio paid the
following management fees:
MANAGEMENT FEES
PAID 1 ($)
- --------------------------------------------------
1999 3,900,807
1998 2,830,858
1997 2,429,509
1. For the fiscal years ended June 30, 1999, 1998 and 1997, management fees,
before any advance waiver, totaled $3,996,761, $2,963,304 and $2,547,891,
respectively. Under an agreement by the manager to limit its fees, the
Portfolio paid the management fees shown.
ADMINISTRATOR AND SERVICES provided Franklin Advisers, Inc. (Advisers) has an
agreement with the fund to provide various administrative, statistical and
other services to
the fund.
ADMINISTRATION FEES The fund pays Advisers a monthly fee equal to an annual
rate of:
o 91/200 of 1% for the first $100 million of the fund's average daily net
assets;
o 33/100 of 1% of average daily net assets over $100 million up to and
including $250 million; and
o 7/25 of 1% of average daily net assets in excess of $250 million.
During the last three fiscal years ended June 30, the fund paid Advisers the
following administration fees:
ADMINISTRATION FEES
PAID ($) 1
- --------------------------------------------------
1999 214,220
1998 64,151
1997 10,389
1. For the fiscal years ended June 30, 1999, 1998 and 1997, administration
fees, before any advance waiver, totaled $383,003, $110,622 and $37,016
respectively. Under an agreement by Advisers to limit its fees, the fund paid
the administration fees shown.
SHAREHOLDER SERVICING AND TRANSFER AGENT Franklin/Templeton Investor
Services, Inc. (Investor Services) is the fund's shareholder servicing agent
and acts as the fund's transfer agent and dividend-paying agent. Investor
Services is located at 777 Mariners Island Blvd., San Mateo, CA 94404. Please
send all correspondence to Investor Services to P.O. Box 997151, Sacramento,
CA 95899-9983.
For its services, Investor Services receives a fixed fee per account. The
fund also will reimburse Investor Services for certain out-of-pocket
expenses, which may include payments by Investor Services to entities,
including affiliated entities, that provide sub-shareholder services,
recordkeeping and/or transfer agency services to beneficial owners of the
fund. The amount of reimbursements for these services per benefit plan
participant fund account per year will not exceed the per account fee payable
by the fund to Investor Services in connection with maintaining shareholder
accounts.
CUSTODIAN Investor Services, as the transfer agent for the Money Market
Portfolio, effectively acts as the fund's custodian and holds the fund's
shares of the Portfolio on its books. Bank of New York, Mutual Funds
Division, 90 Washington Street, New York, NY 10286, acts as custodian of the
fund's cash, pending investment in Portfolio shares. Bank of New York also
acts as custodian of the securities and other assets of the Portfolio.
AUDITOR PricewaterhouseCoopers LLP, 333 Market Street, San Francisco, CA
94105, is the fund's independent auditor. The auditor gives an opinion on the
financial statements included in the trust's Annual Report to Shareholders
and reviews the trust's registration statement filed with the U.S. Securities
and Exchange Commission (SEC).
PORTFOLIO TRANSACTIONS
The fund will not incur any brokerage or other costs in connection with
buying or selling shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net
prices, the Portfolio incurs little or no brokerage costs. The Portfolio
deals directly with the selling or buying principal or market maker without
incurring charges for the services of a broker on its behalf, unless it is
determined that a better price or execution may be obtained by using the
services of a broker. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask prices. The Portfolio seeks to obtain prompt execution of orders at
the most favorable net price. Transactions may be directed to dealers in
return for research and statistical information, as well as for special
services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services the manager receives from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services allows the manager to supplement its
own research and analysis activities and to receive the views and information
of individuals and research staffs of other securities firms. As long as it
is lawful and appropriate to do so, the manager and its affiliates may use
this research and data in their investment advisory capacities with other
clients. If the Portfolio's officers are satisfied that the best execution is
obtained, the sale of fund shares, as well as shares of other funds in the
Franklin Templeton Group of Funds, also may be considered a factor in the
selection of broker-dealers to execute the Portfolio's portfolio transactions.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by the manager are considered at
or about the same time, transactions in these securities will be allocated
among the several investment companies and clients in a manner deemed
equitable to all by the manager, taking into account the respective sizes of
the funds and the amount of securities to be purchased or sold. In some cases
this procedure could have a detrimental effect on the price or volume of the
security so far as the Portfolio is concerned. In other cases it is possible
that the ability to participate in volume transactions may improve execution
and reduce transaction costs to the Portfolio.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Portfolio did
not pay any brokerage commissions.
As of June 30, 1999, the Portfolio owned securities issued by American
Express Service Corp. valued in the aggregate at $124 million, Ford Motor
Credit Corp. valued in the aggregate at $99 million, Morgan Stanley Dean
Witter valued in the aggregate at $50 million, Salomon Smith Barney valued in
the aggregate at $50 million, Societe Generale Sec. Corp. valued in the
aggregate at $50 million and Wachovia Bank valued in the aggregate at $25
million. Except as noted, neither the fund nor the Portfolio owned any
securities issued by their regular broker-dealers as of the end of the fiscal
year
DISTRIBUTIONS AND TAXES
The fund calculates dividends the same way for each class. The fund does not
pay "interest" or guarantee any fixed rate of return on an investment in its
shares.
DISTRIBUTIONS OF NET INVESTMENT INCOME The fund's daily net income includes
dividends it receives from its investment in the Portfolio, less the
estimated expenses of the fund. Any distributions by the fund from such
income will be taxable to you as ordinary income, whether you take them in
cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS The fund may derive capital gains and losses
in connection with its investment in the shares of the Portfolio.
Distributions from net short-term capital gains will be taxable to you as
ordinary income. Because the fund is a money fund, it does not anticipate
realizing any long-term capital gains.
MAINTAINING A $1 SHARE PRICE Gains and losses on the fund's investment in
shares of the Portfolio and unrealized appreciation or depreciation in the
value of these shares may require the fund to adjust distributions to
maintain a $1 share price. These procedures may result in under- or
over-distributions by the fund of its net investment income.
EFFECT OF FOREIGN INVESTMENTS ON DISTRIBUTIONS Most foreign exchange gains
realized on the sale of debt securities are treated as ordinary income by the
Portfolio. Similarly, foreign exchange losses realized by the Portfolio on
the sale of debt securities are generally treated as ordinary losses by the
Portfolio. These gains when distributed will be taxable to the fund as
ordinary dividends, and any losses will reduce the Portfolio's ordinary
income otherwise available for distribution to the fund. This treatment could
increase or reduce the Portfolio's ordinary income distributions to the fund
and, in turn, to you.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS The fund will inform you of
the amount of your distributions at the time they are paid, and will advise
you of their tax status for federal income tax purposes shortly after the
close of each calendar year. If you have not held fund shares for a full
year, the fund may designate and distribute to you, as ordinary income, a
percentage of income that is not equal to the actual amount of such income
earned during the period of your investment in the fund.
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY The fund has elected
to be treated as a regulated investment company under Subchapter M of the
Internal Revenue Code, has qualified as such for its most recent fiscal year,
and intends to so qualify during the current fiscal year. As a regulated
investment company, the fund generally pays no federal income tax on the
income and gains it distributes to you. The board reserves the right not to
maintain the qualification of the fund as a regulated investment company if
it determines such course of action to be beneficial to shareholders. In such
case, the fund will be subject to federal, and possibly state, corporate
taxes on its taxable income and gains, and distributions to you will be taxed
as ordinary dividend income to the extent of the fund's earnings and profits.
EXCISE TAX DISTRIBUTION REQUIREMENTS To avoid federal excise taxes, the
Internal Revenue Code requires the fund to distribute to you by December 31
of each year, at a minimum, the following amounts: 98% of its taxable
ordinary income earned during the calendar year; 98% of its capital gain net
income earned during the twelve month period ending October 31; and 100% of
any undistributed amounts from the prior year. The fund intends to declare
and pay these amounts in December (or in January that are treated by you as
received in December) to avoid these excise taxes, but can give no assurances
that its distributions will be sufficient to eliminate all taxes.
REDEMPTION OF FUND SHARES Redemptions and exchanges of fund shares are
taxable transactions for federal and state income tax purposes. Because the
fund tries to maintain a stable $1 share price, however, you should not
expect to realize a capital gain or loss on the sale or exchange of your
shares.
U.S. GOVERNMENT OBLIGATIONS Many states grant tax-free status to dividends
paid to you from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the fund. Investments in Government National Mortgage
Association or Federal National Mortgage Association securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
The rules on exclusion of this income are different for corporations. The
fund, however, anticipates that no portion of its distributions to you will
qualify for exemption from state and local personal income taxes as dividends
paid to you from interest earned on direct obligations of the U.S.
government. Even if the Portfolio invests in direct obligations of the U.S.
government, the fund only does so indirectly by investing in the Portfolio.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS Because the fund's income is
derived indirectly from interest, generally no portion of its distributions
will be eligible for the corporate dividends-received deduction. None of the
dividends paid by the fund for the most recent fiscal year qualified for such
deduction, and it is anticipated that none of the current year's dividends
will so qualify.
INVESTMENT IN COMPLEX SECURITIES The Portfolio may invest in complex
securities. These investments may be subject to numerous special and complex
tax rules. These rules could affect whether gains and losses recognized by
the Portfolio are treated as ordinary income or capital gain, accelerate the
recognition of income to the Portfolio and/or defer the Portfolio's ability
to recognize losses, and, in limited cases, subject the Portfolio to U.S.
federal income tax on income from certain of its foreign securities. In turn,
these rules may affect the amount, timing or character of the income
distributed to you by the fund.
ORGANIZATION, VOTING RIGHTS AND PRINCIPAL HOLDERS
The fund is a series of Franklin Templeton Money Fund Trust, an open-end
management investment company, commonly called a mutual fund. The trust was
organized as a Delaware business trust on January 30, 1995, and is registered
with the SEC.
The fund currently offers two classes of shares, Class B and Class C. Before
January 1, 1999, Class C shares were designated Class II. The fund may offer
additional classes of shares in the future. The full title of each class is:
o Franklin Templeton Money Fund - Class B
o Franklin Templeton Money Fund - Class C
Shares of each class represent proportionate interests
in the fund's assets. On matters that affect the fund as a whole, each class
has the same voting and other rights and preferences as any other class. On
matters that affect only one class, only shareholders of that class may vote.
Each class votes separately on matters affecting only that class, or
expressly required to be voted on separately by state or federal law.
The trust has noncumulative voting rights. For board member elections, this
gives holders of more than 50% of the shares voting the ability to elect all
of the members of the board. If this happens, holders of the remaining shares
voting will not be able to elect anyone to the board.
The trust does not intend to hold annual shareholder meetings. The trust or a
series of the trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may be called by the board to consider the
removal of a board member if requested in writing by shareholders holding at
least 10% of the outstanding shares. In certain circumstances, we are
required to help you communicate with other shareholders about the removal of
a board member. A special meeting also may be called by the board in its
discretion.
As of August 6, 1999, the principal shareholders of the fund, beneficial or
of record, were:
NAME AND ADDRESS SHARE CLASS PERCENTAGE %
- ----------------------------------------------------------------------
Thomas G. Woodfill and Class B 11.5
Shirley M. Woodfill JT TEN
50 Aspen Highland
Owatonna, MN 55060
Peter H. Wang and Class B 6.1
Kimberly A. Wang JT TEN
12275 Heatherstone Pl.
Carmel, IN 46033
Fred Delores Portillo TRST Class B 7.5
Lina M. Anguish Trust
Dated December 10, 1990
3007-B Via Buena Vista
Laguna Hills, CA 92653-3020
Leo A. Walser Class B 10.9
T/O/D Vivian Butler
365 Fowling St.
Playa Del Rey, CA 90293
Donald Gault Class B 11.0
Gault Painting Inc.
3030 Bryan Ave.
Fort Worth, TX 76110-4217
Dean Witter FBO Class B 5.5
Joan E. Balcom TTEE
TST ONE O T
P.O. Box 250
Church Street Station
New York, NY 10008-0250
Wesley E. Murray and Class B 5.5
Cassy D. Murray JT TEN
2805 N. 14th St.
Poplar Bluff, MO 63901
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.
As of August 6, 1999, the officers and board members, as a group, owned of
record and beneficially less than 1% of the outstanding shares of each class.
The board members may own shares in other funds in the Franklin Templeton
Group of Funds.
BUYING AND SELLING SHARES
The fund continuously offers its shares through securities dealers who have
an agreement with Franklin Templeton Distributors, Inc. (Distributors). A
securities dealer includes any financial institution that, either directly or
through affiliates, has an agreement with Distributors to handle customer
orders and accounts with the fund. This reference is for convenience only and
does not indicate a legal conclusion of capacity. Banks and financial
institutions that sell shares of the fund may be required by state law to
register as securities dealers.
For investors outside the U.S., the offering of fund shares may be limited in
many jurisdictions. An investor who wishes to buy shares of the fund should
determine, or have a broker-dealer determine, the applicable laws and
regulations of the relevant jurisdiction. Investors are responsible for
compliance with tax, currency exchange or other regulations applicable to
redemption and purchase transactions in any jurisdiction to which they may be
subject. Investors should consult appropriate tax and legal advisors to
obtain information on the rules applicable to these transactions.
All checks, drafts, wires and other payment mediums used to buy or sell
shares of the fund must be denominated in U.S. dollars, drawn on a U.S. bank,
and are accepted subject to collection at full face value. Checks drawn in
U.S. funds on foreign banks will not be credited to your account and
dividends will not begin to accrue until the proceeds are collected, which
may take a long period of time. We may, in our sole discretion, either (a)
reject any order to buy or sell shares denominated in any other currency or
(b) honor the transaction or make adjustments to your account for the
transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank. We may deduct any applicable banking charges
imposed by the bank from your account.
The offering of fund shares may be suspended at any time and resumed at any
time thereafter.
DEALER COMPENSATION Distributors and/or its affiliates may provide financial
support to securities dealers that sell shares of the Franklin Templeton
Group of Funds. This support is based primarily on the amount of sales of
fund shares and/or total assets with the Franklin Templeton Group of Funds.
The amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a securities dealer's sales and marketing
efforts in the Franklin Templeton Group of Funds; a securities dealer's
support of, and participation in, Distributors' marketing programs; a
securities dealer's compensation programs for its registered representatives;
and the extent of a securities dealer's marketing programs relating to the
Franklin Templeton Group of Funds. Financial support to securities dealers
may be made by payments from Distributors' resources, from Distributors'
retention of underwriting concessions and, in the case of funds that have
Rule 12b-1 plans, from payments to Distributors under such plans. In
addition, certain securities dealers may receive brokerage commissions
generated by fund portfolio transactions in accordance with the rules of the
National Association of Securities Dealers, Inc.
Distributors routinely sponsors due diligence meetings for registered
representatives during which they receive updates on various Franklin
Templeton Funds and are afforded the opportunity to speak with portfolio
managers. Invitation to these meetings is not conditioned on selling a
specific number of shares. Those who have shown an interest in the Franklin
Templeton Funds, however, are more likely to be considered. To the extent
permitted by their firm's policies and procedures, registered
representatives' expenses in attending these meetings may be covered by
Distributors.
CONTINGENT DEFERRED SALES CHARGE (CDSC) For Class B shares, there is a CDSC
if you sell your shares within six years from the date of purchase of the
shares that were exchanged for shares of the fund, as described in the table
below. The charge is based on the value of the shares sold or the net asset
value at the time of purchase, whichever is less.
IF YOU SELL YOUR CLASS B SHARES WITHIN THIS % IS DEDUCTED FROM
THIS MANY YEARS AFTER BUYING THEM YOUR PROCEEDS AS A CDSC
- -----------------------------------------------------------------
1 Year 4
2 Years 4
3 Years 3
4 Years 3
5 Years 2
6 Years 1
7 Years 0
For Class C shares, a CDSC may apply if you sell your shares within 18 months
from the date of purchase of the shares that were exchanged for shares of the
fund. The CDSC is 1% of the value of the shares sold or the net asset value
at the time of purchase, whichever is less.
CDSC WAIVERS. The CDSC for each class generally will be waived for:
o Account fees
o Redemptions by the fund when an account falls below the minimum required
account size
o Redemptions following the death of the shareholder or beneficial owner
o Redemptions through a systematic withdrawal plan, up to 1% monthly, 3%
quarterly, 6% semiannually or 12% annually of your account's net asset
value depending on the frequency of your plan
o Redemptions by Franklin Templeton Trust Company employee benefit plans or
employee benefit plans serviced by ValuSelect(R) (not applicable to Class
B)
o Distributions from individual retirement accounts (IRAs) due to death or
disability or upon periodic distributions based on life expectancy (for
Class B, this applies to all retirement plan accounts, not only IRAs)
o Returns of excess contributions (and earnings, if applicable) from
retirement plan accounts
o Participant initiated distributions from employee benefit plans or
participant initiated exchanges among investment choices in employee
benefit plans (not applicable to Class B)
EXCHANGE PRIVILEGE If a substantial number of shareholders should, within a
short period, sell their fund shares under the exchange privilege, the fund
might have to sell portfolio securities it might otherwise hold and incur the
additional costs related to such transactions.
The proceeds from the sale of shares of an investment company are generally
not available until the seventh day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange
until that seventh day. The sale of fund shares to complete an exchange will
be effected at net asset value at the close of business on the day the
request for exchange is received in proper form.
SYSTEMATIC WITHDRAWAL PLAN Our systematic withdrawal plan allows you to sell
your shares and receive regular payments from your account on a monthly,
quarterly, semiannual or annual basis. The value of your account must be at
least $5,000 and the minimum payment amount for each withdrawal must be at
least $50. For retirement plans subject to mandatory distribution
requirements, the $50 minimum will not apply. There are no service charges
for establishing or maintaining a systematic withdrawal plan.
Payments under the plan will be made from the redemption of an equivalent
amount of shares in your account, generally on the 25th day of the month in
which a payment is scheduled. If the 25th falls on a weekend or holiday, we
will process the redemption on the next business day. When you sell your
shares under a systematic withdrawal plan, it is a taxable transaction.
Shares sold under the plan also may be subject to a CDSC.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust
the shares in your account if payments exceed distributions received from the
fund. If a withdrawal amount exceeds the value of your account, your account
will be closed and the remaining balance in your account will be sent to you.
Because the amount withdrawn under the plan may be more than your actual
yield or income, part of the payment may be a return of your investment.
You may discontinue a systematic withdrawal plan, change the amount and
schedule of withdrawal payments, or suspend one payment by notifying us by
mail or by phone at least seven business days before the end of the month
preceding a scheduled payment. The fund may discontinue a systematic
withdrawal plan by notifying you in writing and will automatically
discontinue a systematic withdrawal plan if all shares in your account are
withdrawn or if the fund receives notification of the shareholder's death or
incapacity.
REDEMPTIONS IN KIND The fund has committed itself to pay in cash (by check)
all requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the
value of the fund's net assets at the beginning of the 90-day period. This
commitment is irrevocable without the prior approval of the U.S. Securities
and Exchange Commission (SEC). In the case of redemption requests in excess
of these amounts, the board reserves the right to make payments in whole or
in part in securities or other assets of the fund, in case of an emergency,
or if the payment of such a redemption in cash would be detrimental to the
existing shareholders of the fund. In these circumstances, the securities
distributed would be valued at the price used to compute the fund's net
assets and you may incur brokerage fees in converting the securities to cash.
Redemptions in kind are taxable transactions.
SHARE CERTIFICATES We will credit your shares to your fund account. We do not
issue share certificates. This eliminates the costly problem of replacing
lost, stolen or destroyed certificates.
All purchases of fund shares will be credited to you, in full and fractional
fund shares (rounded to the nearest 1/100 of a share), in an account
maintained for you by the fund's transfer agent. No share certificates will
be issued.
GENERAL INFORMATION If dividend checks are returned to the fund marked
"unable to forward" by the postal service, we will consider this a request by
you to change your dividend option to reinvest all distributions. The
proceeds will be reinvested in additional shares at net asset value until we
receive new instructions.
Distribution or redemption checks sent to you do not earn interest or any
other income during the time the checks remain uncashed. Neither the fund nor
its affiliates will be liable for any loss caused by your failure to cash
such checks. The fund is not responsible for tracking down uncashed checks,
unless a check is returned as undeliverable.
In most cases, if mail is returned as undeliverable we are required to take
certain steps to try to find you free of charge. If these attempts are
unsuccessful, however, we may deduct the costs of any additional efforts to
find you from your account. These costs may include a percentage of the
account when a search company charges a percentage fee in exchange for its
location services.
Sending redemption proceeds by wire or electronic funds transfer (ACH) is a
special service that we make available whenever possible. By offering this
service to you, the fund is not bound to meet any redemption request in less
than the seven day period prescribed by law. Neither the fund nor its agents
shall be liable to you or any other person if, for any reason, a redemption
request by wire or ACH is not processed as described in the prospectus.
Franklin Templeton Investor Services, Inc. (Investor Services) may pay
certain financial institutions that maintain omnibus accounts with the fund
on behalf of numerous beneficial owners for recordkeeping operations
performed with respect to such owners. For each beneficial owner in the
omnibus account, the fund may reimburse Investor Services an amount not to
exceed the per account fee that the fund normally pays Investor Services.
These financial institutions also may charge a fee for their services
directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account. Fees for
special services will not increase the fund's expenses.
Special procedures have been designed for banks and other institutions
wishing to open multiple accounts. An institution may open a single master
account by filing one application form with the fund, signed by personnel
authorized to act for the institution. Individual sub-accounts may be opened
at the time the master account is filed by listing them, or instructions may
be provided to the fund at a later date. These sub-accounts may be
established by the institution with registration either by name or number.
The investment minimums applicable to the fund are applicable to each
sub-account. The fund will provide each institution with a written
confirmation for each transaction in a sub-account and arrangements may be
made at no additional charge for the transmittal of duplicate confirmations
to the beneficial owner of the sub-account.
The fund will provide to each institution, on a quarterly basis or more
frequently if requested, a statement setting forth each sub-account's share
balance, income earned for the period, income earned for the year to date,
and total current market value.
If you buy or sell shares through your securities dealer, we use the net
asset value next calculated after your securities dealer receives your
request, which is promptly transmitted to the fund.
For institutional accounts, there may be additional methods of buying or
selling fund shares than those described in this SAI or in the prospectus.
In the event of disputes involving multiple claims of ownership or authority
to control your account, the fund has the right (but has no obligation) to:
(a) freeze the account and require the written agreement of all persons
deemed by the fund to have a potential property interest in the account,
before executing instructions regarding the account; (b) interplead disputed
funds or accounts with a court of competent jurisdiction; or (c) surrender
ownership of all or a portion of the account to the IRS in response to a
notice of levy.
PRICING SHARES
When you buy shares, you pay the net asset value (NAV) per share. When you
sell shares, you receive the NAV minus any applicable contingent deferred
sales charge (CDSC).
The value of a mutual fund is determined by deducting the fund's liabilities
from the total assets of the portfolio. The net asset value per share is
determined by dividing the net asset value of the fund by the number of
shares outstanding.
The fund calculates the NAV per share of each class each business day at 3:00
p.m. pacific time. The fund does not calculate the NAV on days the New York
Stock Exchange (NYSE) is closed for trading, which include New Year's Day,
Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The valuation of the Money Market Portfolio's portfolio securities, including
any securities held in a separate account maintained for when-issued
securities, is based on the amortized cost of the securities, which does not
take into account unrealized capital gains or losses. This method involves
valuing an instrument at its cost and thereafter assuming a constant
amortization to maturity of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of the instrument. While
this method provides certainty in calculation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than
the price the Portfolio would receive if it sold the instrument. During
periods of declining interest rates, the daily yield on shares of the
Portfolio computed as described above may tend to be higher than a like
computation made by a fund with identical investments but using a method of
valuation based upon market prices and estimates of market prices for all of
its portfolio instruments. Thus, if the use of amortized cost by the
Portfolio resulted in a lower aggregate portfolio value on a particular day,
a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield than would result from an investment in a fund using only market
values, and existing investors in the Portfolio would receive less investment
income. The opposite would be true in a period of rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain a
$1 share price, is permitted by a rule adopted by the U.S. Securities and
Exchange Commission (SEC). Under this rule, the Portfolio must adhere to
certain conditions. The Portfolio must maintain a dollar-weighted average
portfolio maturity of 90 days or less and only buy instruments with remaining
maturities of 397 days or less. The Portfolio also must invest only in those
U.S. dollar-denominated securities that the manager, in accordance with
procedures adopted by the board, determines present minimal credit risks and
that are rated in one of the top two ratings by U.S. nationally recognized
rating services (or comparable unrated securities), or are instruments issued
by an issuer that, with respect to an outstanding issue of short-term debt
that is comparable in priority and protection, has received a rating within
the two highest ratings. Securities subject to floating or variable interest
rates with demand features that comply with applicable SEC rules may have
stated maturities in excess of 397 days.
The board has established procedures designed to stabilize, to the extent
reasonably possible, the Portfolio's price per share at $1, as computed for
the purpose of sales and redemptions. These procedures include a review of
the Portfolio's holdings by the board, at such intervals as it may deem
appropriate, to determine if the Portfolio's net asset value calculated by
using available market quotations deviates from $1 per share based on
amortized cost. The extent of any deviation will be examined by the board. If
a deviation exceeds 1/2 of 1%, the board will promptly consider what action,
if any, will be initiated. If the board determines that a deviation exists
that may result in material dilution or other unfair results to investors or
existing shareholders, it will take corrective action that it regards as
necessary and appropriate, which may include selling portfolio instruments
before maturity to realize capital gains or losses or to shorten average
portfolio maturity, withholding dividends, redeeming shares in kind, or
establishing a net asset value per share by using available market quotations.
THE UNDERWRITER
Franklin Templeton Distributors, Inc. (Distributors) acts as the principal
underwriter in the continuous public offering of the fund's shares.
Distributors is located at 777 Mariners Island Blvd., San Mateo, CA 94404.
Distributors pays the expenses of the distribution of fund shares, including
advertising expenses and the costs of printing sales material and
prospectuses used to offer shares to the public. The fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of
Distributors) and of sending prospectuses to existing shareholders.
The table below shows the amounts Distributors received in connection with
redemptions or repurchases of shares for the last three fiscal years ended
June 30:
AMOUNT RECEIVED IN
CONNECTION WITH
REDEMPTIONS AND
REPURCHASES ($)
- -----------------------------------------
1999 293,731
1998 64,948
1997 27,110
Distributors may be entitled to reimbursement under the Rule 12b-1 plans, as
discussed below. Except as noted, Distributors received no other compensation
from the fund for acting as underwriter.
DISTRIBUTION AND SERVICE (12B-1) FEES Each class has a separate distribution
or "Rule 12b-1" plan. Under each plan, the fund shall pay or may reimburse
Distributors or others for the expenses of activities that are primarily
intended to sell shares of the class. These expenses may include, among
others, distribution or service fees paid to securities dealers or others who
have executed a servicing agreement with the fund, Distributors or its
affiliates; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
The distribution and service (12b-1) fees charged to each class are based
only on the fees attributable to that particular class.
Under the plans, the fund pays Distributors up to 0.50% per year of the
class's average daily net assets, payable monthly, to pay Distributors or
others for providing distribution and related services and bearing certain
expenses. All distribution expenses over this amount will be borne by those
who have incurred them. The fund also may pay a servicing fee of up to 0.15%
per year of the class's average daily net assets, payable monthly. This fee
may be used to pay securities dealers or others for, among other things,
helping to establish and maintain customer accounts and records, helping with
requests to buy and sell shares, receiving and answering correspondence,
monitoring dividend payments from the fund on behalf of customers, and
similar servicing and account maintenance activities.
The expenses relating to each of the plans also are used to pay Distributors
for advancing the commission costs to securities dealers with respect to the
initial sale of Class B and C shares. Further, the expenses relating to the
Class B plan may be used by Distributors to pay third party financing
entities that have provided financing to Distributors in connection with
advancing commission costs to securities dealers.
In addition to the payments that Distributors or others are entitled to under
each plan, each plan also provides that to the extent the fund, the manager
or Distributors or other parties on behalf of the fund, the manager or
Distributors make payments that are deemed to be for the financing of any
activity primarily intended to result in the sale of fund shares within the
context of Rule 12b-1 under the Investment Company Act of 1940, as amended,
then such payments shall be deemed to have been made pursuant to the plan.
The terms and provisions of each plan relating to required reports, term, and
approval are consistent with Rule 12b-1.
In no event shall the aggregate asset-based sales charges, which include
payments made under each plan, plus any other payments deemed to be made
pursuant to a plan, exceed the amount permitted to be paid under the rules of
the National Association of Securities Dealers, Inc.
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 plans as a result of
applicable federal law prohibiting certain banks from engaging in the
distribution of mutual fund shares. These banking institutions, however, are
permitted to receive fees under the plans for administrative servicing or for
agency transactions. If you are a customer of a bank that is prohibited from
providing these services, you would be permitted to remain a shareholder of
the fund, and alternate means for continuing the servicing would be sought.
In this event, changes in the services provided might occur and you might no
longer be able to avail yourself of any automatic investment or other
services then being provided by the bank. It is not expected that you would
suffer any adverse financial consequences as a result of any of these changes.
Each plan has been approved in accordance with the provisions of Rule 12b-1.
The plans are renewable annually by a vote of the board, including a majority
vote of the board members who are not interested persons of the fund and who
have no direct or indirect financial interest in the operation of the plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such board members be done by the
noninterested members of the fund's board. The plans and any related
agreement may be terminated at any time, without penalty, by vote of a
majority of the noninterested board members 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 or management agreement
with Franklin Advisers, Inc. or by vote of a majority of the outstanding
shares of the class. Distributors or any dealer or other firm also may
terminate their respective distribution or service agreement at any time upon
written notice.
The plans 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 outstanding shares of the class, and all material
amendments to the plans or any related agreements shall be approved by a vote
of the noninterested board members, 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 at least quarterly
on the amounts and purpose of any payment made under the plans and any
related agreements, as well as to furnish the board with such other
information as may reasonably be requested in order to enable the board to
make an informed determination of whether the plans should be continued.
For the fiscal year ended June 30, 1999, the amounts paid by the fund
pursuant to the plans were:
CLASS B ($) CLASS C ($)
- --------------------------------------------------------------------
Advertising 0 21,608
Printing and mailing prospectuses
other than to current shareholders 2 10,528
Payments to underwriters 8 64
Payments to broker-dealers 27 354,996
Other 1 5,112
----------------------------
Total 38 392,308
----------------------------
PERFORMANCE
Performance quotations are subject to SEC rules. These rules require the use
of standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the fund be accompanied
by certain standardized performance information computed as required by the
SEC. Average annual total return, current yield and effective yield
quotations used by the fund are based on the standardized methods of
computing performance mandated by the SEC. Performance figures reflect Rule
12b-1 fees from the date of the plan's implementation. An explanation of
these and other methods used by the fund to compute or express performance
follows. Regardless of the method used, past performance does not guarantee
future results, and is an indication of the return to shareholders only for
the limited historical period used.
AVERAGE ANNUAL TOTAL RETURN Average annual total return is determined by
finding the average annual rates of return over the periods indicated below
that would equate an initial hypothetical $1,000 investment to its ending
redeemable value. The calculation assumes income dividends are reinvested at
net asset value. The quotation assumes the account was completely redeemed at
the end of each period and the deduction of all applicable charges and fees.
The average annual total returns for the indicated periods ended June 30,
1999, were:
SINCE
INCEPTION
1 YEAR (%) (5/1/95) (%)
- -----------------------------------------------
Class C 3.08 4.21
The following SEC formula was used to calculate these figures:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of each period at the end of each period
CURRENT YIELD Current yield shows the income per share earned by the fund. It
is calculated by determining the net change, excluding capital changes, in
the value of a hypothetical pre-existing account with a balance of one share
at the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return. The result is then annualized by multiplying the base period
return by 365/7. The current yield for the seven day period ended June 30,
1999, was 3.88% for Class B and 3.93% for Class C.
EFFECTIVE YIELD The fund's effective yield is calculated in the same manner
as its current yield, except the annualization of the return for the seven
day period reflects the results of compounding. The effective yield for the
seven day period ended June 30, 1999, was 3.95% for Class B and 4.01% for
Class C.
The following SEC formula was used to calculate this figure:
Effective yield = [(Base period return + 1)365/7] - 1
OTHER PERFORMANCE QUOTATIONS The fund may include in its advertising or sales
material information relating to investment goals and performance results of
funds belonging to the Franklin Templeton Group of Funds. Franklin Resources,
Inc. is the parent company of the advisors and underwriter of the Franklin
Templeton Group of Funds.
COMPARISONS To help you better evaluate how an investment in the fund may
satisfy your investment goal, advertisements and other materials about the
fund may discuss certain measures of fund performance as reported by various
financial publications. Materials also may compare performance (as calculated
above) to performance as reported by other investments, indices, and
averages. These comparisons may include, but are not limited to, the
following examples:
o Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales
charges.
o IBC Money Fund Report(R) - industry averages for seven day annualized and
compounded yields of taxable, tax-free and government money funds.
o Bank Rate Monitor - a weekly publication that reports various bank
investments such as CD rates, average savings account rates and average
loan rates.
o Salomon Brothers Bond Market Roundup - a weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and
reserve aggregates.
From time to time, advertisements or information for the fund may include a
discussion of certain attributes or benefits to be derived from an investment
in the fund. The advertisements or information may include symbols,
headlines, or other material that highlights or summarizes the information
discussed in more detail in the communication.
Advertisements or information also may compare the fund's performance to the
return on certificates of deposit (CDs) or other investments. You should be
aware, however, that an investment in the fund involves the risk of
fluctuation of principal value, a risk generally not present in an investment
in a CD issued by a bank. CDs are frequently insured by an agency of the U.S.
government. An investment in the fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not
be identical to the formula used by the fund to calculate its figures. In
addition, there can be no assurance that the fund will continue its
performance as compared to these other averages.
MISCELLANEOUS INFORMATION
The fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to
have a projected amount available in the future to fund a child's college
education. (Projected college cost estimates are based upon current costs
published by the College Board.) The Franklin Retirement Planning Guide leads
you through the steps to start a retirement savings program. Of course, an
investment in the fund cannot guarantee that these goals will be met.
The fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin is one of
the oldest mutual fund organizations and now services more than 4 million
shareholder accounts. In 1992, Franklin, a leader in managing fixed-income
mutual funds and an innovator in creating domestic equity funds, joined
forces with Templeton, a pioneer in international investing. The Mutual
Series team, known for its value-driven approach to domestic equity
investing, became part of the organization four years later. Together, the
Franklin Templeton Group has over $222 billion in assets under management for
more than 6 million U.S. based mutual fund shareholder and other accounts.
The Franklin Templeton Group of Funds offers 106 U.S. based open-end
investment companies to the public. The fund may identify itself by its
NASDAQ symbol or CUSIP number.
Currently, there are more mutual funds than there are stocks listed on the
New York Stock Exchange. While many of them have similar investment goals, no
two are exactly alike. Shares of the fund are generally sold through
securities dealers, whose investment representatives are experienced
professionals who can offer advice on the type of investments suitable to
your unique goals and needs, as well as the risks associated with such
investments.
The Information Services & Technology division of Franklin Resources, Inc.
(Resources) established a Year 2000 Project Team in 1996. This team has been
making necessary software changes to help the computer systems that service
the fund and its shareholders to be Year 2000 compliant. After completing
these modifications, comprehensive tests are conducted in one of Resources'
U.S. test labs to verify their effectiveness. Resources continues to seek
reasonable assurances from all major hardware, software or data-services
suppliers that they will be Year 2000 compliant on a timely basis. Resources
is also developing a contingency plan, including identification of those
mission critical systems for which it is practical to develop a contingency
plan. However, in an operation as complex and geographically distributed as
Resources' business, the alternatives to use of normal systems, especially
mission critical systems, or supplies of electricity or long distance voice
and data lines are limited.
DESCRIPTION OF RATINGS
MUNICIPAL NOTE RATINGS
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade (MIG). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as
follows:
MIG 1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market
access for refinancing,
in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
STANDARD & POOR'S CORPORATION (S&P)
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or
less, the ratings below will usually be assigned. Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity
to pay principal and interest. Issues determined to possess overwhelming
safety characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings are opinions of the ability of issuers to repay punctually
their promissory obligations not having an original maturity in excess of
nine months. Moody's employs the following designations for both short-term
debt and commercial paper, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
