UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-03193
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FRANKLIN TAX-EXEMPT MONEY FUND
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(Exact name of registrant as specified in charter)

ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)

Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 7/31
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Date of reporting period: 7/31/06
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ITEM 1. REPORTS TO STOCKHOLDERS.

[GRAPHIC OMITTED]

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JULY 31, 2006
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ANNUAL REPORT AND SHAREHOLDER LETTER TAX-FREE INCOME
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN
TAX-EXEMPT MONEY FUND
Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.

[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS

FRANKLIN o Templeton o Mutual Series

Franklin Templeton Investments

Gain From Our Perspective(R)

Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.

SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.

FRANKLIN. Founded in 1947, Franklin is a recognized
leader in fixed income investing and also brings
expertise in growth- and value-style U.S. equity
investing.

TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched what
has become the industry's oldest global fund. Today,
with offices in over 25 countries, Templeton offers
investors a truly global perspective.

MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what it
believes are undervalued stocks, as well as
arbitrage situations and distressed securities.

TRUE DIVERSIFICATION Because our management groups work independently and
adhere to different investment approaches, Franklin,
Templeton and Mutual Series funds typically have
distinct portfolios. That's why our funds can be
used to build truly diversified allocation plans
covering every major asset class.

RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well as
the reliable, accurate and personal service that has
helped us become one of the most trusted names in
financial services.

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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]

Not part of the annual report

Contents

SHAREHOLDER LETTER ........................................................ 1

ANNUAL REPORT

Franklin Tax-Exempt Money Fund ............................................ 3

Performance Summary ....................................................... 4

Your Fund's Expenses ...................................................... 6

Financial Highlights and Statement of Investments ......................... 8

Financial Statements ...................................................... 14

Notes to Financial Statements ............................................. 17

Report of Independent Registered Public Accounting Firm ................... 22

Tax Designation ........................................................... 23

Board Members and Officers ................................................ 24

Shareholder Information ................................................... 28

================================================================================
Annual Report
Franklin Tax-Exempt Money Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Tax-Exempt Money Fund seeks to
provide as high a level of income exempt from federal income taxes as is
consistent with prudent investment management and preservation of capital. 1 The
Fund invests at least 80% of its total assets in high-quality, short-term
municipal securities free from federal income taxes, including the federal
alternative minimum tax, as it seeks to maintain a stable $1.00 share price.

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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN WILL FLUCTUATE. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.

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AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR INSTITUTION. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.

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We are pleased to bring you Franklin Tax-Exempt Money Fund's annual report for
the fiscal year ended July 31, 2006.

PERFORMANCE OVERVIEW

With rising short-term interest rates, money market portfolio yields climbed
during the year under review. Largely as a result, Franklin Tax-Exempt Money
Fund's seven-day effective yield rose from 1.49% at the beginning of the period
to 2.87% on July 31, 2006.

ECONOMIC AND MARKET OVERVIEW

The U.S. economy continued to grow at a healthy pace during the year under
review, although the pace in the second quarter of 2006 slowed from the first
quarter's 5.6% annualized rate. Overall, several factors contributed to real
growth. During most of the reporting period, labor markets improved, indicated
by nonfarm payroll data and the unemployment rate. Rising personal income also
helped support consumer spending increases. Business spending and productivity
also rose for most of the period. However, late in the period, the economy
experienced rising inflation pressures, largely due to high energy prices and
increasing labor costs. In addition, productivity growth and the pace of
business spending slowed.

1. Fund dividends are generally subject to state and local taxes. For
investors subject to alternative minimum tax, a small portion of Fund
dividends may be taxable. Distributions of capital gains are generally
taxable.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 9.

Annual Report | 3

PERFORMANCE SUMMARY
7/31/06

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Seven-day effective yield 2.87%
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Seven-day annualized yield 2.83%
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Taxable equivalent yield 2 4.35%
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1. Seven-day effective yield assumes the compounding of daily dividends.

2. Taxable equivalent yield assumes the 2006 maximum regular federal income
tax rate of 35.00%.

Annualized and effective yields are for the seven-day period ended 7/31/06. The
Fund's average weighted maturity was 48 days. Yields reflect Fund expenses and
fluctuations in interest rates on portfolio investments.

Oil prices reached a historical high during the year, which contributed to the
rise in headline, or overall, inflation. Core inflation, which excludes food and
energy costs, remained more contained but nonetheless began to experience some
upward pressure. For example, while July's headline Consumer Price Index (CPI)
reported a 12-month rise of 4.1%, core CPI increased 2.7%. 2

Several times during the period the Federal Reserve Board (Fed) acknowledged the
economy's strength as well as the potential inflationary pressure from high
energy prices. By period-end it had raised the federal funds target rate to
5.25% and indicated its next moves would be highly dependent on forthcoming
economic data. The 10-year Treasury note yield rose from 4.28% at the beginning
of the period to 4.99% on July 31, 2006, as some inflationary concerns began to
affect intermediate- and long-maturity Treasuries.

INVESTMENT STRATEGY

We invest predominantly in high-quality, short-term municipal securities.
Although the Fund tries to invest all of its assets in tax-free securities, it
is possible, although not anticipated, that a portion of its assets may be in
securities that pay taxable interest, including interest that may be subject to
federal alternative minimum tax. We maintain a dollar-weighted average portfolio
maturity of 90 days or less.

2. Source: Bureau of Labor Statistics.

4 | Annual Report

MANAGER'S DISCUSSION

Short-term municipal bond yields increased during the reporting period,
reflecting the Fed's consecutive increases in the federal funds target rate. The
Bond Market Association Municipal Swap Index, a benchmark for variable rate
securities, which make up a large portion of Franklin Tax-Exempt Money Fund,
averaged a rate of 3.09% for the period under review. 3

During the reporting period, the Fund participated in several new issues
including Allegheny County, Pennsylvania, Port Authority grant anticipation
notes; City of Cape Coral, Florida, tax-exempt commercial paper; and St. Louis,
Missouri, fund revenue anticipation notes.

Thank you for your continued participation in Franklin Tax-Exempt Money Fund. We
look forward to serving your future investment needs.

PORTFOLIO BREAKDOWN
7/31/06

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% OF TOTAL
INVESTMENTS
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Variable Rate Notes 76.3%
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Notes & Bonds 18.2%
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Tax-Exempt Commercial Paper 4.4%
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Put or Option Tender Bonds 1.1%
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3. Source: Thomson Financial. The Bond Market Association Municipal Swap
Index is a weekly high-grade market index composed of seven-day tax-exempt
variable rate demand notes and is produced by the Municipal Market Data
Group. Actual issues are selected from Municipal Market Data's database of
more than 10,000 active issues based on several specific criteria. The
index is unmanaged and does not reflect management fees and expenses that
affect Fund performance.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JULY 31, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.

Annual Report | 5

Your Fund's Expenses

As a Fund shareholder, you can incur two types of costs:

o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

o Ongoing Fund costs, including management fees, distribution and service
(12b-1) fees, and other Fund expenses. All mutual funds have ongoing
costs, sometimes referred to as operating expenses.

The following table shows ongoing costs of investing in the Fund and can help
you understand these costs and compare them with those of other mutual funds.
The table assumes a $1,000 investment held for the six months indicated.

ACTUAL FUND EXPENSES

The first line (Actual) of the table provides actual account values and
expenses. The "Ending Account Value" is derived from the Fund's actual return,
which includes the effect of Fund expenses.

You can estimate the expenses you paid during the period by following these
steps. OF COURSE, YOUR ACCOUNT VALUE AND EXPENSES WILL DIFFER FROM THOSE IN THIS
ILLUSTRATION:

1. Divide your account value by $1,000. IF AN ACCOUNT HAD AN $8,600 VALUE,
THEN $8,600 / $1,000 = 8.6.

2. Multiply the result by the number under the heading "Expenses Paid During
Period." IF EXPENSES PAID DURING PERIOD WERE $7.50, THEN 8.6 X $7.50 =
$64.50.

In this illustration, the estimated expenses paid this period are $64.50.

HYPOTHETICAL EXAMPLE FOR COMPARISON WITH OTHER FUNDS

Information in the second line (Hypothetical) of the table can help you compare
ongoing costs of investing in the Fund with those of other mutual funds. This
information may not be used to estimate the actual ending account balance or
expenses you paid during the period. The hypothetical "Ending Account Value" is
based on the Fund's actual expense ratio and an assumed 5% annual rate of return
before expenses, which does not represent the Fund's actual return. The figure
under the heading "Expenses Paid During Period" shows the hypothetical expenses
your account would have incurred under this scenario. You can compare this
figure with the 5% hypothetical examples that appear in shareholder reports of
other funds.

6 | Annual Report

Your Fund's Expenses (CONTINUED)

PLEASE NOTE THAT EXPENSES SHOWN IN THE TABLE ARE MEANT TO HIGHLIGHT ONGOING
COSTS AND DO NOT REFLECT ANY TRANSACTION COSTS, SUCH AS SALES CHARGES OR
REDEMPTION FEES. Therefore, the second line of the table is useful in comparing
ongoing costs only, and will not help you compare total costs of owning
different funds. In addition, if transaction costs were included, your total
costs would have been higher. Please refer to the Fund prospectus for additional
information on operating expenses.

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BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 2/1/06 VALUE 7/31/06 PERIOD* 2/1/06-7/31/06
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Actual $1,000 $1,013.10 $3.69
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Hypothetical (5% return before expenses) $1,000 $1,021.12 $3.71
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* Expenses are equal to the annualized expense ratio of 0.74%, multiplied by
the average account value over the period, multiplied by 181/365 to
reflect the one-half year period.

Annual Report | 7

Franklin Tax-Exempt Money Fund

FINANCIAL HIGHLIGHTS

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YEAR ENDED JULY 31,
2006 2005 2004 2003 2002
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year ........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------------

Income from investment operations:

Net investment income ....................... 0.023 0.011 0.002 0.005 0.011

Net realized gains (losses) ................. -- b -- -- -- --
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Total from investment operations ............. 0.023 0.011 0.002 0.005 0.011
--------------------------------------------------------------------------------
Less distributions from net investment income (0.023) (0.011) (0.002) (0.005) (0.011)
--------------------------------------------------------------------------------
Net asset value, end of year ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================================

Total return a ............................... 2.36% 1.11% 0.23% 0.53% 1.06%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) .............. $ 183,282 $ 165,736 $ 179,372 $ 176,834 $ 163,710

Ratios to average net assets:

Expenses .................................... 0.74% 0.73% 0.74% 0.76% 0.76%

Net investment income ....................... 2.32% 1.10% 0.24% 0.53% 1.05%

a Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.

b Amount rounds to less than $0.001 per share.

8 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin Tax-Exempt Money Fund

STATEMENT OF INVESTMENTS, JULY 31, 2006

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PRINCIPAL AMOUNT VALUE
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INVESTMENTS 99.0%
MUNICIPAL BONDS 99.0%
ALABAMA 1.0%
a Evergreen IDB, IDR, Tenax Manufacturing Project, Refunding, Weekly VRDN and Put, 3.66%,
12/01/12 ........................................................................................ $ 1,900,000 $ 1,900,000
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ARIZONA 2.8%
a Apache County IDA, IDR, Tucson Electric Power Co Project, Springerville Project,
Series C, Weekly VRDN and Put, 3.65%, 12/15/18 ................................................... 1,000,000 1,000,000
a Arizona Health Facilities Authority Hospital System Revenue, Series B, MBIA Insured,
Weekly VRDN and Put, 3.64%, 10/01/26 ............................................................. 1,600,000 1,600,000
a Nanotechnology Research LLC Lease Revenue, Arizona State University Project, Series A,
MBIA Insured, Weekly VRDN and Put, 3.64%, 3/01/34 ................................................ 1,000,000 1,000,000
Phoenix Civic Improvement Corp Excise Tax Revenue, Sub Series B, MBIA Insured, 4.50%,
7/01/07 .......................................................................................... 1,520,000 1,531,492
----------
5,131,492
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COLORADO 7.0%
a Colorado Springs Utilities Revenue, sub lien, Series A, Weekly VRDN and Put, 3.62%,
11/01/29 ......................................................................................... 5,000,000 5,000,000
a Denver City and County COP,
Refunding, AMBAC Insured, Weekly VRDN and Put, 3.65%, 12/01/29 ................................... 4,000,000 4,000,000
Wellington E Web, Refunding, Series C3, AMBAC Insured, Weekly VRDN and Put, 3.65%,
12/01/29 ......................................................................................... 3,000,000 3,000,000
a University of Colorado COP, Series A, Weekly VRDN and Put, 3.62%, 7/01/18 ......................... 875,000 875,000
----------
12,875,000
----------
FLORIDA 2.4%
a Florida Higher Education Facilities Financing Authority Revenue, St Thomas University Project,
Daily VRDN and Put, 3.69%, 1/01/19 ............................................................... 1,600,000 1,600,000
a Martin County IDA, IDR, YMCA Treasure Coast Project, Weekly VRDN and Put, 3.64%,
10/01/16 ......................................................................................... 1,300,000 1,300,000
a Orange County School Board COP, Series B, MBIA Insured, Daily VRDN and Put, 3.68%,
8/01/27 .......................................................................................... 1,435,000 1,435,000
----------
4,335,000
----------
GEORGIA 9.9%
a Atlanta Downtown Development Authority Revenue, Underground Atlanta Project, Refunding,
AMBAC Insured, Weekly VRDN and Put, 3.63%, 10/01/16 .............................................. 805,000 805,000
a Atlanta Water and Wastewater Revenue, Series C, FSA Insured, Daily VRDN and Put, 3.68%,
11/01/41 ......................................................................................... 550,000 550,000
a Fulco Hospital Authority Revenue, Anticipation Certificates, Shepherd Center Inc Project,
Weekly VRDN and Put, 3.64%, 9/01/17 .............................................................. 1,000,000 1,000,000
a Gainesville RDA Educational Facilities Revenue, Riverside Military Project, Weekly VRDN
and Put, 3.64%, 12/01/25 ......................................................................... 4,600,000 4,600,000
a Metropolitan Atlanta Rapid Transit Authority Sales Tax Revenue, Series B, Weekly VRDN and
Put, 3.65%, 7/01/25 .............................................................................. 8,000,000 8,000,000
a Roswell Housing Authority MFR, Azalea Park Apartments, Refunding, FNMA Insured,
Weekly VRDN and Put, 3.67%, 6/15/25 .............................................................. 3,200,000 3,200,000
----------
18,155,000
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Annual Report | 9

Franklin Tax-Exempt Money Fund

STATEMENT OF INVESTMENTS, JULY 31, 2006 (CONTINUED)

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PRINCIPAL AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------------------------------------

INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
HAWAII 1.0%
a Hawaii State Department of Budget and Finance Special Purpose Revenue, Adventist Health
System West, Weekly VRDN and Put, 3.62%, 3/01/08 ........................................... $1,900,000 $1,900,000
----------
ILLINOIS 4.9%
Chicago GO, Tender Notes, Mandatory Put 12/07/06, 3.37%, 2/02/07 ............................ 2,000,000 2,000,000
Chicago Wastewater Transmission Revenue, second lien, Series A, AMBAC Insured, 3.50%,
1/01/07 .................................................................................... 1,215,000 1,215,571
a Illinois State Toll Highway Authority Toll Highway Priority Revenue, Refunding, Series B,
MBIA Insured, Weekly VRDN and Put, 3.62%, 1/01/10 .......................................... 5,690,000 5,690,000
----------
8,905,571
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IOWA 1.1%
Iowa State School Cash Anticipation Program wts , Series B, FSA Insured, 4.50%, 1/26/07 ..... 2,000,000 2,012,182
----------
KENTUCKY 2.1%
a Kentucky Development Finance Authority Revenue, Pooled Loan Program, Series A,
FGIC Insured, Weekly VRDN and Put, 3.65%, 12/01/15 ......................................... 3,800,000 3,800,000
----------
LOUISIANA 3.0%
a Louisiana State Offshore Terminal Authority Deepwater Port Revenue, Loop Inc Project,
First Stage, ACES, Refunding, Daily VRDN and Put, 3.68%, 9/01/17 ........................... 5,400,000 5,400,000
----------
MARYLAND 1.1%
a Community Development Administration MF Development Revenue, Avalon Ridge Apartments
Project, Refunding, FNMA Insured, Weekly VRDN and Put, 3.62%, 6/15/26 ...................... 2,100,000 2,100,000
----------
MASSACHUSETTS 11.7%
a Massachusetts Bay Transportation Authority GO, General Transportation System, Weekly VRDN
and Put, 3.61%, 3/01/30 .................................................................... 4,600,000 4,600,000
Massachusetts State Development Finance Agency Revenue, TECP, 3.37%, 8/03/06 ................ 3,000,000 3,000,000
a Massachusetts State GO, Refunding, Series B, Weekly VRDN and Put, 3.61%, 9/01/16 ............ 7,700,000 7,700,000
a Massachusetts State Health and Educational Facilities Authority Revenue, Capital Assets
Program, Series D, MBIA Insured, Daily VRDN and Put, 3.65%, 1/01/35 ........................ 1,820,000 1,820,000
a Massachusetts State Water Resource Authority Revenue, Multi-Modal, Refunding, Sub Series D,
Daily VRDN and Put, 3.67%, 8/01/17 ......................................................... 4,250,000 4,250,000
----------
21,370,000
----------

MICHIGAN 5.9%
Detroit GO, Refunding, Series A, FSA Insured, 5.00%, 4/01/07 ................................ 1,910,000 1,928,516
a Detroit Sewage Disposal Revenue, senior lien,
Refunding, Series C-2, FGIC Insured, Weekly VRDN and Put, 3.65%, 7/01/29 ................... 3,000,000 3,000,000
Series B, FSA Insured, Daily VRDN and Put, 3.68%, 7/01/33 .................................. 1,475,000 1,475,000
Michigan Municipal Bond Authority Revenue, Notes, Series B-2, 4.00%, 8/18/06 ................ 1,000,000 1,000,488
Michigan State GO, Series A, 4.50%, 9/29/06 ................................................. 2,000,000 2,003,900
a Michigan State Revenue, Grant Anticipation Notes, Series B, FSA Insured, Weekly VRDN and
Put, 3.62%, 9/15/09 ........................................................................ 800,000 800,000
a Michigan State University Revenues, Series A, Daily VRDN and Put, 3.67%, 8/15/32 ............ 560,000 560,000
----------
10,767,904
----------

10 | Annual Report

Franklin Tax-Exempt Money Fund

STATEMENT OF INVESTMENTS, JULY 31, 2006 (CONTINUED)

INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
MINNESOTA 2.6%
a Brown County Purchase Revenue, Martin Luther College Project, Weekly VRDN and Put, 3.60%,
9/01/24 .................................................................................... $ 1,500,000 $ 1,500,000
a Minneapolis MFR, Seven Corners Apartments Project, Weekly VRDN and Put, 3.60%, 11/01/31 ..... 250,000 250,000
a Minneapolis Revenue, Adjusted Guthrie Theater Project, Series A, Weekly VRDN and Put,
3.52%, 10/01/23 ............................................................................ 3,000,000 3,000,000
-----------

4,750,000
-----------
MISSISSIPPI 2.2%
De Soto County School District GO, FGIC Insured, 4.00%, 5/01/07 ............................. 4,000,000 4,012,451
-----------
MISSOURI 3.1%
a Missouri State Health and Educational Facilities Authority Health Facilities Revenue,
SSM Health Care Corp, Refunding, Series C-1, FSA Insured, Daily VRDN and Put, 3.67%,
6/01/19 .................................................................................... 400,000 400,000
St. Louis General Fund Revenue, TRAN, 4.50%, 6/29/07 ........................................ 5,305,000 5,339,882
-----------
5,739,882
-----------
NEVADA 0.5%
Clark County Highway Revenue, TECP, 3.58%, 9/07/06 .......................................... 1,000,000 1,000,000
-----------
NEW HAMPSHIRE 1.7%
a New Hampshire Higher Educational and Health Facilities Authority Revenue, VHA New England
Inc, Series G, AMBAC Insured, Weekly VRDN and Put, 3.64%, 12/01/25 ......................... 3,025,000 3,025,000
-----------
NEW JERSEY 1.9%
a New Jersey State Turnpike Authority Turnpike Revenue,
Refunding, Series D, FGIC Insured, Weekly VRDN and Put, 3.59%, 1/01/18 ..................... 1,000,000 1,000,000
Series C-2, FSA Insured, Weekly VRDN and Put, 3.60%, 1/01/24 ............................... 2,500,000 2,500,000
-----------
3,500,000
-----------
NEW MEXICO 4.0%
a Albuquerque Gross Receipts Lodgers Tax Revenue, Weekly VRDN and Put, 3.64%, 7/01/23 ......... 300,000 300,000
a Farmington PCR, Arizona Public Service Co,
Refunding, Series B, Daily VRDN and Put, 3.68%, 9/01/24 .................................... 2,600,000 2,600,000
Series A, Daily VRDN and Put, 3.68%, 5/01/24 ............................................... 4,400,000 4,400,000
-----------
7,300,000
-----------
NEW YORK 2.2%
MTA Transportation Revenue, TECP, 3.58%, 10/06/06 ........................................... 4,000,000 4,000,000
-----------
NORTH CAROLINA 2.9%
Henderson County COP, Series A, AMBAC Insured, 5.00%, 6/01/07 ............................... 1,250,000 1,262,927
a North Carolina State GO, Public Improvement, Series D, Weekly VRDN and Put, 3.62%,
5/01/21 .................................................................................... 4,135,000 4,135,000
-----------
5,397,927
-----------
OHIO 1.6%
a Ohio State Water Development Authority Pollution Control Facilities Revenue, First Energy
General Corp , Refunding, Series A, Daily VRDN and Put, 3.68%, 5/15/19 ..................... 3,000,000 3,000,000
-----------

Annual Report | 11

Franklin Tax-Exempt Money Fund

STATEMENT OF INVESTMENTS, JULY 31, 2006 (CONTINUED)

INVESTMENTS (CONTINUED)
MUNICIPAL BONDS (CONTINUED)
PENNSYLVANIA 11.8%
Allegheny County Port Authority Revenue, Grant Anticipation Notes, 4.50%, 6/29/07 ........... $ 3,200,000 $ 3,219,894
a Delaware Valley Regional Finance Authority Local Government Revenue,
Series A, Weekly VRDN and Put, 3.64%, 12/01/20 ............................................. 2,150,000 2,150,000
Series C, Weekly VRDN and Put, 3.64%, 12/01/20 ............................................. 700,000 700,000
Series D, Weekly VRDN and Put, 3.64%, 12/01/20 ............................................. 3,100,000 3,100,000
a Emmaus General Authority Revenue,
Local Government, Series F-19, Weekly VRDN and Put, 3.69%, 3/01/24 ......................... 1,250,000 1,250,000
Sub Series G-19, Weekly VRDN and Put, 3.69%, 3/01/24 ....................................... 1,800,000 1,800,000
a Lehigh County General Purpose Authority Revenues, St. Lukes Hospital Project, Daily VRDN
and Put, 3.64%, 7/01/31 .................................................................... 1,400,000 1,400,000
Philadelphia School District GO, TRAN, Series A, 4.50%, 6/29/07 ............................. 5,000,000 5,031,531
a Upper Dauphin IDAR, United Church Christ Homes, Weekly VRDN and Put, 3.66%, 12/01/26 ........ 3,000,000 3,000,000
------------
21,651,425
------------
TENNESSEE 3.0%
a Blount County PBA Revenue, Local Public Improvement, Series D-1-A, AMBAC Insured,
Daily VRDN and Put, 3.67%, 6/01/30 ......................................................... 2,000,000 2,000,000
a Clarksville PBA Revenue, Pooled Financing, Tennessee Municipal Bond Fund, Daily VRDN and
Put, 3.68%, 11/01/35 ....................................................................... 1,100,000 1,100,000
a Montgomery County PBA Pooled Financing Revenue, Tennessee County Loan Pool,
Daily VRDN and Put, 3.68%, 4/01/32 ......................................................... 800,000 800,000
Weekly VRDN and Put, 3.63%, 11/01/27 ....................................................... 1,600,000 1,600,000
------------
5,500,000
------------

TEXAS 4.6%
a Bexar County HFA, MFR, Altamonte Apartments Project, Refunding, FNMA Insured,
Weekly VRDN and Put, 3.64%, 9/15/26 ........................................................ 3,900,000 3,900,000
Texas State GO, TRAN, 4.50%, 8/31/06 ........................................................ 4,525,000 4,530,578
------------
8,430,578
------------

UTAH 1.6%
a Intermountain Power Agency Power Supply Revenue, Series F, AMBAC Insured, Semi-Annually
VRDN and Put, 3.45%, 7/01/15 ............................................................... 3,000,000 3,000,000
------------

WASHINGTON 1.4%
a Snohomish County PUD No. 001 Generation System Revenue, Refunding, Series A-1,
FSA Insured, Weekly VRDN and Put, 3.63%, 12/01/19 .......................................... 2,470,000 2,470,000
------------
TOTAL INVESTMENTS (COST $181,429,412) 99.0% ................................................. 181,429,412
OTHER ASSETS, LESS LIABILITIES 1.0% ......................................................... 1,852,731
------------
NET ASSETS 100.0% ........................................................................... $183,282,143
============

See Selected Portfolio Abbreviations on page 13.

a Variable rate demand notes (VRDNs) are tax-exempt obligations which
contain a floating or variable interest rate adjustment formula and an
unconditional right of demand to receive payment of the principal balance
plus accrued interest at specified dates. The coupon rate shown represents
the rate at period end. VRDNs are valued at cost.

12 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin Tax-Exempt Money Fund

STATEMENT OF INVESTMENTS, JULY 31, 2006

SELECTED PORTFOLIO ABBREVIATIONS

ACES - Adjustable Convertible Exempt Securities

AMBAC - American Municipal Bond Assurance Corp.

COP - Certificate of Participation

FGIC - Financial Guaranty Insurance Co.

FNMA - Federal National Mortgage Association

FSA - Financial Security Assurance Inc.

GO - General Obligation

HFA - Housing Finance Authority/Agency

IDA - Industrial Development Authority/Agency

IDAR - Industrial Development Authority Revenue

IDB - Industrial Development Bond/Board

IDR - Industrial Development Revenue

MBIA - Municipal Bond Investors Assurance Corp.

MF - Multi-Family

MFR - Multi-Family Revenue

MTA - Metropolitan Transit Authority

PBA - Public Building Authority

PCR - Pollution Control Revenue

PUD - Public Utility District

RDA - Redevelopment Agency/Authority

TECP - Tax-Exempt Commercial Paper

TRAN - Tax and Revenue Anticipation Notes

VHA - Volunteer Hospital of America

Annual Report | The accompanying notes are an integral part of these financial
statements. | 13

Franklin Tax-Exempt Money Fund

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
July 31, 2006

Assets:
Investments in securities, at cost and value ................. $181,429,412
Cash ......................................................... 41,090
Receivables:
Capital shares sold ......................................... 2,013,740
Interest .................................................... 1,061,767
------------
Total assets ............................................ 184,546,009
------------
Liabilities:
Payables:
Capital shares redeemed ..................................... 1,108,281
Affiliates .................................................. 96,548
Distributions to shareholders ............................... 12,361
Accrued expenses and other liabilities ....................... 46,676
------------
Total liabilities ....................................... 1,263,866
------------
Net assets, at value ................................... $183,282,143
============

Net assets consist of:
Paid-in capital .............................................. $183,347,058
Accumulated net realized gain (loss) ......................... (64,915)
------------
Net assets, at value ................................... $183,282,143
============
Shares outstanding ............................................ 183,349,394
============
Net asset value per share a ................................... $1.00
============

a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable.

14 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin Tax-Exempt Money Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended July 31, 2006

Investment income:
Interest ..................................................... $5,447,577
----------
Expenses:
Management fees (Note 3a) .................................... 1,020,637
Transfer agent fees (Note 3c) ................................ 154,995
Custodian fees ............................................... 2,493
Reports to shareholders ...................................... 44,719
Registration and filing fees ................................. 54,672
Professional fees ............................................ 14,817
Directors' fees and expenses ................................. 6,993
Other ........................................................ 17,416
----------
Total expenses .......................................... 1,316,742
----------
Net investment income .................................. 4,130,835
----------
Net realized gain (loss) from investments ..................... (11,576)
----------
Net increase (decrease) in net assets resulting from operations $4,119,259
==========

Annual Report | The accompanying notes are an integral part of these financial
statements. | 15

Franklin Tax-Exempt Money Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS
------------------------------
YEAR ENDED JULY 31,
2006 2005
------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 4,130,835 $ 1,873,525
Net realized gain (loss) from investments ................................... (11,576) (282)
------------------------------
Net increase (decrease) in net assets resulting from operations ......... 4,119,259 1,873,243
------------------------------
Distribution to shareholders from net investment income ...................... (4,186,510) (1,873,243)
Capital share transactions (Note 2) .......................................... 17,613,743 (13,636,263)
------------------------------
Net increase (decrease) in net assets ................................... 17,546,492 (13,636,263)
------------------------------
Net assets (there is no undistributed net investment income at beginning or end
of year):
Beginning of year ............................................................ 165,735,651 179,371,914
------------------------------
End of year .................................................................. $ 183,282,143 $ 165,735,651
==============================

16 | The accompanying notes are an integral part of these financial statements.
| Annual Report

Franklin Tax-Exempt Money Fund

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Tax-Exempt Money Fund (the Fund) is registered under the Investment
Company Act of 1940 (1940 Act) as a diversified, open-end investment company.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

Securities are valued at amortized cost which approximates market value. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. All security
valuation procedures are approved by the Fund's Board of Directors.

B. INCOME TAXES

No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its income and net realized
gains.

C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Dividends from net investment income are normally declared daily and
distributed monthly to shareholders. Distributions to shareholders are
determined according to income tax regulations (tax basis). Distributable
earnings determined on a tax basis may differ from earnings recorded in
accordance with accounting principles generally accepted in the United States.
These differences may be permanent or temporary. Permanent differences are
reclassified among capital accounts to reflect their tax character. These
reclassifications have no impact on net assets or the results of operations.
Temporary differences are not reclassified, as they may reverse in subsequent
periods.

D. ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.

Annual Report | 17

Franklin Tax-Exempt Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E. GUARANTEES AND INDEMNIFICATIONS

Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At July 31, 2006, there were 5 billion shares authorized (no par value).
Transactions in the Fund's shares at $1.00 per share were as follows:

---------------------------------
YEAR ENDED JULY 31,
2006 2005
---------------------------------

Shares sold ..................................................... $ 237,499,007 $ 212,615,914
Shares issued in reinvestment of distributions .................. 4,180,533 1,880,299
Shares redeemed ................................................. (224,065,797) (228,132,476)
--------------------------------
Net increase (decrease) ......................................... $ 17,613,743 $ (13,636,263)
================================

3. TRANSACTIONS WITH AFFILIATES

Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
directors of the Fund are also officers and/or directors of the following
subsidiaries:

- --------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- --------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC
(Investor Services) Transfer agent

18 | Annual Report

Franklin Tax-Exempt Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

A. MANAGEMENT FEES

The Fund pays an investment management fee to Advisers based on the average
daily net assets of the Fund as follows:

- --------------------------------------------------------------------------------
ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.625% Up to and including $100 million
0.500% Over $100 million, up to and including $250 million
0.450% Over $250 million, up to and including $10 billion
0.440% Over $10 billion, up to and including $12.5 billion
0.420% Over $12.5 billion, up to and including $15 billion
0.400% Over $15 billion, up to and including $17.5 billion
0.380% Over $17.5 billion, up to and including $20 billion
0.360% In excess of $20 billion

B. ADMINISTRATIVE FEES

Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.

C. TRANSFER AGENT FEES

The Fund paid transfer agent fees of $154,995, of which $111,299 was retained by
Investor Services.

4. INCOME TAXES

At July 31, 2006, the Fund had tax basis capital losses which may be carried
over to offset future capital gains, if any. At July 31, 2006, the capital loss
carryforwards were as follows:

Capital loss carryovers expiring in:

2008......................................................... $ 8,419
2009......................................................... 26,572
2012......................................................... 17,134
2013......................................................... 932
2014......................................................... 282
--------
$ 53,339
========

On July 31, 2006, the fund had expired capital loss carryovers of $2,336, which
were reclassified to paid-in capital.

Annual Report | 19

Franklin Tax-Exempt Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. INCOME TAXES (CONTINUED)

For tax purposes, realized capital losses occurring subsequent to October 31,
may be deferred and treated as occurring on the first day of the following
fiscal year. At July 31, 2006, the Fund deferred realized capital losses of
$11,576.

The tax character of distributions paid during the years ended July 31, 2006 and
2005, was as follows:

------------------------
2006 2005
------------------------

Distributions paid from tax exempt income.... $4,186,510 $1,873,243

At July 31, 2006, the cost of investments and undistributed tax exempt income
for income tax purposes were as follows:

Costs of investments.................................. $181,429,412
============

Undistributed ordinary tax exempt income.............. $ 7,032
============

5. REGULATORY MATTERS

As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.

Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Fund did not participate in the CAGO Settlement.

On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan will be completed in September, 2006. The Fund did
not participate in the December 13, 2004 SEC Order.

20 | Annual Report

Franklin Tax-Exempt Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. REGULATORY MATTERS (CONTINUED)

The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."

In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.

The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.

6. NEW ACCOUNTING PRONOUNCEMENT

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. We have not yet completed our evaluation of the impact,
if any, of adopting FIN 48 on the Fund's financial statements.

Annual Report | 21

Franklin Tax-Exempt Money Fund

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FRANKLIN TAX-EXEMPT MONEY FUND

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Tax-Exempt Money Fund (the
"Fund") at July 31, 2006, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the five years in the period then
ended, in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at July
31, 2006 by correspondence with the custodian, provide a reasonable basis for
our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
September 15, 2006

22 | Annual Report

Franklin Tax-Exempt Money Fund

TAX DESIGNATION (UNAUDITED)

Under Section 852(b)(5)(A) of the Internal Revenue Code, the Fund designates
100% of the distributions paid from net investment income as exempt-interest
dividends for the fiscal year ended July 31, 2006. A portion of the Fund's
exempt-interest dividends may be subject to the federal alternative minimum tax.
In January 2007, shareholders will be notified of amounts for use in preparing
their 2006 income tax returns.

Annual Report | 23

Franklin Tax-Exempt Money Fund

BOARD MEMBERS AND OFFICERS

The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.

INDEPENDENT BOARD MEMBERS

- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------

HARRIS J. ASHTON (1932) Trustee Since 1992 139 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President,
Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998).
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1992 140 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Director Since 1980 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital).
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Director Since 1992 139 Director, MedImmune, Inc.
One Franklin Parkway (biotechnology) and Overstock.com
San Mateo, CA 94403-1906 (Internet services); and FORMERLY,
Director, MCI Communication Corporation
(subsequently known as MCI WorldCom,
Inc. and WorldCom, Inc.) (communications
services) (1988-2002), White Mountains
Insurance Group, Ltd. (holding company)
(1987-2004), Spacehab, Inc. (aerospace
services) (1994-2003) and Martek
Biosciences Corporation (1998-2006).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; Senior Business Advisor, Martek Biosciences Corporation (research and development); and FORMERLY,
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004); Chairman, White River Corporation (financial
services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association of
Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------

24 | Annual Report

INTERESTED BOARD MEMBERS AND OFFICERS

**CHARLES B. JOHNSON (1933) Director and Director since 139 None
One Franklin Parkway Chairman of 1980 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be,
of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Director, Director since 123 None
One Franklin Parkway President and 1980, President
San Mateo, CA 94403-1906 Chief since 1993 and
Executive Chief Executive
Officer Officer
- Investment -Investment
Management Management
since 2002

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and
officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45
of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
SHEILA AMOROSO (1959) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton
Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) Vice President Since 1986 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
RAFAEL R. COSTAS, JR. (1965) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

Annual Report | 25

JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since 2004
San Mateo, CA 94403-1906 Officer and and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton
Investments; and formerly, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of
the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the
investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC,
Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and
Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47
of the investment companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management,
Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S.
Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court
(District of Massachusetts) (until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------

26 | Annual Report

KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since March 2006
San Mateo, CA 94403-1906 and Secretary
since April 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company;
and officer of 31 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and formerly, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
THOMAS WALSH (1961) Vice President Since 1999 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Advisers, Inc.; and officer of eight of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------

* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment manager or
affiliated investment managers.

** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF DIRECTORS HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF DIRECTORS BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT
DIRECTOR AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE
COMMISSION RULES AND RELEASES.

THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION
ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST.
SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.

Annual Report | 27

Franklin Tax-Exempt Money Fund

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

At a meeting held February 28, 2006, the Board of Directors ("Board"), including
a majority of non-interested or independent Directors, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included investment performance reports and related
financial information for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager ("Manager") and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for the Fund prepared by Lipper, Inc. ("Lipper"), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper report compared the Fund's investment
performance and expenses with those of other mutual funds deemed comparable to
the Fund as selected by Lipper. The Fund profitability analysis report discussed
the profitability to Franklin Templeton Investments from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report was information on a fund-by-fund basis listing
portfolio managers and other accounts they manage, as well as information on
management fees charged by the Manager and its affiliates including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional information
accompanying such report was a memorandum prepared by management describing
enhancements to the services provided to the Fund by the Franklin Templeton
Investments organization, as well as a memorandum relating to economies of
scale.

In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Directors, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.

NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board covering matters such as the compliance of portfolio
managers and other management personnel with the code of ethics adopted
throughout the Franklin Templeton fund complex, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,
including the right to exchange

28 | Annual Report

Franklin Tax-Exempt Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

investments between the same class of funds without a sales charge, the ability
to reinvest Fund dividends into other funds and the right to combine holdings in
other funds to obtain a reduced sales charge. Favorable consideration was given
to management's efforts and expenditures in establishing back-up systems and
recovery procedures to function in the event of a natural disaster, it being
noted by the Board that such systems and procedures had functioned smoothly
during the hurricanes and blackout experienced last year in Florida.
Consideration was also given to the experience of the Fund's portfolio
management team, the number of accounts managed and general method of
compensation. In this latter respect, the Board noted that a primary factor in
management's determination of a portfolio manager's bonus compensation was the
relative investment performance of the funds he or she managed so as to be
aligned with the interests of Fund shareholders. The Board also took into
account the transfer agent and shareholder services provided Fund shareholders
by an affiliate of the Manager, noting continuing expenditures by management to
increase and improve the scope of such services, periodic favorable reports on
such service conducted by third parties and the firsthand experience of the
individual Directors who deal with the shareholder services department in their
capacities as shareholders in one or more of the various Franklin Templeton
Funds.

INVESTMENT PERFORMANCE. The Board placed significant emphasis on the investment
performance of the Fund in view of its importance to shareholders. While
consideration was given to performance reports and discussions with portfolio
managers at Board meetings during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed its investment
performance for the year ended December 31, 2005, as well as the previous ten
years ended that date in comparison to a performance universe consisting of the
Fund and all retail tax-exempt money market funds as selected by Lipper. The
Lipper report showed that the Fund's total return for the one-year period, as
well as for the previous three-year period on an annualized basis was in the
second-lowest quintile of such universe, and was in the lowest quintile for the
previous five- and ten-year periods on an annualized basis. In discussing this
comparative performance, management pointed out that the Fund follows a very
conservative investment approach with no investments in non-rated securities or
tier 2 securities and with little or no investments in securities subject to the
alternative minimum tax. Management further pointed out that its total return
was close to the median of its performance universe, being within 15 basis
points of such median for the annualized ten-year period as shown in the Lipper
report. The Board found such performance to be acceptable, noting the points
raised by management.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Prior to making such comparison, the Board relied upon
a survey showing that the scope of management advisory services covered under
the Fund's investment management agreement was similar to those provided by fund
managers to other mutual fund groups that would be used as a basis of comparison
in the Lipper reports. In reviewing comparative costs, emphasis was given to the
Fund's management fee

Annual Report | 29

Franklin Tax-Exempt Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

in comparison with the effective management fee that would have been charged by
other funds within its Lipper expense group assuming they were the same size as
the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper effective management fee analysis
includes administrative charges as being part of a management fee. The results
of such comparisons showed the Fund's effective management fee to be the second
most expensive of the 15 funds comprising the Lipper expense group, and its
actual total expense to be the sixth most expensive within such group. In
discussing the expense comparisons, management pointed out that this Fund is not
actively marketed and largely serves as an alternative investment vehicle for
shareholders of the various Franklin/Templeton/Mutual Series Fund families and
provides a number of courtesy services to shareholders, including check writing
and exchange privileges. Management also pointed out that the Fund's effective
management fee rate was within eight basis points of the median for its Lipper
expense group. The Board found such comparative expenses to be acceptable,
noting the points raised by management.

MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board reviewed the Fund profitability analysis
that addresses the overall profitability of Franklin Templeton's U.S. fund
business, as well as its profits in providing management and other services to
each of the individual funds. Specific attention was given to the methodology
followed in allocating costs to the Fund, it being recognized that allocation
methodologies are inherently subjective and various allocation methodologies may
each be reasonable while producing different results. In this respect, the Board
noted that the cost allocation methodology was consistent with that followed in
profitability report presentations for the Fund made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
in reference to the profitability analysis. Included in the analysis were the
revenue and related costs involved in providing services to the Fund, as well as
the Fund's relative contribution to the profitability of the Manager's parent.
In reviewing and discussing such analysis, management discussed with the Board
its belief that costs incurred in establishing the infrastructure necessary to
the type of mutual fund operations conducted by the Manager and its affiliates
may not be fully reflected in the expenses allocated to the Fund in determining
its profitability, as well as the fact that the level of profits, to a certain
extent, reflected operational cost savings and efficiencies initiated by
management. The Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. Based upon
its consideration of all these factors, the Board determined that the level of
profits realized by the Manager and its affiliates from providing services to
each Fund was not excessive in view of the nature, quality and extent of
services provided.

30 | Annual Report

Franklin Tax-Exempt Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows larger and the extent to which this is
reflected in the level of management fees charged. While recognizing that any
precise determination is inherently subjective, the Directors noted that based
upon the Fund profitability analysis, it appears that as some funds get larger,
at some point economies of scale do result in the Manager's realizing a larger
profit margin on management services provided such a fund. The Board also noted
that economies of scale are shared with a fund and its shareholders through
management fee breakpoints so that as a fund grows in size, its effective
management fee rate declines. The fee structure under the Fund's investment
management agreement provides an initial fee of 0.625% on the first $100 million
of net assets; 0.50% on the next $150 million of net assets; and 0.45% of net
assets in excess of $250 million. The Fund's net assets were approximately $182
million at December 31, 2005, and the Board believed that to the extent any
economies of scale may be realized by the Manager and its affiliates, the
schedule of fees under the investment management agreement provides a sharing of
benefits with the Fund and its shareholders.

PROXY VOTING POLICIES AND PROCEDURES

The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.

QUARTERLY STATEMENT OF INVESTMENTS

The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.

Annual Report | 31

This page intentionally left blank.

Literature Request

LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.

FRANKLIN TEMPLETON INVESTMENTS

INTERNATIONAL

Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund

GLOBAL

Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

GROWTH

Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1

VALUE

Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund

BLEND

Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund

SECTOR

Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund

ASSET ALLOCATION

Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund

TARGET FUNDS

Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund

RETIREMENT TARGET FUNDS

Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

INCOME

Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund

TAX-FREE INCOME 5

NATIONAL FUNDS

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 6

LIMITED-TERM FUNDS

California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund

INTERMEDIATE-TERM FUNDS

California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund

STATE-SPECIFIC

Alabama
Arizona
California 7
Colorado
Connecticut
Florida 7
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 6
Michigan 6
Minnesota 6
Missouri
New Jersey
New York 7
North Carolina
Ohio 6
Oregon
Pennsylvania
Tennessee
Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products
Trust 8

1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.

2. The fund is only open to existing shareholders and select retirement
plans.

3. The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.

4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.

6. Portfolio of insured municipal securities.

7. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).

8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

07/06
Not part of the annual report

[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906

o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at franklintempleton.com.
See inside for details.

ANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN TAX-EXEMPT
MONEY FUND

INVESTMENT MANAGER

Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES

1-800/632-2301

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to and from our
service departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

114 A2006 09/06

ITEM 2. CODE OF ETHICS.

(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.

(d) N/A

(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.

(2) The audit committee financial expert is Frank W. T. LaHaye, and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A

ITEM 6. SCHEDULE OF INVESTMENTS. N/A

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A

ITEM 8 PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
N/A

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Directors that would require disclosure herein.

ITEM 11. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.

Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.

(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.

ITEM 12. EXHIBITS.

(a) (1) Code of Ethics

(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN TAX-EXEMPT MONEY FUND

By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 27, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 27, 2006

By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date September 27, 2006