CONTENTS
Shareholder Letter 1
Performance Summary 4
Statement of Investments 5
Financial Statements 6
Notes to Financial
Statements 7
SHAREHOLDER LETTER
Your Fund's Objective: The Franklin Federal Money Fund seeks to provide a high
level of current income, consistent with liquidity and preservation of capital.
The fund invests all of its assets in the shares of The U.S. Government
Securities Money Market Portfolio (the Portfolio), which has the same investment
objective. At present, it is the Portfolio's policy to limit its investments to
U.S. Treasury bills, notes and bonds, and to repurchase agreements
collateralized by such securities.1 The fund attempts to maintain a stable net
asset value of $1.00 per share.2
Dear Shareholder:
We are pleased to bring you the Franklin Federal Money Fund's annual report for
the period ended June 30, 1997.
Strong economic growth coupled with low inflation characterized most of the
period. In the first half of the year under review, the nation's low inflation
and strong, but tempered growth, combined to produce a stable economic
environment in which the Federal Reserve Board (the Fed) saw no need to make any
significant adjustments to monetary policy and left short-term interest rates at
5.25%.
1. U.S. government securities owned by the Portfolio, or held under repurchase
agreement, but not shares of the fund, are guaranteed by the U.S. government,
its agencies or instrumentalities as to the timely payment of principal and
interest.
2. Please remember, an investment in the fund is neither insured nor guaranteed
by the U.S. government or by any other entity or institution, and there can be
no assurance that the fund will be able to maintain a net asset value of $1.00
per share.
However, in the second half of the fund's fiscal year, while inflation remained
mild, economic growth accelerated considerably, and the unemployment rate
dropped below 4.80%, its lowest level in over twenty years.3 In spite of the low
inflation, the Fed responded to the threat of higher prices represented by this
increasing growth and high level of employment. In March, the Fed raised
short-term interest rates 25 basis points, from 5.25% to 5.50%. As a result of
this action, most short-term rates rose slightly for the period. The rise in
interest rates caused the fund's seven-day effective yield to increase, from
4.60% on June 30, 1996, to 5.21% at the end of the period.
Looking forward, we believe the economy is in the later stages of the current
business cycle. Higher private consumption, capital spending, and improving
foreign economies should propel future growth. However, such growth, coupled
with a tight labor market, could result in higher inflation expectations. As a
result, the Fed would likely raise interest rates again. The short-weighted
maturity and high quality of the securities in the Franklin Federal Money Fund's
portfolio should allow the fund to adjust quickly in an environment of rising
short-term rates.
This discussion reflects the strategies we employed for the fund during the year
under review and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund. The fund's objective is
to provide shareholders with a high-quality, conservative investment; therefore,
we do not invest in leveraged derivatives or other potentially volatile
securities that we believe involve undue risk.
As a Franklin Federal Money Fund shareholder, you continue to benefit from
convenient, easy access to your money, and a high degree of credit safety. You
can also enjoy a wide range of services, including draft writing for amounts of
$100 or more, free draft books, and access to TeleFACTS(R), our
around-the-clock, automated, customer service line.
Sincerely,
Charles B. Johnson
Chairman
Franklin Federal Money Fund
PERFORMANCE SUMMARY
Franklin Federal Money Fund
6/30/97
- --------------------------------------------------------------------------------
Seven-day annualized yield 5.09%
Seven-day effective yield1 5.21%
1. The seven-day effective yield assumes the compounding of daily dividends, and
reflects fluctuations in interest rates on portfolio investments, as well as
fund expenses. Yields should be viewed in terms of the current, low rate of
inflation - just as high inflation usually results in higher yields, low
inflation often results in lower yields.
Franklin Advisers, Inc., the fund's administrator and the manager of the fund's
underlying portfolio, has agreed in advance to waive a portion of its fees,
which reduces expenses and increases yield to shareholders. Without these
reductions, the fund's yield would have been lower. The fee waiver may be
discontinued at any time upon notice to the fund's Board of Directors.
Past performance is not predictive of future results.
<TABLE>
<CAPTION>
FRANKLIN FEDERAL MONEY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Statement of Investments in Securities and Net Assets, June 30, 1997
VALUE
SHARES (NOTE1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mutual Funds 100.5%
121,880,951 The U.S. Government Securities Money Market Portfolio (Note 1) $121,880,951
-------------
Total Investments (Cost $121,880,951) 100.5% 121,880,951
Liabilities in Excess of Other Assets (0.5%) (590,109)
-------------
Net Assets 100.0% $121,290,842
=============
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
The accompanying notes are an integral part of these financial statements.
</TABLE>
FRANKLIN FEDERAL MONEY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
Assets:
Investments in securities,
at value and cost $121,880,951
Cash 3,060
--------------
Total assets 121,884,011
==============
Liabilities:
Payables:
Distributions to shareholders 33,733
Administration fees 42,849
Capital shares repurchased 23,478
Shareholder servicing costs 13,700
Other payables to shareholders 466,367
Accrued expenses and other liabilities 13,042
--------------
Total liabilities 593,169
==============
Net assets (equivalent to $1.00 per
share based on 121,290,842 shares
of capital stock outstanding) $121,290,842
==============
Statement of Operations
for the year ended June 30, 1997
Investment income:
Dividends $6,766,973
Expenses:
Administration fees (Note 4) $551,374
Shareholder servicing costs (Note 4) 169,311
Reports to shareholders 112,246
Registration fees 51,419
Directors' fees and expenses 10,232
Professional fees 2,030
Other 3,460
--------------
Total expenses 900,072
--------------
Net investment income $5,866,901
==============
Statements of Changes in Net Assets
for the years ended June 30, 1997 and 1996
1997 1996
-----------------------------------
Increase (decrease)
in net assets:
Operations:
Net investment income $ 5,866,901 $ 5,946,887
Distributions to shareholders
from undistributed net
investment income (5,866,901) (5,946,887)
Decrease in net assets
from capital share
transactions (Note 2) (6,367,834) (11,627,384)
-----------------------------------
Net decrease in
net assets (6,367,834) (11,627,384)
Net assets (there is no
undistributed net investment
income at beginning or
end of year)
Beginning of year 127,658,676 139,286,060
-----------------------------------
End of year $121,290,842 $127,658,676
===================================
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL MONEY FUND
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Federal Money Fund (the Fund) is a no-load, open-end, diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. The investment objectives of the Fund are high
current income consistent with capital preservation and liquidity.
The Fund invests substantially all of its assets in The U.S. Government
Securities Money Market Portfolio (the Portfolio), which is a no-load, open-end,
diversified management investment company having the same investment objectives
as the Fund. The financial statements of the Portfolio, including its Statements
of Investments in Securities and Net Assets, are included elsewhere in this
report and should be read in conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
The Fund holds Portfolio shares that are valued at its proportionate interest in
the net asset value of the Portfolio. As of June 30, 1997, the Fund owned 47.13%
of the Portfolio.
b. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and any changes in unrealized portfolio
appreciation or depreciation. Distributions are normally declared each day the
New York Stock Exchange is open for business, equal to the total available for
distributions (as defined above), and are payable to shareholders of record as
of the close of business the preceding day. Such distributions are automatically
reinvested daily in additional shares of the Fund at net asset value.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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 expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At June 30, 1997, there were 5,000,000,000 shares of no par value capital stock
authorized. Transactions in the Fund's shares at $1.00 per share for the years
ended June 30, 1997 and 1996 were as follows:
1997 1996
-------------------------------
Shares sold $269,360,701 $ 257,198,735
Shares issued in reinvestment
of distributions 5,829,955 5,923,724
Shares redeemed (281,558,490) (274,749,843)
-------------------------------
Net decrease $ (6,367,834) $ (11,627,384)
===============================
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended June 30, 1997 aggregated
$134,311,576 and $145,976,707, respectively.
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Administration Agreement:
Under the terms of an administration agreement, Franklin Advisers, Inc.
(Advisers) provides administrative, statistical, and other services, and
receives fees computed monthly on the average daily net assets of the Fund as
follows:
Annualized Fee Rate Net Assets
- --------------------------------------------------------------------------------
0.455% First $100 million
0.330% Over $100 million, up to and including $250 million
0.280% Over $250 million
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the year ended June 30, 1997 aggregated $169,311 of which $168,929 was paid to
Investor Services.
c. Other Affiliated Parties and Transactions:
Certain officers and directors of the Fund are also officers and/or directors of
Advisers, and Investor Services (both wholly-owned subsidiaries of Franklin
Resources, Inc.), and of the Portfolio.
<TABLE>
<CAPTION>
5. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
are as follows:
Year Ended Year Ended
June 30, November 30,
------------------------------------------------------------
1997 1996 1995*** 1994 1993
------------------------------------------------------------
Per Share Operating Performance:
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income 0.045 0.047 0.029 0.031 0.022
Distributions from net investment income (0.045) (0.047) (0.029) (0.031) (0.022)
------------------------------------------------------------
Net asset value at end of period $1.00 $1.00 $1.00 $1.00 $1.00
============================================================
=====================================================================================================================
Total Return** 4.62% 4.80% 2.92% 3.15% 2.22%
=====================================================================================================================
Ratios/Supplemental Data
Net assets at end of period (in 000's) $121,291 $127,659 $139,286 $168,530 $120,933
Ratio of expenses to average net assets1,2 0.85% 0.84% 0.87%* 0.98% 0.90%
Ratio of expenses to average
net assets (before fee waiver)1,2 0.86% 0.86% 0.88%* 0.99% --
Ratio of net investment income to average net assets 4.54% 4.71% 4.93%* 3.15% 2.20%
*Annualized
**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at net asset value.
***For the seven months ended June 30, 1995.
1Effective with fiscal year 1994, the expense ratio includes the Fund's share of
Portfolio's allocated expenses.
2During the periods indicated, Advisers agreed in advance to waive a portion of
the Portfolio's management fees and a portion of its administration fees
incurred by the Fund for 1994, 1995 and 1996.
</TABLE>
FRANKLIN FEDERAL MONEY FUND
Report of Independent Accountants
To the Shareholders and Board of Directors
of Franklin Federal Money Fund:
We have audited the accompanying statement of assets and liabilities of the
Franklin Federal Money Fund, including the statement of investments in
securities and net assets, as of June 30, 1997, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Franklin Federal Money Fund as of June 30, 1997, 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 the periods
presented, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 4, 1997
<TABLE>
<CAPTION>
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1997
FACE VALUE
AMOUNT The Money Market Portfolio (NOTE1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
aShort Term Investments 99.7%
Bankers' Acceptances 0.7%
$12,000,000 Toronto Dominion Bank, New York Branch, 5.56%, 09/25/97 (Cost $11,840,613) $ 11,840,613
----------
Certificates of Deposit 35.2%
25,000,000 ABN-AMRO Bank NV, Chicago Branch, 5.69%, 07/16/97 25,000,000
50,000,000 Australia & NZ Banking Group, New York Branch, 5.66% - 5.71%, 08/08/97-10/23/97 50,000,260
25,000,000 Bank of Montreal, Chicago Branch, 5.71%, 07/30/97 25,000,099
75,000,000 Bank of Nova Scotia, Portland Branch, 5.64% - 5.70%, 07/25/97 - 09/18/97 75,000,000
25,000,000 Bayerische Vereinsbank, New York Branch, 5.65%, 10/21/97 25,000,000
25,000,000 Commerzbank, AG, New York Branch, 5.68%, 07/10/97 24,999,871
75,000,000 Credit Agricole, New York Branch, 5.66% - 5.70%, 07/24/97 - 09/16/97 75,000,000
25,000,000 Den Danske Bank, New York Branch, 5.70%, 08/29/97 25,000,203
50,000,000 Deutsche Bank, AG, New York Branch, 5.44% - 5.70%, 07/17/97 - 09/15/97 50,000,366
25,000,000 Landesbank Hessen Thueringen, New York Branch, 6.09%, 09/11/97 25,024,054
75,000,000 Societe Generale, New York Branch, 5.64% - 5.70%, 07/15/97 - 09/26/97 75,000,000
25,000,000 Svenska Handelsbanken, New York Branch, 5.69%, 07/11/97 25,000,068
75,000,000 Swiss Bank Corp., New York Branch, 5.43% - 5.67%, 08/26/97 - 09/19/97 75,000,000
50,000,000 Westdeutsch Landesbank, New York Branch, 5.68% - 5.72%, 08/19/97 - 09/08/97 50,000,000
----------
Total Certificates of Deposit (Cost $625,024,921) 625,024,921
----------
Commercial Paper 44.4%
52,600,000 Abbey National North America, 5.28% - 5.60%, 07/01/97 - 08/21/97 52,392,250
20,000,000 American Express Credit Corp., 5.54%, 08/13/97 - 08/14/97 19,866,117
25,000,000 ANZ (DE), Inc., 5.60%, 07/08/97 24,972,777
40,000,000 Associates Corp. of North America, 5.58% - 5.61%, 07/09/97 - 07/29/97 39,887,933
25,000,000 B.B.V. Finance, Inc., 5.63%, 08/18/97 24,812,333
25,000,000 BIL North America, Inc., 5.64%, 08/12/97 24,835,500
25,000,000 Canadian Imperial Holdings, Inc., 5.275%, 08/25/97 24,798,524
25,000,000 CIESCO, L.P., 5.60%, 07/10/97 24,965,000
30,000,000 Commonwealth Bank of Australia, 5.62%, 07/18/97 29,920,384
50,000,000 Den Danske Corp., Inc., 5.58% - 5.60%, 07/07/97 - 10/01/97 49,620,166
65,000,000 General Electric Capital Corp., 5.56% - 5.63%, 08/04/97 - 10/10/97 64,394,888
65,000,000 Generale Bank, Inc., 5.62% - 5.64%, 07/15/97 - 07/31/97 64,768,058
55,000,000 Goldman Sachs Group, L.P., 5.56% - 5.57%, 09/04/97 - 09/23/97 54,371,636
25,000,000 Halifax Building Society, 5.27%, 08/21/97 24,813,355
75,000,000 Merrill Lynch & Co., Inc., 5.57% - 5.65%, 07/28/97 - 09/22/97 74,256,302
75,000,000 Morgan Stanley Group, Inc., 5.60% - 5.61%, 08/20/97 - 08/27/97 74,381,270
25,000,000 National Australian Funding (DE), Inc., 5.62%, 07/21/97 24,921,945
15,000,000 National Rural Utilities Cooperative Finance Corp., 5.64%, 08/01/97 14,927,150
24,000,000 Royal Bank of Canada, 5.295%, 07/14/97 23,954,110
50,000,000 Svenska Handelsbanken, Inc., 5.58% - 5.59%, 07/02/97 - 09/12/97 49,712,744
----------
Total Commercial Paper (Cost $786,572,442) 786,572,442
----------
Total Investments before Repurchase Agreements (Cost $1,423,437,976) 1,423,437,976
----------
bReceivables from Repurchase Agreements 19.4%
$10,499,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97 (Maturity Value $10,333,708)
Collateral: U.S. Treasury Notes, 5.375%, 11/30/97 $ 10,332,000
50,000,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97 (Maturity Value $49,676,209)
Collateral: U.S. Treasury Notes, 5.125%, 02/28/98 49,668,000
82,426,000 J. P. Morgan Securities, Inc., 5.95%, 07/01/97 (Maturity Value $82,378,613)
Collateral: U.S. Treasury Bills, 07/17/97 - 10/16/97
U.S. Treasury Bonds, 11.75%, 02/15/01
U.S. Treasury Notes, 5.125% - 8.875%, 07/31/97 - 05/31/02 82,365,000
86,480,000 Morgan Stanley & Co., Inc., 5.75%, 07/01/97 (Maturity Value $82,378,156)
Collateral: U.S. Treasury Bills, 12/11/97 82,365,000
61,354,000 SBC Warburg, Inc., 5.92%, 07/01/97 (Maturity Value $60,009,867)
Collateral: U.S. Treasury Notes, 5.625%, 11/30/98 60,000,000
35,000,000 UBS Securities, L.L.C., 5.90%, 07/01/97 (Maturity Value $34,232,609)
Collateral: U.S. Treasury Notes, 5.75%,12/31/98 34,227,000
24,426,000 UBS Securities, L.L.C., 5.90%, 07/01/97 (Maturity Value $25,777,224)
Collateral: U.S. Treasury Notes, 7.75%, 02/15/01 25,773,000
----------
Total Receivables from Repurchase Agreements (Cost $344,730,000) 344,730,000
----------
Total Investments (Cost $1,768,167,976) 99.7% 1,768,167,976
Other Assets and Liabilities, Net 0.3% 5,378,013
----------
Net Assets 100.0% $1,773,545,989
==========
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.L.C. -Limited Liability Corp.
L.P. - Limited Partnership
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Portfolio. Other
securities bear interest at the rates shown, payable at fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1997
FACE VALUE
AMOUNT The U.S. Government Securities Money Market Portfolio (NOTE1)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
aShort Term Investments 100.1%
Government Securities7.7%
$20,000,000 U.S. Treasury Bills, 5.43%, 08/21/97 (Cost $19,853,658) $ 19,853,658
bReceivables from Repurchase Agreements 92.4%
10,745,000 Aubrey G. Lanston & Co., Inc., 5.85%, 07/01/97 (Maturity Value $10,601,723)
Collateral: U.S. Treasury Notes, 5.00%, 01/31/99 10,600,000
10,840,000 B.A. Securities, Inc., 6.00%, 07/01/97 (Maturity Value $10,601,767)
Collateral: U.S. Treasury Bills, 07/10/97 10,600,000
10,674,000 Barclays de Zoete Wedd Securities, Inc., 5.85%, 07/01/97 (Maturity Value $10,601,723)
Collateral: U.S. Treasury Notes, 6.375%, 05/15/99 10,600,000
10,545,000 Bear, Stearns & Co., Inc., 5.60%, 07/01/97 (Maturity Value $10,601,648)
Collateral: U.S. Treasury Notes, 6.50%, 08/15/97 10,600,000
10,720,000 Chase Securities, Inc., 5.85%, 07/01/97 (Maturity Value $10,601,723)
Collateral: U.S. Treasury Notes, 5.625%, 10/31/97 10,600,000
10,824,000 CIBC Wood Gundy Securities Corp., 5.95%, 07/01/97 (Maturity Value $10,601,752)
Collateral: U.S. Treasury Notes, 5.25%, 12/31/97 10,600,000
10,680,000 Citicorp Securities, Inc., 5.95%, 07/01/97 (Maturity Value $10,601,752)
Collateral: U.S. Treasury Notes, 5.875%, 03/31/99 10,600,000
26,277,000 J.P. Morgan Securities, Inc., 5.85%, 07/01/97 (Maturity Value $26,184,254)
Collateral: U.S. Treasury Bills, 07/03/97
U.S. Treasury Notes, 6.25% - 8.00%, 03/31/99 - 08/15/99 26,180,000
35,175,000 J.P. Morgan Securities, Inc., 5.95%, 07/01/97 (Maturity Value $35,005,784)
Collateral: U.S. Treasury Bills, 08/14/97 - 03/05/98
U.S. Treasury Bonds, 13.125%, 05/15/01
U.S. Treasury Notes, 5.125% - 9.25%, 07/15/97 - 02/28/02 35,000,000
10,600,000 Merrill Lynch Government Securities, Inc., 5.50%, 07/01/97 (Maturity Value $10,601,619)
Collateral: U.S. Treasury Notes, 6.00%, 08/31/97 10,600,000
27,130,000 Morgan Stanley & Co., Inc., 5.75%, 07/01/97 (Maturity Value $26,184,182)
Collateral: U.S. Treasury Bills, 09/11/97 26,180,000
36,030,000 Morgan Stanley & Co., Inc., 5.75%, 07/01/97 (Maturity Value $35,005,590)
Collateral: U.S. Treasury Bills, 07/31/97 35,000,000
10,308,000 Sanwa Securities (USA) Co., L.P., 5.85%, 07/01/97 (Maturity Value $10,601,723)
Collateral: U.S. Treasury Notes, 8.875%, 11/15/98 10,600,000
10,840,000 SBC Warburg, Inc., 5.92%, 07/01/97 (Maturity Value $10,601,743)
Collateral: U.S. Treasury Notes, 4.75%, 09/30/98 10,600,000
10,666,000 UBS Securities, L.L.C., 5.90%, 07/01/97 (Maturity Value $10,601,737)
Collateral: U.S. Treasury Notes, 5.50%, 09/30/97 10,600,000
----------
Total Receivables from Repurchase Agreements (Cost $238,960,000) 238,960,000
----------
Total Investments (Cost $258,813,658) 100.1% 258,813,658
Liabilities in Excess of Other Assets (0.1)% (184,481)
----------
Net Assets 100.0% $258,629,177
==========
At June 30, 1997, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.L.C. -Limited Liability Corp.
L.P. - Limited Partnership
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Portfolio. Other
securities bear interest at the rates shown, payable at fixed dates or upon
maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE MONEY MARKET PORTFOLIOS
Financial Statements
Statement of Assets and Liabilities
June 30, 1997
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
-------------- --------------
Assets:
Investment in securities,
at value and cost $1,423,437,976 $ 19,853,658
Receivables from
repurchase agreements,
at value and cost 344,730,000 238,960,000
Cash -- 9,280
Interest receivable 6,047,149 38,720
-------------- --------------
Total assets 1,774,215,125 258,861,658
-------------- --------------
Liabilities:
Payables:
Capital shares repurchased 284,775 184,384
Management fees 220,381 39,100
Bank overdraft 109,834 --
Accrued expenses and
other liabilities 54,146 8,997
-------------- --------------
Total liabilities 669,136 232,481
-------------- --------------
Net assets, at value $1,773,545,989 $258,629,177
============== ==============
Shares outstanding 1,773,545,989 258,629,177
============== ==============
Net asset value per share $1.00 $1.00
============== ==============
Statement of Operations
the year ended June 30, 1997
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
-------------- --------------
Investment income:
Interest $93,270,589 $14,434,535
-------------- --------------
Expenses:
Management fees (Note 5) 2,547,891 404,358
Reports to shareholders 36,839 6,282
Professional fees 29,374 8,090
Custodian fees 21,365 9,193
Trustees' fees and expenses 7,532 1,150
Other 21,914 12,533
Management fees waived
by manager (Note 5) (118,382) (39,849)
-------------- --------------
Total expenses 2,546,533 401,757
-------------- --------------
Net investment
income 90,724,056 14,032,778
-------------- --------------
Net realized gain (loss)
on investments (931) 3,978
-------------- --------------
Net increase in net assets
resulting from operations $90,723,125 $14,036,756
============== ==============
The accompanying notes are an integral part of these financial statements.
<TABLE>
<CAPTION>
THE MONEY MARKET PORTFOLIOS
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended June 30, 1997 and 1996
The U.S. Government Securities
The Money Market Portfolio Money Market Portfolio
1997 1996 1997 1996
--------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income $ 90,724,056 $ 79,011,040 $ 14,032,778 $ 17,554,934
Net realized gain (loss) from
security transactions (931) -- 3,978 683
--------------------------------------------------------------------
Net increase in net assets
resulting from operations 90,723,125 79,011,040 14,036,756 17,555,617
Distributions to shareholders from
net investment income (90,723,125)a (79,011,040) (14,036,756)b (17,555,617)c
Increase (decrease) in net assets from
capital share transactions (Note 2) 223,460,742 244,510,834 (27,071,927) (188,953,282)
--------------------------------------------------------------------
Net increase (decrease) in net assets 223,460,742 244,510,834 (27,071,927) (188,953,282)
Net assets (there is no undistributed
net investment income at beginning
or end of year):
Beginning of year 1,550,085,247 1,305,574,413 285,701,104 474,654,386
====================================================================
End of year $1,773,545,989 $1,550,085,247 $258,629,177 $285,701,104
aDistributions were decreased by a net realized loss from security transactions
of $931.
bDistributions were increased by a net realized gain from security transactions
of $3,978.
cDistributions were increased by a net realized gain from security transactions
of $683.
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (Money Market) is a no load, open-end, diversified
management investment company (mutual fund), registered under the Investment
Company Act of 1940, as amended. The Money Market has two portfolios (the
Portfolios) consisting of The Money Market Portfolio and The U.S. Government
Securities Money Market Portfolio. The Portfolios' investment objective is high
current income. Each of the Portfolios issues a separate series of shares and
maintains a totally separate and distinct investment portfolio. The shares of
the Money Market are issued in private placements and are thus exempt from
registration under the Securities Act of 1933.
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
Portfolio securities are valued at amortized cost, which approximates value.
Each of the Portfolios must maintain a dollar weighted average maturity of 90
days or less and only purchase instruments having remaining maturities of 397
days or less. If the Portfolio has a remaining weighted average maturity of
greater than 90 days, the Portfolio will be stated at value based on recorded
closing sales on a national securities exchange or, in the absence of a recorded
sale, within the range of the most recent quoted bid and asked prices. The Board
has established procedures designed to stabilize, to the extent reasonably
possible, each Portfolio's price per share as computed for the purpose of sales
and redemptions at $1.00.
b. Income Taxes:
The Portfolios intend to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to shareholders which will be sufficient to relieve the
Portfolios from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and any changes in unrealized portfolio
appreciation or depreciation. Distributions are normally declared each day the
New York Stock Exchange is open for business, equal to the total available for
distribution (as defined above), and are payable to shareholders of record as of
the close of business that day.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles 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 expense during the reporting
period. Actual results could differ from those estimates.
f. Expense Allocation:
Common expenses incurred by the Money Market are allocated among the Portfolios
based on the ratio of net assets of each Portfolio to the combined net assets.
In all other respects, expenses are charged to each Portfolio as incurred on a
specific identification basis.
g. Repurchase Agreements:
The Portfolios may enter into repurchase agreements with government securities
dealers recognized by the Federal Reserve Board and/or member banks of the
Federal Reserve System. A repurchase agreement is accounted for as a loan by the
Portfolio to the seller, collateralized by underlying U.S. government
securities, which are delivered to the Portfolio's custodian. The market value,
including accrued interest, of the initial collateralization is required to be
at least 102% of the dollar amount invested by the Portfolios, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. At June 30, 1997, all outstanding repurchase agreements held by the
Portfolios had been entered into on that date.
<TABLE>
<CAPTION>
2. TRUST SHARES
At June 30, 1997, there was an unlimited number of $0.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolios' shares
at $1.00 per share for the years ended June 30, 1997 and 1996 were as follows:
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
--------------------------------------
1997
<S> <C> <C>
Shares sold $ 4,134,527,818 $ 937,979,469
Shares issued in reinvestment
of distributions 90,722,912 14,037,460
Shares redeemed (4,001,789,988) (979,088,856)
--------------------------------------
Net increase (decrease) $ 223,460,742 $ (27,071,927)
======================================
1996
Shares sold $ 2,507,821,633 $ 824,267,024
Shares issued in reinvestment
of distributions 79,019,113 17,555,181
Shares redeemed (2,342,329,912) (1,030,775,487)
--------------------------------------
Net increase (decrease) $ 244,510,834 $ (188,953,282)
======================================
</TABLE>
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At June 30, 1997, for tax purposes, the Money Market Portfolio had capital loss
carryovers as follows:
Capital loss carryovers expiring in: 2002 $3,560
------
$3,560
======
From November 1, 1996 through June 30, 1997, The Money Market Portfolio incurred
$1,161 of net realized capital losses. As permitted by tax regulations, the
Portfolio intends to elect to defer these losses and treat them as having arisen
in the year ended June 30, 1998.
For tax purposes, the aggregate cost of securities is the same as for financial
reporting purposes at June 30, 1997.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales/maturities of securities (including repurchase agreements)
for the year ended June 30, 1997, were as follows:
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
------------------------------------------
Purchases $80,755,607,940 $60,181,996,328
Sales $80,533,562,518 $60,208,670,575
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Portfolio, and receives fees computed monthly based on the average daily
net assets of each Portfolio. The Portfolios pay fees equal to an annualized
rate of 15/100 of 1% of their average daily net assets. Advisers agreed in
advance to waive a portion of its management fees for the Portfolios as noted in
the Statements of Operations for the year ended June 30, 1997.
b. Other Affiliates and Related Party Transactions:
<TABLE>
<CAPTION>
At June 30, 1997, the shares of The Money Market Portfolio were owned by the
following funds:
Percentage of
Shares Outstanding Shares
----------------------------------
<S> <C> <C>
Franklin Money Fund 1,502,261,263 84.70%
Institutional Fiduciary Trust - Money Market Portfolio 185,105,166 10.44%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund 76,597,681 4.32%
Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund II 9,581,879 0.54%
</TABLE>
b. Other Affiliates and Related Party Transactions: (cont.)
<TABLE>
<CAPTION>
At June 30, 1997, the shares of The U.S. Government Securities Money Market
Portfolio were owned by the following funds:
Percentage of
Shares Outstanding Shares
--------------------------------
Institutional Fiduciary Trust - Franklin U.S. Government
<S> <C> <C>
Securities Money Market Portfolio 136,748,226 52.87%
Franklin Federal Money Fund 121,880,951 47.13%
</TABLE>
Certain officers and trustees of the Portfolios are also officers and/or
directors of Advisers (a wholly-owned subsidiary of Franklin Resources), and of
the Franklin Money Fund, Institutional Fiduciary Trust, Franklin Templeton Money
Fund Trust and Franklin Federal Money Fund.
<TABLE>
<CAPTION>
6. FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period by Portfolio are as follows:
Per Share Operating Performance Ratios/Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of Net
Net Asset Distributions Net Assets Ratio of Investment
Year Value at Net From Net Net Asset at End Expenses Income
Ended Beginning Investment Investment Value at Total of Period to Average to Average
June 30, of Period Income Income End of Period Return+ (in 000's) Net Assets++ Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
The Money Market Portfolio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993* $1.00 $0.027 $(0.027) $1.00 2.92%** $ 222,358 0.15%** 3.18%**
1994 1.00 0.033 (0.033) 1.00 3.33 219,189 0.15 3.25
1995 1.00 0.053 (0.053) 1.00 5.46 1,305,574 0.15 5.42
1996 1.00 0.055 (0.055) 1.00 5.66 1,550,085 0.15 5.50
1997 1.00 0.056 (0.056) 1.00 5.47 1,773,546 0.15 5.34
The U.S. Government Securities Money Market Portfolio
1993* 1.00 0.021 (0.021) 1.00 2.27** 310,319 0.15** 3.05**
1994 1.00 0.032 (0.032) 1.00 3.25 218,548 0.15 3.20
1995 1.00 0.052 (0.052) 1.00 5.32 474,654 0.15 5.25
1996 1.00 0.054 (0.054) 1.00 5.55 285,701 0.15 5.45
1997 1.00 0.052 (0.052) 1.00 5.34 258,629 0.15 5.20
*July 28, 1992 (effective date) to June 30, 1993.
**Annualized
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized (except as noted). It assumes reinvestment of
dividends and capital gains at net asset value.
++During the periods indicated, Advisers agreed in advance to waive a portion of
its management fees of the Portfolios. Had such action not been taken, the
ratios of expenses to average net assets would have been as follows:
</TABLE>
Ratio of
Expenses
to Average
Net Assets
----------
The Money Market Portfolio
1993* 0.17%**
1994 0.17
1995 0.16
1996 0.16
1997 0.16
Ratio of
Expenses
to Average
Net Assets
----------
The U.S. Government Securities Money Market Portfolio
1993* 0.18%**
1994 0.17
1995 0.16
1996 0.17
1997 0.16
THE MONEY MARKET PORTFOLIOS
Report of Independent Accountants
To the Shareholders and Board of Trustees
of The Money Market Portfolios:
We have audited the accompanying statements of assets and liabilities of the two
portfolios comprising the Money Market Portfolios including each Portfolio's
statement of investments in securities and net assets, as of June 30, 1997, and
the related statements of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods presented. These financial
statements and financial highlights are the responsibility of the Portfolios'
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1997, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios comprising the Money Market Portfolios as of June 30, 1997,
the results of their operations for the year then ended, the changes in their
net assets for each of the two years in the period then ended, and their
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 4, 1997
