CHAIRMAN'S MESSAGE
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
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.
February 18, 1997
Dear Shareholder:
We are pleased to bring you the Franklin Federal Money Fund's semi-annual report
for the period ended December 31, 1996.
Moderate economic growth and mild inflation characterized the six months under
review. This relatively stable environment eliminated the need for the Federal
Reserve Board (Fed) to adjust monetary policy, and the federal funds rate (the
interest rate banks charge each other for overnight loans) remained at 5.25%
throughout the period.
Since we maintained a relatively neutral-weighted average maturity during the
reporting period, the fund's seven-day yield reflected the stable federal funds
rate. The fund's seven-day effective yield began the period at 4.60% and
finished the period at 4.32%.
We continue to invest in the highest quality money market securities available.
Since the fund's objective is to provide shareholders with a high-quality,
conservative investment, we do not invest in leveraged derivatives or other
potentially volatile securities that we believe involve undue risk.
Looking forward, we expect the economy to proceed on its path of slow growth
without the threat of higher inflation. Assuming these conditions continue, the
Fed should have little reason to make any policy moves, and we believe
short-term rates are likely to remain stable. However, changes in monetary
policy are linked to the performance of the economy, and if the economy
strengthens, the Fed may raise short-term interest rates in an effort to control
potentially accelerating inflation.
This discussion reflects the strategies we employed for the fund during the six
months 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.
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.
This year marks 50 years of business for Franklin Templeton. Over these years,
we have experienced profound changes in technology, regulations and customer
expectations within the mutual fund industry. As one of the largest mutual fund
families, we're proud to be an innovative industry leader, providing people like
you with an opportunity to invest in companies and governments around the globe.
We thank you for your past support and look forward to serving your investment
needs in the years ahead.
Sincerely,
Charles B. Johnson
Chairman
Franklin Federal Money Fund
Performance Summary
Franklin Federal Money Fund
December 31, 1996
Seven-day annualized yield 4.23%
Seven-day effective yield* 4.32%
*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. Past performance is not predictive of
future results.
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.
FRANKLIN FEDERAL MONEY FUND
Statement of Investments in Securities and Net Assets, December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Value
Shares (Note 1)
Mutual Funds 100.1%
<S> <C> <C>
124,895,355 The U.S. Government Securities Money Market Portfolio (Note 1) .................. $124,895,355
-------------
Total Investments (Cost $124,895,355)100.1% .......................... 124,895,355
Liabilities in Excess of Other Assets (0.1%) ........................ (76,608)
-------------
Net Assets 100.0% ................................................... $124,818,747
=============
At December 31, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
</TABLE>
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL MONEY FUND
Financial Statements
Statement of Assets and Liabilities
December 31, 1996 (unaudited)
Assets:
Investments in securities,
at value and cost $124,895,355
Cash 22,519
Receivable from capital shares sold 545
------------
Total assets 124,918,419
------------
Liabilities:
Payables:
Administration fees 46,393
Shareholder servicing costs 22,816
Capital shares repurchased 12,853
Distributions to shareholders 191
Accrued expenses and other liabilities 17,419
------------
Total liabilities 99,672
------------
Net assets (equivalent to $1.00 per share
based on 124,818,747 shares of capital
stock outstanding) $124,818,747
============
Statement of Operations
for the six months ended December 31, 1996 (unaudited)
Investment income:
Dividends $3,424,010
Expenses:
Administration fees (Note 4) $278,629
Shareholder servicing costs
(Note 4) 96,774
Reports to shareholders 64,301
Registration fees 29,511
Directors' fees and expenses 5,996
Professional fees 5,848
Other 5,949
-------
Total expenses 487,008
----------
Net investment income $2,937,002
==========
Statements of Changes in Net Assets
for the six months ended December 31, 1996 (unaudited)
and the year ended June 30, 1996
Six Months Year
ended ended
December 31, June 30,
1996 1996
---------- --------------
Increase (decrease)
in net assets:
Operations:
Net investment income $ 2,937,002 $ 5,946,887
---------- --------------
Distributions to
shareholders from
undistributed net
investment income: (2,937,002) (5,946,887)
Decrease in net assets
from capital share
transactions (Note 2) (2,839,929) (11,627,384)
---------- --------------
Net decrease
in net assets (2,839,929) (11,627,384)
Net assets (there is
no undistributed net
investment income
at beginning or end
of period)
Beginning of period 127,658,676 139,286,060
---------- --------------
End of period $124,818,747 $127,658,676
========== ==============
The accompanying notes are an integral part of these financial statements.
FRANKLIN FEDERAL MONEY FUND
Notes to Financial Statements (unaudited)
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 the Statement
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.
On December 13, 1994, the Board of Directors authorized a change in the fiscal
year end of the Fund from November 30 to June 30.
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 December 31, 1996, the Fund owns
46.59% 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
distributions 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 for 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 December 31, 1996, there was 5,000,000,000 shares of no par value capital
stock authorized. Transactions in the Fund's shares at $1.00 per share were as
follows:
<TABLE>
<CAPTION>
Six Months ended Year ended
December 31, 1996 June 30, 1996
----------- -----------
<S> <C> <C>
SHARES SOLD......................................... $128,376,217 $257,198,735
Shares issued in reinvestment of distributions ..... 2,940,124 5,923,724
Shares redeemed .................................... (134,156,270) (274,749,843)
----------- -----------
Net decrease ....................................... $ (2,839,929) $ (11,627,384)
=========== ===========
</TABLE>
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the six months ended December 31, 1996
aggregated $66,567,863 and $75,218,591, respectively.
4. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Administration Agreement:
Under the terms of an administration agreement, Franklin Advisers, Inc.
(Advisers) provides various administrative, statistical, and other services and
receives fees computed monthly on the average daily net assets of the Fund as
follows:
Annualized Fee Rate Average Daily 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 six months ended December 31, 1996 aggregated $96,774, of which $87,507 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 (all wholly-owned subsidiaries of Franklin
Resources, Inc.), and of the Portfolio.
5. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Six Months
ended Year ended Year ended
December 31, June 30, November 30,
--------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
1996 1996 1995*** 1994 1993
--------- ------- ------- ------- -------
Per Share Operating Performance
Net asset value at beginning of period............... $1.00 $1.00 $1.00 $1.00 $1.00
--------- ------- ------- ------- -------
Net investment income................................ 0.023 0.047 0.029 0.031 0.022
Distributions from net investment income............. (0.023) (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**....................................... 2.29% 4.80% 2.92% 3.15% 2.22%
Ratios/Supplemental Data
Net assets at end of period (in 000's)............... $124,819 $127,659 $139,286 $168,530 $120,933
Ratio of expenses to average net assets++............ 0.90%*+ 0.84%+ 0.87%*+ 0.98%+ 0.90%
Ratio of net investment income to average net assets. 4.53%* 4.71% 4.93%* 3.15% 2.20%
</TABLE>
*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.
+++For the six months ended December 31,1996.
++Effective with fiscal year 1994, the expense ratio includes the Fund's share
of Portfolio's allocated expenses.
+During the periods indicated, Advisers agreed in advance to waive a portion of
the Portfolio's management fees. Had such action not been taken, the Fund's
ratio of expenses to average net assets would have been as follows:
Ratio of
Expenses
to Average
Net Assets++
--------------
1994............................................ 0.99%
1995***......................................... 0.88%*
1996............................................ 0.86%
1996+++......................................... 0.93%*
