Annual Report
June 30, 1998
Franklin Federal Money Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do portfolio share prices.
We appreciate your past support and look forward to serving your investment
needs in the years ahead.
Charles B. Johnson
Chairman
Franklin Federal Money Fund
CONTENTS
Shareholder Letter ........................................... 1
Performance Summary .......................................... 4
Financial Highlights &
Statement of Investments ..................................... 5
Financial Statements ......................................... 7
Notes to
Financial Statements ......................................... 8
Independent
Auditor's Report ............................................. 10
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 6 of
this report.
SHAREHOLDER LETTER
Your Fund's Objective: 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, the Portfolio's policy is to limit its investments to U.S. Treasury
bills, notes and bonds, and to repurchase agreements collateralized by such
securities. The fund attempts to maintain a stable net asset value of $1.00 per
share.1
1. 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.
Dear Shareholder:
It's a pleasure to bring you Franklin Federal Money Fund's annual report for the
period ended June 30, 1998.
During the year under review, the U.S. economy expanded at a healthy pace,
inflation remained low and short-term interest rates were relatively stable.
U.S. Gross Domestic Product (GDP) growth for the three quarters ended March 1998
averaged 4.1%, considerably above the Federal Reserve Board's (the Fed's)
targeted long-term growth rate of 2.50%. Higher income levels, real estate and
stock prices combined with relatively low interest rates fueled the economy's
consumer sector, which was the primary driver of domestic growth during the
period under review. As a result of the strong economic growth, the U.S.
unemployment rate declined to 4.3%, the lowest in 28 years. Inflation as
measured by the Consumer Price Index (CPI) increased only 1.7% for the year
ended June 30, 1998, down from 2.2% during the same period in the previous year.
Increased international competition, higher domestic productivity and lower
commodity prices all contributed to inflation's slowdown. While long-term
interest rates declined during the period due to subdued inflation, short-term
interest rates were relatively stable. The Federal Funds target rate remained
unchanged at 5.50% over the past year as low inflation coupled with the Asian
crisis offset strong economic growth and tight U.S. labor conditions,
discouraging the Fed from making any policy changes. Preliminary estimates for
the second quarter 1998 indicate that economic growth slowed slightly due to a
wider trade deficit and a weakening manufacturing sector as a result of the
Asian crisis.
The relatively stable, short-term interest rate environment was also reflected
in the fund's seven-day yield during the reporting period. The fund's seven-day
annualized yield began the period at 4.93% on July 1, 1997, and ended the period
at 5.24% on June 30, 1998.
Looking forward, we believe that relatively low interest rates and high equity
and real estate prices will continue to stimulate consumer spending and fuel
domestic economic growth, possibly leading to further wage pressures. However,
low inflation and the Asian crisis' dampening effects will likely offset U.S.
economic strength and may prevent the Fed from making any policy changes in the
near term. We believe that short-term interest rates should remain near current
levels until the uncertainties surrounding the Asian crisis are removed.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of June 30, 1998, the end of the reporting period. However, market
and economic conditions are changing constantly, which can be expected to affect
our strategies and the fund's portfolio composition. Although historic
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
We will continue to invest the fund's assets in securities that are among the
highest quality available to money market portfolios. 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 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
also can enjoy a wide range of services, including draft writing, free draft
books and access to TeleFACTS(R), our around-the-clock, automated, customer
service line.
We appreciate your support, welcome new shareholders, 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
Period ended 6/30/98
Seven-day annualized yield 5.24%
Seven-day effective yield* 5.38%
* 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.
FRANKLIN FEDERAL MONEY FUND
Financial Highlights
<TABLE>
<CAPTION>
Year Ended
Year Ended June 30, November 30,
1998 1997 1996 1995*** 1994
<S> <C> <C> <C> <C> <C>
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......................... .047 .045 .047 .029 .031
Less distributions from net investment income.... (.047) (.045) (.047) (.029) (.031)
---------------------------------------------------------
Net asset value, end of year..................... $1.00 $1.00 $1.00 $1.00 $1.00
=========================================================
Total return**................................... 4.85% 4.62% 4.80% 2.92% 3.15%
Ratios/supplemental data
Net assets, end of year (000's).................. $134,621 $121,291 $127,659 $139,286 $168,530
Ratios to average net assets:
Expenses1 ...................................... .82% .85% .84% .87%* .98%
Expenses excluding waiver and payments by affiliate1 .83% .86% .86% .88%* .99%
Net investment income .......................... 4.73% 4.54% 4.71% 4.93%* 3.15%
*Annualized.
**Total return is not annualized.
***For the period December 1, 1994 to June 30, 1995.
1The expense ratio includes the Fund's share of the Portfolio's allocated
expenses.
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
Statement of Investments, June 30, 1998
SHARES VALUE
Mutual Funds 98.1%
<S> <C> <C>
The U.S. Government Securities Money Market Portfolio (Note 1)
(Cost $132,065,928) ............................................................ 132,065,928 $132,065,928
Other Assets, less Liabilities 1.9% ............................................. 2,554,729
-------------
Net Assets 100.0% ............................................................... $134,620,657
=============
See notes to financial statements.
</TABLE>
FRANKLIN FEDERAL MONEY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1998
Assets:
Investments in securities, at value and cost $132,065,928
Cash 13,282
Receivable for capital shares sold 3,988,084
--------------
Total assets 136,067,294
--------------
Liabilities:
Payables:
Capital shares redeemed 689,439
Affiliates 60,451
Shareholders 676,840
Other liabilities 19,907
--------------
Total liabilities 1,446,637
--------------
Net assets, at value (equivalent to
$1.00 per share based on 134,620,657
shares outstanding) $134,620,657
==============
Statement of Operations
for the year ended June 30, 1998
Investment income:
Dividends $ 7,012,006
Expenses:
Administrative fees (Note 3) $553,251
Transfer agent fees (Note 3) 166,074
Reports to shareholders 91,487
Registration and filing fees 42,330
Professional fees 3,420
Directors' fees and expenses 10,133
Other 4,443
------------
Total expenses 871,138
-------------
Net investment income $ 6,140,868
=============
Statements of Changes in Net Assets
for the years ended June 30, 1998 and 1997
1998 1997
-----------------------------
Increase (decrease)
in net assets:
Operations:
Net investment income $6,140,868 $5,866,901
Distributions to
shareholders from net
investment income (6,140,868) (5,866,901)
Capital share transactions (Note 2) 13,329,815 (6,367,834)
-----------------------------
Net increase
(decrease) in
net assets 13,329,815 (6,367,834)
Net assets (there is no
undistributed net investment
income at beginning or
end of year):
Beginning of year 121,290,842 127,658,676
-----------------------------
End of year $134,620,657 $121,290,842
=============================
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Federal Money Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end investment company. The Fund
seeks current income.
The Fund invests substantially all of its assets in the U.S. Government
Securities Money Market Portfolio (the Portfolio), which is registered under the
Investment Company Act of 1940 as a diversified, open-end investment company
having the same investment objectives as the Fund. The financial statements of
the Portfolio, including the Statement of Investments, are included elsewhere in
this report and should be read in conjunction with the Fund's financial
statements.
The following summarizes the Fund's significant accounting policies.
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, 1998, the Fund owns 50.17%
of the Portfolio.
b. Income Taxes:
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and
distribute all of its taxable income.
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.
Income and estimated expenses are accrued daily. Dividends from net investment
income and capital gains or losses are normally declared daily. Such
distributions are reinvested in additional shares of the Fund.
d. 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, 1998, there were 5 billion shares authorized (no par value).
Transactions in the Fund's shares were as follows:
Year Ended June 30,
-------------------------------
1998 1997
-------------------------------
Shares sold ................. . $328,607,294 $269,360,701
Shares issued in reinvestment
of distributions ........... . 6,154,199 5,829,955
Shares redeemed ............. . (321,431,678) (281,558,490)
-------------------------------
Net increase (decrease) ....... $ 13,329,815 $ (6,367,834)
===============================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and directors of the Fund are also officers and/or directors of
Franklin Advisers, Inc. (Advisers) and Franklin/Templeton Investor Services,
Inc. (Investor Services), the Fund's administrative manager and transfer agent,
respectively and of the Portfolio.
The Fund pays an administrative fee to Advisers based on the average daily net
assets of the Fund as follows:
Annualized
Fee Rate Average Daily Net Assets
---------------------------------------------------------------
.455% First $100 million
.33% Over $100 million, up to and including $250 million
.28% In excess of $250 million
FRANKLIN FEDERAL MONEY FUND
Independent Auditor's Report
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 Fund's statement of investments as of
June 30, 1998, 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, 1998, 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, 1998, 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 its financial highlights for each of the periods
presented, in conformity with generally accepted accounting principles.
PricewaterhouseCoopers LLP
San Francisco, California
July 30, 1998
THE MONEY MARKET PORTFOLIOS
Financial Highlights
<TABLE>
<CAPTION>
The Money Market Portfolio
Year Ended June 30,
----------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------
<S> <C> <C> <C> <C> <C>
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 .055 .053 .055 .053 .033
Less distributions from net investment income .... (.055) (.053) (.055) (.053) (.033)
-------------------------------------------------
Net asset value, end of year ..................... $1.00 $1.00 $1.00 $1.00 $1.00
================================================
Total return** ................................... 5.64% 5.47% 5.66% 5.46% 3.33%
Ratios/supplemental data
Net assets, end of year (000's) .................. $2,043,629 $1,773,546 $1,550,085 $1,305,574 $219,189
Ratios to average net assets:
Expenses ........................................ .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by affiliate .16% .16% .16% .16% .17%
Net investment income ........................... 5.50% 5.34% 5.50% 5.42% 3.25%
**Total return is not annualized.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Statement of Investments, June 30, 1998
PRINCIPAL
The Money Market Portfolio AMOUNT VALUE
<S> <C> <C>
Certificates of Deposit 26.9%
Australia & New Zealand Banking Group, New York Branch,
5.56% - 5.59%, 8/27/98 - 9/23/98 .......................................... $50,000,000 $ 50,000,000
Bank of Montreal, Chicago Branch, 5.605%, 9/24/98 ......................... 25,000,000 25,000,861
Bank of Nova Scotia, Portland Branch, 5.56%, 8/31/98 ...................... 25,000,000 25,000,000
Bayerische Vereinsbank, New York Branch, 5.85%, 12/18/98 .................. 25,000,000 25,009,492
Commerzbank AG, New York Branch, 5.54%, 8/25/98 ........................... 25,000,000 25,000,743
Credit Agricole, New York Branch, 5.52%, 8/10/98 .......................... 25,000,000 25,000,000
Credit Communal de Belgique, New York Branch, 5.59%, 7/29/98 - 7/30/98 .... 50,000,000 50,000,391
Deutsche Bank AG, New York Branch, 5.59% - 5.60%, 7/08/98 - 7/31/98 ....... 50,000,000 50,000,205
National Westminster Bank, Plc., New York Branch,
5.69% - 5.745%, 7/06/98 - 4/06/99 ......................................... 50,000,000 49,989,281
Royal Bank of Canada, New York Branch, 5.68%, 3/29/99 ..................... 25,000,000 24,985,850
Societe Generale, New York Branch, 5.56% - 5.58%, 8/07/98 - 10/08/98 ...... 75,000,000 75,000,000
Svenska Handelsbanken, New York Branch, 5.58%, 9/22/98 .................... 25,000,000 25,000,000
Swiss Bank Corp., New York Branch, 5.81%, 4/29/99 ......................... 25,000,000 24,992,081
Toronto Dominion Bank, New York Branch, 5.60%, 12/03/98 ................... 25,000,000 25,000,000
Westdeutsche Landesbank, New York Branch, 5.60%, 7/09/98 - 7/10/98 ........ 50,000,000 50,000,000
---------------
Total Certificates of Deposit (Cost $549,978,904).......................... 549,978,904
---------------
a Commercial Paper 57.5%
Abbey National North America, 5.42% - 5.445%, 8/24/98 - 10/22/98 .......... 50,000,000 49,369,469
American Express Credit Corp., 5.50%, 7/13/98 - 8/17/98 ................... 80,000,000 79,556,944
Associates Corp. of North America, 5.50%, 7/21/98 - 8/18/98 ............... 75,000,000 74,660,070
Bank of Montreal, 5.50%, 7/23/98 .......................................... 25,000,000 24,915,972
Chevron U.K. Investment, Plc., 5.51%, 8/11/98 ............................. 10,000,000 9,937,247
CIESCO, L.P., 5.50% - 5.52%, 8/19/98 - 9/08/98 ............................ 75,000,000 74,311,542
Commonwealth Bank of Australia, 5.42% - 5.455%, 10/19/98 - 11/25/98 ....... 50,000,000 49,029,108
Cregem North America, Inc., 5.50%, 7/28/98 ................................ 25,000,000 24,896,875
Deutsche Bank Financial, Inc., 5.50%, 8/14/98 ............................. 25,000,000 24,831,944
General Electric Capital Corp., 5.50%, 7/24/98 - 8/26/98 .................. 75,000,000 74,564,583
Generale Bank, Inc., 5.43% - 5.45%, 9/04/98 - 10/21/98 .................... 75,000,000 73,926,820
Goldman Sachs Group, L.P., 5.50%, 9/03/98 ................................. 25,000,000 24,755,556
J.P. Morgan & Co., Inc., 5.48% - 5.50%, 9/02/98 - 12/04/98 ................ 50,000,000 49,165,708
Merrill Lynch & Co., Inc., 5.50% - 5.51%, 7/01/98 - 8/06/98 ............... 50,000,000 49,862,500
Morgan Stanley Dean Witter & Co., 5.49% - 5.52%, 7/17/98 - 8/28/98 ........ 80,000,000 79,630,214
Motorola, Inc., 5.49%, 9/16/98 ............................................ 25,000,000 24,706,438
National Australian Funding (DE), Inc., 5.45% - 5.505%, 8/12/98 - 12/01/98 75,000,000 73,969,979
National Rural Utilities Cooperative Finance Corp., 5.50%, 8/21/98 - 9/25/98 65,000,000 64,297,986
Royal Bank of Canada, 5.38%, 8/03/98 ...................................... 25,000,000 24,876,708
Salomon Smith Barney Holdings, Inc., 5.50% - 5.52%, 7/14/98 - 8/04/98 ..... 75,000,000 74,766,639
Svenska Handelsbanken, Inc., 5.51% - 5.52%, 7/27/98 - 9/10/98 ............. 50,000,000 49,628,659
Toronto Dominion Holdings USA, Inc., 5.50%, 7/02/98 ....................... 25,000,000 24,996,181
Toyota Motor Credit Corp., 5.50%, 9/21/98 ................................. 25,000,000 24,686,806
U.S. Central Credit Union, 5.50%, 7/16/98 ................................. 25,000,000 24,942,708
Westpac Capital Corp., 5.495%, 7/07/98 .................................... 25,000,000 24,977,104
---------------
Total Commercial Paper (Cost $1,175,263,760) .............................. 1,175,263,760
---------------
Total Investments before Repurchase Agreements (Cost $1,725,242,664)....... 1,725,242,664
---------------
PRINCIPAL
The Money Market Portfolio AMOUNT VALUE
a,dRepurchase Agreements 15.2%
Barclays Capital, Inc., 5.125%, 7/01/98 (Maturity Value $50,007,118)
Collaterallized by U.S. Treasury Notes ................................... $50,000,000 $ 50,000,000
CIBC Oppenheimer Corp., 5.25%, 7/01/98 (Maturity Value $50,007,292)
Collaterallized by U.S. Treasury Notes ................................... 50,000,000 50,000,000
J.P. Morgan Securities, Inc., 5.55%, 7/01/98 (Maturity Value $80,052,340)
Collaterallized by U.S. Treasury Notes ................................... 80,040,000 80,040,000
Morgan Stanley & Co., Inc., 5.65%, 7/01/98 (Maturity Value $80,057,563)
Collaterallized by U.S. Treasury Notes ................................... 80,045,000 80,045,000
SBC Warburg Dillon Read, Inc., 5.25%, 7/01/98 (Maturity Value $50,007,292)
Collaterallized by U.S. Treasury Notes ................................... 50,000,000 50,000,000
---------------
Total Repurchase Agreements (Cost $310,085,000) ........................... 310,085,000
---------------
Total Investments (Cost $2,035,327,664) 99.6% ............................. 2,035,327,664
Other Assets, less Liabilities .4% ........................................ 8,301,639
---------------
Net Assets 100.0% ......................................................... $2,043,629,303
===============
</TABLE>
aSecurities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the portfolio.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Highlights
The U.S. Government Securities Money Market Portfolio
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 ............................... .054 .052 .054 .052 .032
Less distributions from net investment income .... (.054) (.052) (.054) (.052) (.032)
--------------------------------------------------------
Net asset value, end of year ..................... $1.00 $1.00 $1.00 $1.00 $1.00
--------------------------------------------------------
Total return** ................................... 5.53% 5.34% 5.55% 5.32% 3.25%
Ratios/supplemental data
Net assets, end of year (000's) .................. $263,226 $285,629 $285,701 $474,654 $218,548
Ratios to average net assets:
Expenses ........................................ .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by affiliate .16% .16% .17% .16% .17%
Net investment income ........................... 5.40% 5.20% 5.45% 5.25% 3.20%
**Total return is not annualized.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Statement of Investments, June 30, 1998
PRINCIPAL
The U.S. Government Securities Money Market Portfolio AMOUNT VALUE
<S> <C> <C>
Government Securities 19.0%
U.S. Treasury Notes, 5.25%, 7/31/98 ....................................... $10,000,000 $ 9,997,058
U.S. Treasury Notes, 4.75%, 9/30/98 ....................................... 20,000,000 19,955,490
U.S. Treasury Notes, 5.125%, 11/30/98 ..................................... 10,000,000 9,989,313
U.S. Treasury Notes, 5.125%, 12/31/98 ..................................... 5,000,000 4,991,209
U.S. Treasury Notes, 7.00%, 4/15/99 ....................................... 5,000,000 5,053,922
---------------
Total Government Securities (Cost $49,986,992)............................. 49,986,992
---------------
Repurchase Agreements 80.9%
BancAmerica Robertson Stephens, 5.65%, 7/01/98 (Maturity Value $11,001,726)
Collateralized by U.S. Treasury Bills..................................... 11,000,000 11,000,000
Bear, Stearns & Co., Inc., 5.75%, 7/01/98 (Maturity Value $11,001,757)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
Chase Securities, Inc., 5.60%, 7/01/98 (Maturity Value $11,001,711)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
CIBC Oppenheimer Corp., 5.75%, 7/01/98 (Maturity Value $11,001,757)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
Donaldson, Lufkin & Jenrette Securities Corp., 5.75%, 7/01/98
(Maturity Value $11,001,757)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
Dresdner Kleinwort Benson, North America, L.L.C., 5.70%,
7/01/98 (Maturity Value $11,001,742)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
J.P. Morgan Securities, Inc., 5.55%, 7/01/98 (Maturity Value $40,006,167)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes................ 40,000,000 40,000,000
J.P. Morgan Securities, Inc., 5.45%, 7/01/98 (Maturity Value $16,977,570)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes................ 16,975,000 16,975,000
Merrill Lynch Government Securities, Inc., 5.60%, 7/01/98
(Maturity Value $11,001,711)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
Morgan Stanley & Co. Inc., 5.65%, 7/01/98 (Maturity Value $56,983,942)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes................ 56,975,000 56,975,000
Paribas Corp., 6.00%, 7/01/98 (Maturity Value $11,001,833)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes................ 11,000,000 11,000,000
SBC Warburg Dillon Read, Inc., 5.90%, 7/01/98 (Maturity Value $11,001,803)
Collateralized by U.S. Treasury Notes..................................... 11,000,000 11,000,000
---------------
Total Repurchase Agreements (Cost $212,950,000) ........................... 212,950,000
---------------
Total Investments (Cost $262,936,992) 99.9%................................ 262,936,992
Other Assets, less Liabilities .1%......................................... 289,386
---------------
Net Assets 100.0%.......................................................... $263,226,378
===============
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
June 30, 1998
The U.S.
Government
Securities
The Money Money Market
Market Portfolio Portfolio
------------------------------------
<S> <C> <C>
Assets:
Investments in securities, at value and cost.......................... $1,725,242,664 $ 49,986,992
Repurchase agreements, at value and cost.............................. 310,085,000 212,950,000
Cash.................................................................. 4,644 2,198
Interest Receivable................................................... 8,854,888 609,004
-----------------------------------
Total assets........................................................... 2,044,187,196 263,548,194
-----------------------------------
Liabilities:
Payables:
Capital shares redeemed.............................................. 268,649 259,167
Affiliates........................................................... 277,741 50,590
Other liabilities..................................................... 11,503 12,059
-----------------------------------
Total liabilities...................................................... 557,893 321,816
-----------------------------------
Net assets, at value................................................... $2,043,629,303 $263,226,378
===================================
Shares outstanding..................................................... 2,043,629,303 263,226,378
===================================
Net asset value per share.............................................. $1.00 $1.00
===================================
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Statements of Operations
for the year ended June 30, 1998
The U.S.
Government
Securities
The Money Money Market
Market Portfolio Portfolio
------------------------------------
<S> <C> <C>
Investment income:
Interest.............................................................. $111,619,440 $14,584,936
-----------------------------------
Expenses:
Management fees (Note 3).............................................. 2,963,304 394,321
Custodian fees........................................................ 16,868 2,474
Reports to shareholders............................................... 4,316 855
Professional fees..................................................... 86,132 11,131
Trustees' fees and expenses........................................... 6,833 974
Other................................................................. 20,769 11,625
-----------------------------------
Total expenses....................................................... 3,098,222 421,380
Expenses waived/paid by affiliate (Note 3)........................... (132,446) (26,888)
------------------------------------
Net expenses........................................................... 2,965,776 394,492
-----------------------------------
Net investment income................................................. 108,653,664 14,190,444
-----------------------------------
Net increase in net assets resulting from operations................... $108,653,664 $14,190,444
===================================
See notes to fnancial statements.
THE MONEY MARKET PORTFOLIOS
Statements of Changes in Net Assets
for the years ended June 30, 1998 and 1997
The U.S. Government Securities
The Money Market Portfolio Money Market Portfolio
------------------------------------------------------------
1998 1997 1998 1997
------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income..................... $108,653,664 $90,724,056 $14,190,444 $14,032,778
Net realized gain (loss) from investments. -- (931) -- 3,978
------------------------------------------------------------
Net increase in net assets
resulting from operations ................. 108,653,664 90,723,125 14,190,444 14,036,756
Distributions to shareholders
from net investment income................. (108,653,664) (90,723,125)+ (14,190,444) (14,036,756)++
Capital share transactions (Note 2)........ 270,083,314 223,460,742 4,597,201 (27,071,927)
-------------------------------------------------------------
Net increase (decrease) in net assets....... 270,083,314 223,460,742 4,597,201 (27,071,927)
Net assets (there is no undistributed net
investment income at beginning or end of year):
Beginning of year......................... 1,773,545,989 1,550,085,247 258,629,177 285,701,104
------------------------------------------------------------
End of year............................... $2,043,629,303 $1,773,545,989 $263,226,378 $258,629,177
============================================================
</TABLE>
+Distributions were decreased by a net realized loss from investments of $931.
++Distributions were increased by a net realized gain from investments of
$3,978.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (Money Market) is registered under the Investment
Company Act of 1940 as an open-end, diversified investment company, consisting
of two separate portfolios (the Portfolios). The shares of the Money Market are
issued in private placements and are exempt from registration under the
Securities Act of 1933. The Portfolios' investment objective is to seek current
income. The following summarizes the Portfolios' significant accounting
policies.
a. Security Valuation:
Securities are valued at amortized cost which approximates value.
b. Repurchase Agreements:
The Portfolios may enter into repurchase agreements, which are accounted for as
a loan by the Portfolios to the seller, collateralized by securities which are
delivered to the Portfolios' 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, 1998, all outstanding repurchase agreements held by the Portfolios had been
entered into on that date.
c. Income Taxes:
No provision has been made for income taxes because each Portfolio's policy is
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute all of its taxable income.
d. 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. Dividends from net
investment income and capital gains or losses are normally declared daily. Such
distributions are reinvested in additional shares of the Portfolios.
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.
Other expenses are charged to each Portfolio on a specific identification basis.
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. SHARES OF BENEFICIAL INTEREST
At June 30, 1998, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Portfolios' shares were as follows:
The U.S.
Government
Securities
The Money Money Market
Market Portfolio Portfolio
-------------------------------------
1998
Shares sold ....................$5,690,107,931 $963,956,819
Shares issued in reinvestment
of distributions .............. 108,652,953 14,190,262
Shares redeemed ................ (5,528,677,570) (973,549,880)
-------------------------------------
Net increase .................... $ 270,083,314 $ 4,597,201
=====================================
1997
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)
=====================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Portfolios are also officers and/or
directors of Franklin Advisers, Inc. (Advisers) and Franklin/Templeton Investor
Services, Inc. (Investor Services), the Portfolios' investment manager and
transfer agent, respectively, and of the Franklin Money Fund, Institutional
Fiduciary Trust, Franklin Templeton Money Fund Trust, and Franklin Federal Money
Fund.
The Portfolios pay an investment management fee to Advisers of .15% per year of
the average daily net assets of each Portfolio. Advisers agreed in advance to
waive management fees for the Portfolios, as noted in the Statement of
Operations.
At June 30, 1998, the shares of The Money Market Portfolio were owned by the
following funds:
Percentage of
Outstanding
Shares Shares
--------------------------------------
Franklin Money Fund ............. 1,714,438,805 83.89%
Institutional Fiduciary Trust -
Money Market Portfolio ......... 175,899,949 8.61%
Institutional Fiduciary Trust -
Franklin Cash Reserves Fund .... 117,900,101 5.77%
Franklin Templeton Money Fund Trust -
Franklin Templeton Money Fund II 35,390,448 1.73%
At June 30, 1998, the shares of The U.S. Government Securities Money Market
Portfolio were owned by the following funds:
Percentage of
Outstanding
Shares Shares
--------------------------------------
Institutional Fiduciary Trust -
Franklin U.S. Government
Securities Money Market Portfolio 131,160,450 49.83%
Franklin Federal Money Fund .... 132,065,928 50.17%
4. INCOME TAXES
At June 30, 1998, The Money Market Portfolio had tax basis capital losses of
$4,721 which may be carried over to offset future capital gains. Such losses
expire as follows:
The Money
Market Portfolio
-----------------
Capital loss carryovers expiring in:
2002............................... $3,560
2006............................... 1,161
----------
................................... $4,721
==========
THE MONEY MARKET PORTFOLIOS
Independent Auditor's Report
To the Shareholders and Board of Trustees
Of The Money Market Portfolios
We have audited the accompanying statements of assets and liabilities of each of
the two Portfolios comprising The Money Market Portfolios (the Portfolios),
including each Portfolio's statement of investments as of June 30, 1998, 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, 1998, 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 two Portfolios comprising The Money Market Portfolios as of June 30,
1998, 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.
PricewaterhouseCoopers LLP
San Francisco, California
July 30, 1998
