ANNUAL REPORT
FRANKLIN FEDERAL MONEY FUND
JUNE 30, 1999
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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 mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
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SHAREHOLDER LETTER
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Your Fund's Goal: 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)
- --------------------------------------------------------------------------------
Dear Shareholder:
This annual report for Franklin Federal Money Fund covers the period ended June
30, 1999.
During the year under review, domestic economic growth continued at a robust
pace. Real U.S. gross domestic product (GDP) growth for the first three quarters
of the fund's fiscal year averaged 4.7% annualized, and most projections for the
final quarter ending in June are also above the Federal Reserve Board's (the
Fed's) targeted long-term growth rate of 2.5%. For nearly the past year and a
half, U.S. economic performance has reflected a balance between the effects of
weakness abroad and a surge in credit-driven spending by U.S. households.
Reduced inflation associated with recession in much of the rest of the world,
along with the Fed's easing in fall 1998 when credit growth threatened to
falter, allowed for substantial declines in interest rates. This combination
also increased equity and real estate prices that, in turn, powered domestic
spending. The result has been an enviable position of rapid economic growth
coupled with low inflation and rising asset prices.
(1) There is no assurance that the fund's $1.00 per share price will be
maintained. An investment in the fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
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 5 of
this report.
CONTENTS
Shareholder Letter ......................................................... 1
Performance Summary ........................................................ 3
Financial Highlights &
Statement of Investments ................................................... 4
Financial Statements ....................................................... 6
Notes to
Financial Statements ....................................................... 9
Independent
Auditors' Report ........................................................... 11
[FUND CATEGORY PYRAMID]
Foreign growth is now beginning to improve, however. The emerging markets crisis
has largely dissipated, and forecasts point to a return to more normal growth.
Even Japan, mired in a deep recession for years, showed signs of life during the
period under review, with an annualized first quarter GDP of 4.3%, well above
estimates.
The prospect of sizzling domestic demand and a stronger global backdrop posed a
realistic threat that the U.S. economy might overheat. An unexpected spike in
April's inflation number coupled with strength in oil prices put the market on
notice. In response, the Fed raised the federal funds target rate 0.25%, to
5.00%, at its June meeting. The bond market has also reacted unfavorably to the
prospect of higher inflation, and the 30-year Treasury yield rose from its
all-time low of 4.70% on October 5, 1998, to 5.98% on June 30, 1999.
Reflecting a 50 basis point (0.50%) net reduction in the federal funds target
rate over the past year, the fund's seven-day yield during the reporting period
declined from 5.24% on June 30, 1998, to 4.21% on June 30, 1999.
We continue to invest the fund's assets in only the highest quality money market
securities. For example, on June 30, 1999, over 75% of the securities purchased
for the portfolio carried AA or higher long-term credit ratings by Standard &
Poor's and Moody's, national credit rating agencies, with the balance rated
A.(2) Consistent with the fund's objective of providing shareholders with a
higher quality and conservative investment vehicle, we do not invest the fund's
cash in derivatives or other potentially volatile securities that we believe
involve undue risk.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of June 30, 1999, 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 historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
We appreciate your support, welcome new shareholders and look forward to serving
your investment needs in the years ahead.
Sincerely,
/s/ Charles B. Johnson
Charles B. Johnson
Chairman
Franklin Federal Money Fund
(2) This does not indicate a rating for the fund.
PERFORMANCE SUMMARY
6/30/99
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Seven-day effective yield* 4.30%
Seven-day annualized yield 4.21%
*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 JUNE 30,
-----------------------------------------------------------------
1999 1998 1997 1996 1995***
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<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 .042 .047 .045 .047 .029
Less distributions from net investment income ........... (.042) (.047) (.045) (.047) (.029)
-----------------------------------------------------------------
Net asset value, end of year ............................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=================================================================
Total return* ........................................... 4.32% 4.85% 4.62% 4.80% 2.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ......................... $144,387 $134,621 $121,291 $127,659 $139,286
Ratios to average net assets:
Expenses(1) ............................................ .78% .82% .85% .84% .87%**
Expenses excluding waiver and payments by affiliate(1).. .78% .83% .86% .86% .88%**
Net investment income .................................. 4.23% 4.73% 4.54% 4.71% 4.93%**
</TABLE>
* Total return is not annualized for periods less than one year.
** Annualized.
*** For the period December 1, 1994 to June 30, 1995.
(1) The 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, 1999
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
MUTUAL FUNDS 100.5%
The U.S. Government Securities Money Market Portfolio (Note 1) (COST $145,081,218) ................... 145,081,218 $145,081,218
OTHER ASSETS, LESS LIABILITIES (.5%) ................................................................. (694,379)
------------
NET ASSETS 100.0% .................................................................................... $144,386,839
============
</TABLE>
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value and cost .................... $145,081,218
Receivable for capital shares sold .............................. 4,276,011
------------
Total assets ................................................ 149,357,229
------------
Liabilities:
Payables:
Capital shares redeemed ....................................... 4,714,040
Affiliates .................................................... 72,785
Shareholders .................................................. 142,709
Other liabilities ............................................... 40,856
------------
Total liabilities ........................................... 4,970,390
------------
Net assets, at value ............................................ $144,386,839
============
Shares outstanding .............................................. 144,386,839
============
Net asset value per share ....................................... $1.00
============
</TABLE>
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
FINANCIAL STATEMENTS (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends ......................................................... $7,490,614
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Expenses:
Administrative fees (Note 3) ...................................... $633,457
Transfer agent fees (Note 3) ...................................... 204,036
Reports to shareholders ........................................... 71,292
Registration and filing fees ...................................... 39,243
Professional fees ................................................. 9,765
Directors' fees and expenses ...................................... 4,665
Other ............................................................. 2,745
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Total expenses ............................................... 965,203
----------
Net investment income ....................................... 6,525,411
----------
Net increase in net assets resulting from operations ............... $6,525,411
==========
</TABLE>
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
FINANCIAL STATEMENTS (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................................... $ 6,525,411 $ 6,140,868
Distributions to shareholders from net investment income ............................................. (6,525,411) (6,140,868)
Capital share transactions (Note 2) .................................................................. 9,766,182 13,329,815
---------------------------
Net increase in net assets ....................................................................... 9,766,182 13,329,815
Net assets (there is no undistributed net investment income at beginning or end of year):
Beginning of year .................................................................................... 134,620,657 121,290,842
---------------------------
End of year .......................................................................................... $144,386,839 $134,620,657
===========================
</TABLE>
See notes to financial statements.
FRANKLIN FEDERAL MONEY FUND
NOTES TO THE 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 to provide a high level of current income with preservation of capital and
liquidity.
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, 1999, the Fund owns 56.13%
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 substantially 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.
FRANKLIN FEDERAL MONEY FUND
NOTES TO THE FINANCIAL STATEMENTS (continued)
2. CAPITAL STOCK
At June 30, 1999, there were 5 billion shares authorized (no par value).
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ended June 30, 1999
Shares sold ............................................ $ 604,139,748
Shares issued in reinvestment of distributions ......... 6,502,036
Shares redeemed ........................................ (600,875,602)
-------------
Net increase ..................................... $ 9,766,182
=============
Year ended June 30, 1998
Shares sold ............................................ $ 328,607,294
Shares issued in reinvestment of distributions ......... 6,154,199
Shares redeemed ........................................ (321,431,678)
-------------
Net increase ..................................... $ 13,329,815
=============
</TABLE>
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 net assets
of the Fund as follows:
ANNUALIZED
FEE RATE DAILY NET ASSETS
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.455% First $100 million
.330% Over $100 million, up to and including $250 million
.280% In excess of $250 million
FRANKLIN FEDERAL MONEY FUND
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF FRANKLIN FEDERAL MONEY FUND
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Federal Money Fund (the
"Fund") at June 30, 1999, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then ended
and the financial highlights for each of the periods presented, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at June 30, 1999 with the
custodian, provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 3, 1999
THE MONEY MARKET PORTFOLIOS
FINANCIAL HIGHLIGHTS
THE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<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 .051 .055 .053 .055 .053
Less distributions from net investment income ............ (.051) (.055) (.053) (.055) (.053)
------------------------------------------------------------------------
Net asset value, end of year ............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------
Total return* ............................................ 5.18% 5.64% 5.47% 5.66% 5.46%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .......................... $ 3,672,404 $ 2,043,629 $ 1,773,546 $ 1,550,085 $ 1,305,574
Ratios to average net assets:
Expenses ................................................ .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by affiliate ..... .15% .16% .16% .16% .16%
Net investment income ................................... 5.04% 5.50% 5.34% 5.50% 5.42%
</TABLE>
*Total return is not annualized for periods less than one year.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
THE MONEY MARKET PORTFOLIO AMOUNT VALUE
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BANK NOTES 3.4%
NationsBank NA, Charlotte Branch, 4.87% - 5.27%, 8/02/99 - 10/18/99 ......................... $100,000,000 $100,000,718
Wachovia Bank NA, North Carolina Branch, 4.92%, 8/26/99 ..................................... 25,000,000 25,000,384
------------
TOTAL BANK NOTES (COST $125,001,102)......................................................... 125,001,102
------------
CERTIFICATES OF DEPOSIT 27.2%
ABN-AMRO Bank NV, Chicago Branch, 5.10%, 4/07/00 ............................................ 24,000,000 23,994,659
Australia & New Zealand Banking Group, New York Branch, 5.065% - 5.09%, 09/17/99 - 9/29/99 .. 75,000,000 75,001,493
Bank of Montreal, Chicago Branch, 5.12% - 5.245%, 3/02/00 - 4/10/00 ......................... 50,000,000 49,994,749
Bank of Nova Scotia, Portland Branch, 4.97%, 9/02/99 ........................................ 25,000,000 25,000,432
Barclays Bank PLC, New York Branch, 4.99% - 5.005%, 9/07/99 - 9/10/99 ....................... 75,000,000 75,001,915
Bayerische Landesbank, New York Branch, 4.91%, 7/02/99 ...................................... 25,000,000 25,000,007
Bayerische Vereinsbank, New York Branch, 4.92%, 7/01/99 - 7/06/99 ........................... 50,000,000 50,000,000
Credit Agricole Indosuez, New York Branch, 4.90% - 5.31%, 7/12/99 - 1/13/00 ................. 100,000,000 100,006,049
Credit Communal De Belgique, New York Branch, 5.01%, 9/03/99 ................................ 25,000,000 25,000,878
Den Danske Bank, New York Branch, 5.08%, 9/21/99 ............................................ 25,000,000 25,000,562
Deutsche Bank AG, New York Branch, 5.27% - 5.62%, 3/03/00 - 6/26/00 ......................... 124,000,000 123,960,604
Landesbank Hessen Thuringen, New York Branch, 4.88%, 7/14/99 ................................ 25,000,000 25,000,045
Morgan Guaranty & Trust, New York Branch, 4.95% - 5.07%, 9/22/99 - 9/23/99 .................. 50,000,000 49,989,147
National Westminster Bank PLC, New York Branch, 5.13%, 10/08/99 ............................. 25,000,000 25,000,677
Rabobank Nederland NV, New York Branch, 5.41% - 5.64%, 7/30/99 - 6/01/00 .................... 25,500,000 25,491,408
Royal Bank of Canada, New York Branch, 4.91% - 5.70%, 8/09/99 - 7/03/00 ..................... 50,000,000 49,997,964
Societe Generale, New York Branch, 4.86% - 5.11%, 7/26/99 - 10/04/99 ........................ 50,000,000 50,000,000
Svenska Handelsbanken, New York Branch, 4.875%, 7/16/99 ..................................... 25,000,000 25,000,050
Toronto Dominion Bank, New York Branch, 4.90% - 5.10%, 10/25/99 - 2/22/00 ................... 50,000,000 49,994,548
UBS AG, New York Branch, 4.93% - 5.27%, 10/15/99 - 11/10/99 ................................. 100,000,000 100,003,298
------------
TOTAL CERTIFICATES OF DEPOSIT (COST $998,438,485) ........................................... 998,438,485
------------
(a)COMMERCIAL PAPER 39.1%
Abbey National North America Corp., 4.74% - 4.82%, 7/08/99 - 7/22/99 ........................ 85,000,000 84,825,176
American Express Credit Corp., 4.79% - 5.03%, 7/08/99 - 8/20/99 ............................. 125,000,000 124,420,569
Associates Corp. of North America, 4.85% - 4.92%, 8/12/99 - 8/31/99 ......................... 100,000,000 99,300,300
BIL North America Inc., 4.805%, 7/23/99 ..................................................... 25,000,000 24,926,590
Canadian Imperial Holdings Inc., 5.75%, 7/01/99 ............................................. 125,000,000 125,000,000
Chevron U.K. Investment PLC, 4.85%, 9/01/99 ................................................. 5,000,000 4,958,236
Coca Cola Co., 5.00%, 9/16/99 - 9/24/99 ..................................................... 50,000,000 49,437,500
Cregem North America Inc., 4.80% - 4.87%, 7/06/99 - 8/25/99 ................................. 80,000,000 79,629,125
Den Danske Corp. Inc., 4.81% - 4.82%, 7/13/99 - 7/27/99 ..................................... 50,000,000 49,872,986
Dupont De Nemours Co., 4.79%, 7/07/99 ....................................................... 25,000,000 24,980,042
Ford Motor Credit Co., 5.02% - 5.05%, 9/08/99 - 9/30/99 ..................................... 100,000,000 98,913,444
General Electric Capital Corp., 4.75% - 5.03%, 7/09/99 - 8/10/99 ............................ 125,000,000 124,630,611
Halifax PLC, 4.80%, 11/01/99 ................................................................ 25,000,000 24,590,000
International Nederlanden (U.S.) Funding Corp., 4.82% - 5.03%, 7/09/99 - 7/23/99 ............ 125,000,000 124,686,792
Merrill Lynch & Co. Inc., 4.80% - 4.90%, 8/04/99 - 8/27/99 .................................. 50,000,000 49,692,708
Morgan Stanley Dean Witter & Co., 4.83%, 8/05/99 - 8/06/99 .................................. 50,000,000 49,761,854
National Australian Funding (DE) Inc., 5.09%, 11/05/99 ...................................... 30,000,000 29,461,308
National Rural Utilities Cooperative Finance Corp., 5.02% - 5.05%, 9/20/99 - 10/5/99 ........ 75,000,000 74,074,181
Province of British Columbia, 4.78% - 5.03%, 9/02/99 - 10/18/99 ............................. 29,359,000 29,001,338
Salomon Smith Barney Holdings Inc., 4.80% - 4.94%, 7/30/99 - 8/23/99 ........................ 50,000,000 49,721,514
</TABLE>
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 1999 (CONT.)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
THE MONEY MARKET PORTFOLIO AMOUNT VALUE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(a)COMMERCIAL PAPER (CONT.)
Societe Generale NA Inc., 4.86% - 4.88%, 8/17/99 - 8/24/99 ................................. $ 50,000,000 $ 49,658,472
Svenska Handelsbanken Inc., 4.80% - 4.81%, 7/14/99 - 8/11/99 ............................... 30,000,000 29,873,297
Westpac Capital Corp., 4.80% - 4.81%, 7/13/99 - 11/09/99 ................................... 35,000,000 34,547,300
--------------
TOTAL COMMERCIAL PAPER (COST $1,435,963,343) ............................................... 1,435,963,343
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $2,559,402,930) ....................... 2,559,402,930
--------------
(b)REPURCHASE AGREEMENTS 30.7%
Barclays Capital Inc., 4.75%, 7/01/99 (Maturity Value $100,013,194) ........................ 100,000,000 100,000,000
Collateralized by U.S. Treasury Notes
CIBC Oppenheimer Corp., 4.80%, 7/01/99 (Maturity Value $200,026,667) ....................... 200,000,000 200,000,000
Collateralized by U.S. Treasury Notes
Dresdner Kleinwort Benson, North America LLC 4.75%, 7/01/99 (Maturity Value $200,026,389) .. 200,000,000 200,000,000
Collateralized by U.S. Treasury Notes
Goldman, Sachs & Co., 4.65%, 7/01/99 (Maturity Value $50,006,458) .......................... 50,000,000 50,000,000
Collateralized by U.S. Treasury Notes
J.P. Morgan Securities Inc., 4.89%, 7/01/99 (Maturity Value $89,012,089) ................... 89,000,000 89,000,000
Collateralized by U.S. Treasury Notes
Morgan Stanley & Co. Inc., 4.75%, 7/01/99 (Maturity Value $88,871,725) ..................... 88,860,000 88,860,000
Collateralized by U.S. Treasury Notes
NationsBanc Montgomery Securities LLC, 4.70%, 7/01/99 (Maturity Value $200,026,111) ........ 200,000,000 200,000,000
Collateralized by U.S. Treasury Notes
Warburg Dillon Read LLC, 4.80%, 7/01/99 (Maturity Value $200,026,667) ...................... 200,000,000 200,000,000
Collateralized by U.S. Treasury Notes
--------------
TOTAL REPURCHASE AGREEMENTS (COST $1,127,860,000) .......................................... 1,127,860,000
--------------
TOTAL INVESTMENTS (COST $3,687,262,930) 100.4% ............................................. 3,687,262,930
OTHER ASSETS, LESS LIABILITIES (.4)% ....................................................... (14,859,14)
--------------
NET ASSETS 100.0% .......................................................................... $3,672,403,785
==============
</TABLE>
(a)Securities are traded on a discount basis; the rates shown are the discount
rates at the time of purchase by the portfolio.
(b)See note 1(b) regarding repurchase agreements.
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,
--------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------
<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 ..... .049 .054 .052 .054 .052
Less distributions from net investment income ................. (.049) (.054) (.052) (.054) (.052)
--------------------------------------------------------------
Net asset value, end of year .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------
Total return* ................................................. 4.97% 5.53% 5.34% 5.55% 5.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............................... $ 258,458 $ 263,226 $ 285,629 $ 285,701 $ 474,654
Ratios to average net assets:
Expenses ..................................................... .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by affiliate .......... .15% .16% .16% .17% .16%
Net investment income ........................................ 4.84% 5.40% 5.20% 5.45% 5.25%
</TABLE>
*Total return is not annualized for periods less than one year.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 1999
<TABLE>
<CAPTION>
PRINCIPAL
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
GOVERNMENT SECURITIES 31.1%
U.S. Treasury Notes, 6.00%, 8/15/99 ....................................................... $10,000,000 $ 10,009,124
U.S. Treasury Notes, 5.875%, 8/31/99 ...................................................... 15,000,000 15,027,279
U.S. Treasury Notes, 6.875%, 8/31/99 ...................................................... 20,000,000 20,057,498
U.S. Treasury Notes, 7.125%, 9/30/99 ...................................................... 5,000,000 5,027,612
U.S. Treasury Notes, 5.875%, 11/15/99 ..................................................... 20,000,000 20,083,650
U.S. Treasury Notes, 6.375%, 05/15/00 ..................................................... 10,000,000 10,104,429
------------
TOTAL GOVERNMENT SECURITIES (COST $80,309,592) ............................................ 80,309,592
------------
(b)REPURCHASE AGREEMENTS 68.4%
Barclays Capital Inc., 4.75%, 7/01/99 (Maturity Value $12,001,583)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
CIBC Oppenheimer Corp., 4.80%, 7/01/99 (Maturity Value $12,001,600)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
Dresdner Kleinwort Benson, North America LLC, 4.75%, 7/01/99 (Maturity Value $12,001,583)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
J.P. Morgan Securities Inc., 4.79%, 7/01/99 (Maturity Value $22,437,985)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes ............................... 22,435,000 22,435,000
J.P. Morgan Securities Inc., 4.89%, 7/01/99 (Maturity Value $30,004,075)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes ............................... 30,000,000 30,000,000
Merrill Lynch Government Securities Inc., 4.65%, 7/01/99 (Maturity Value $12,001,550)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
Morgan Stanley & Co. Inc., 4.75%, 7/01/99 (Maturity Value $52,441,919)
Collateralized by U.S. Treasury Bills, U.S. Treasury Notes ............................... 52,435,000 52,435,000
NationsBanc Montgomery Securities LLC, 4.70%, 7/01/99 (Maturity Value $12,001,567)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
Warburg Dillon Read LLC, 4.80%, 7/01/99 (Maturity Value $12,001,600)
Collateralized by U.S. Treasury Notes .................................................... 12,000,000 12,000,000
------------
TOTAL REPURCHASE AGREEMENTS (COST $176,870,000) ........................................... 176,870,000
------------
TOTAL INVESTMENTS (COST $257,179,592) 99.5% ............................................... 257,179,592
OTHER ASSETS, LESS LIABILITIES .5% ........................................................ 1,278,789
------------
NET ASSETS 100.0% ......................................................................... $258,458,381
============
</TABLE>
(b) See note 1(b) regarding repurchase agreements.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1999
<TABLE>
<CAPTION>
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Investments in securities, at value and cost .. $2,559,402,930 $ 80,309,592
Repurchase agreements, at value and cost ...... 1,127,860,000 176,870,000
Cash .......................................... 1,482 1,226
Interest receivable ........................... 10,623,714 1,324,040
-------------------------------
Total assets ............................. 3,697,888,126 258,504,858
-------------------------------
Liabilities:
Payables:
Investment securities purchased .............. 24,997,585 --
Affiliates ................................... 424,491 43,814
Other liabilities ............................. 62,265 2,663
-------------------------------
Total liabilities ........................ 25,484,341 46,477
-------------------------------
Net assets, at value ........................... $3,672,403,785 $ 258,458,381
===============================
Shares outstanding ............................. 3,672,403,785 258,458,381
===============================
Net asset value per share ...................... $ 1.00 $ 1.00
===============================
</TABLE>
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Investment income:
Interest ................................................. $ 138,357,052 $ 14,596,792
------------------------------
Expenses:
Management fees (Note 3) ................................. 3,996,761 437,891
Custodian fees ........................................... 26,396 2,992
Reports to shareholders .................................. 2,109 222
Professional fees ........................................ 52,539 5,317
Other .................................................... 19,159 --
------------------------------
Total expenses ...................................... 4,096,964 446,422
Expenses waived/paid by affiliate (Note 3) .......... (95,954) (7,712)
------------------------------
Net expenses ....................................... 4,001,010 438,710
------------------------------
Net investment income ............................. 134,356,042 14,158,082
------------------------------
Net realized gain from investments ........................ 651 --
------------------------------
Net increase in net assets resulting from operations ...... $ 134,356,693 $ 14,158,082
==============================
</TABLE>
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
THE U.S. GOVERNMENT SECURITIES
THE MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................ $ 134,356,042 $ 108,653,664 $ 14,158,082 $ 14,190,444
Net realized gain from investments ................... 651 -- -- --
-------------------------------------------------------------------------
Net increase in net assets resulting from
operations ...................................... 134,356,693 108,653,664 14,158,082 14,190,444
Distributions to shareholders from net investment
income ............................................... (134,356,693)+ (108,653,664) (14,158,082) (14,190,444)
Capital share transactions (Note 2) ................... 1,628,774,482 270,083,314 (4,767,997) 4,597,201
-------------------------------------------------------------------------
Net increase (decrease) in net assets ............ 1,628,774,482 270,083,314 (4,767,997) 4,597,201
Net assets (there is no undistributed net investment
income at beginning or end of year):
Beginning of year .................................... 2,043,629,303 1,773,545,989 263,226,378 258,629,177
-------------------------------------------------------------------------
End of year .......................................... $ 3,672,403,785 $ 2,043,629,303 $ 258,458,381 $ 263,226,378
=========================================================================
</TABLE>
+ Distributions were increased by a net realized gain from investments of $651.
See notes to financial statements.
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (the Trust) 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 Trust are issued
in private placements and are exempt from registration under the Securities Act
of 1933. The Portfolios seek to provide a high level of current income
consistent with preservation of capital and liquidity. 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, 1999, 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 substantially 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 Trust 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.
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (continued)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 1999, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Portfolios' shares were as follows:
<TABLE>
<CAPTION>
THE U.S.
THE GOVERNMENT
MONEY MARKET SECURITIES MONEY
PORTFOLIO MARKET PORTFOLIO
------------------------------------
<S> <C> <C>
Year ended June 30, 1999
Shares sold ........................................... $ 13,314,265,139 $ 963,424,640
Shares issued in reinvestment of distributions ........ 134,356,720 14,164,293
Shares redeemed ....................................... (11,819,847,377) (982,356,930)
------------------------------------
Net increase (decrease) ............................... $ 1,628,774,482 $ (4,767,997)
====================================
Year ended June 30, 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
====================================
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust 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, as noted in the Statements of Operations.
At June 30, 1999, the shares of The Money Market Portfolio were owned by the
following funds:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING SHARES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Franklin Money Fund ................................................. 2,152,976,361 58.63%
Institutional Fiduciary Trust - Money Market Portfolio .............. 1,295,694,772 35.28%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund ......... 134,822,519 3.67%
Franklin Templeton Money Fund ....................................... 88,910,133 2.42%
</TABLE>
At June 30, 1999, the shares of The U.S. Government Securities Money Market
Portfolio were owned by the following funds:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING SHARES
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Institutional Fiduciary Trust - Franklin U.S. Government Securities Money Market Portfolio .. 113,377,163 43.87%
Franklin Federal Money Fund ................................................................. 145,081,218 56.13%
</TABLE>
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (continued)
4. INCOME TAXES
At June 30, 1999, The Money Market Portfolio has deferred capital losses
occurring subsequent to October 31, 1998 of $8,692. For tax purposes, such
losses will be reflected in the year ending June 30, 2000.
THE MONEY MARKET PORTFOLIOS
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE MONEY MARKET PORTFOLIOS
In our opinion, the accompanying statements of assets and liabilities, including
the statements of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of each of the portfolios constituting
The Money Market Portfolios (hereafter referred to as the "Portfolios") at June
30, 1999, the results of each of their operations for the year then ended, the
changes in each of their net assets for each of the two years in the period then
ended and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Portfolios' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at June
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 3, 1999
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