<PAGE>
SHAREHOLDER LETTER
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, 2000.
The 12 months under review marked the U. S. economy's ninth year of expansion.
Consumer spending, which represents two-thirds of U.S. gross domestic product
(GDP), increased dramatically during the period, to its highest level in 17
years. Wage gains, unemployment at a 30-year low, and the much talked-about
wealth effect were key drivers to this increase. As a result, real GDP grew at
an annualized pace of 4.8% in the first quarter of 2000, well above the Federal
Reserve Board's (the Fed's) long-term growth target rate of 3.0%.
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Shareholder Letter ........... 1
Performance Summary .......... 3
Financial Highlights &
Statement of Investments ..... 4
Financial Statements ......... 6
Notes to
Financial Statements ......... 9
Independent
Auditors' Report ............. 11
</TABLE>
[FUND CATEGORY PYRAMID]
(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.
The dollar value, number of shares or principal value, and complete legal titles
of all portfolio holdings are listed in the Fund's Statement of Investments
(SOI). The SOI begins on page 5.
<PAGE>
Seeking to curb growth to a more sustainable level and control inflation, the
Fed raised the federal funds target rate a total of 150 basis points (1.50%)
during the past 12 months. These short-term interest rate increases helped boost
the Fund's seven-day effective yield during the reporting period from 4.30% on
June 30, 1999, to 5.72% on June 30, 2000.
In June 2000, it appeared the Fed's action was having little effect on the
strong economy, as the second quarter GDP rose by an annualized 5.2% and the
majority of economic indicators pointed to an economy that was on the verge of
overheating. Despite this, during the final three months of the period under
review, we also began to see some signs that the fast pace of economic growth
might ease in the future. Consumer spending, housing starts, inflation as
measured by the Consumer Price Index, as well as other economic indicators
suggested possible slower growth.
Looking forward, we are optimistic that the economy will moderate, but are
nonetheless concerned about inflation and the level of interest rates. Although
many people anticipate a slowdown and a soft landing, in our opinion it is
really too early to tell. Numerous Fed governors have cautioned against jumping
to any conclusions, and advised waiting for more data that would confirm the
slowdown or spark further tightening. Therefore, we will closely watch economic
reports to help anticipate future Fed actions.
2
<PAGE>
We continue to invest the portfolio's assets only in U.S. Treasury obligations,
and repurchase agreements backed by U.S. Treasury securities. Consistent with
the Fund's objective of providing shareholders with a higher quality and
conservative investment vehicle, we do not invest the portfolio's cash in
derivatives or other potentially volatile securities that we believe involve
undue risk.
We appreciate your support, welcome new shareholders and look forward to serving
your investment needs in the years ahead.
Sincerely,
/s/ C B Johnson
Charles B. Johnson
Chairman
Franklin Federal Money Fund
<TABLE>
<CAPTION>
PERFORMANCE SUMMARY
6/30/00
<S> <C>
Seven-day effective yield* 5.72%
Seven-day annualized yield 5.56%
</TABLE>
*The seven-day effective yield assumes the compounding of daily dividends.
Annualized and effective yields are for the seven-day period ended 6/30/00. The
Fund's average weighted maturity was 30 days. Yield reflects fluctuations in
interest rates on portfolio investments, and Fund expenses.
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. If
the manager had not taken these actions, the portfolio's yields for the period
would have been lower. The fee waiver may be discontinued at any time upon
notice to the Fund's Board of Trustees.
Past performance does not guarantee future results.
This discussion reflects our views, opinions and portfolio holdings as of June
30, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any industry, security or the Fund. Our
strategies and the Fund's portfolio composition will change depending on market
and economic conditions. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
3
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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 net investment operations - net
investment income .................................... .048 .042 .047 .045 .047
Less distributions from net investment income ......... (.048) (.042) (.047) (.045) (.047)
---------------------------------------------------------------------
Net asset value, end of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================
Total return(a) ....................................... 4.87% 4.32% 4.85% 4.62% 4.80%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ....................... $147,938 $144,387 $134,621 $121,291 $127,659
Ratios to average net assets:
Expenses(b)........................................... .76% .78% .82% .85% .84%
Expenses excluding waiver and payments by affiliate(b) 77% .78% .83% .86% .86%
Net investment income ................................ 4.74% 4.23% 4.73% 4.54% 4.71%
</TABLE>
(a) Total return is not annualized for periods less than one year.
(b) The expense ratio includes the Fund's share of the Portfolio's allocated
expenses.
4 See notes to financial statements.
<PAGE>
FRANKLIN FEDERAL MONEY FUND
STATEMENT OF INVESTMENTS, JUNE 30, 2000
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
MUTUAL FUNDS 111.9%
The U.S. Government Securities Money Market Portfolio
(Note 1) (COST $165,510,060) ..................................... 165,510,060 $165,510,060
OTHER ASSETS, LESS LIABILITIES (11.9%) ............................ (17,572,295)
------------
NET ASSETS 100.0% ................................................. $147,937,765
============
</TABLE>
See notes to financial statements. 5
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Assets:
Investments in securities, at value and cost $165,510,060
Receivable from capital shares sold ........ 751,721
------------
Total assets ........................... 166,261,781
------------
Liabilities:
Payables:
Capital shares redeemed ................... 18,040,846
Affiliates ................................ 83,843
Shareholders .............................. 177,983
Other liabilities .......................... 21,344
------------
Total liabilities ...................... 18,324,016
------------
Net assets, at value ....................... $147,937,765
============
Shares outstanding ......................... 147,937,765
============
Net asset value per share .................. $ 1.00
============
</TABLE>
6 See notes to financial statements.
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
<S> <C>
Investment income:
Dividends ......................................... $9,180,632
----------
Expenses:
Administrative fees (Note 3) ...................... 692,650
Transfer agent fees (Note 3) ...................... 255,205
Reports to shareholders ........................... 47,353
Registration and filing fees ...................... 36,936
Professional fees (Note 3) ........................ 9,048
Directors' fees and expenses ...................... 7,424
Other ............................................. 2,449
----------
Total expenses ................................ 1,051,065
----------
Net investment income ....................... 8,129,567
----------
Net increase in net assets resulting from operations $8,129,567
==========
</TABLE>
See notes to financial statements. 7
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income .............................................. $ 8,129,567 $ 6,525,411
Distributions to shareholders from net investment income ............ (8,129,567) (6,525,411)
Capital share transactions (Note 2) ................................. 3,550,926 9,766,182
---------------------------------
Net increase in net assets ..................................... 3,550,926 9,766,182
Net assets (there is no undistributed net investment income at
beginning or end of year):
Beginning of year ................................................... 144,386,839 134,620,657
---------------------------------
End of year ......................................................... $ 147,937,765 $ 144,386,839
=================================
</TABLE>
8 See notes to financial statements.
<PAGE>
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 high current income consistent 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, 2000, the Fund owns 74.56%
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 to
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.
2. CAPITAL STOCK
At June 30, 2000, there were 5 billion shares authorized (no par value).
Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999
---- ----
<S> <C> <C>
Shares sold $ 1,567,655,230 $ 604,139,748
Shares issued in reinvest-
ment of distributions 8,019,756 6,502,036
Shares redeemed (1,572,124,060) (600,875,602)
---------------------------------
Net increase $ 3,550,926 $ 9,766,182
=================================
</TABLE>
9
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Notes to the Financial Statements (continued)
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:
<TABLE>
<CAPTION>
ANNUALIZED
FEE RATE DAILY NET ASSETS
-------- ----------------
<S> <C>
.455% First $100 million
.330% Over $100 million, up to and including $250 million
.280% In excess of $250 million
</TABLE>
Investor Services received contingent deferred sales charges for the year of
$57,510.
The Fund paid transfer agent fees of $255,205 of which $191,210 was paid to
Investor Services.
Included in professional fees are legal fees of $6,904 that were paid to a law
firm in which a partner of that firm was an officer of the Fund.
10
<PAGE>
FRANKLIN FEDERAL MONEY FUND
Independent Auditors' Report
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
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, 2000, 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 accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 2000 by correspondence with the custodian, provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 3, 2000
11
<PAGE>
THE MONEY MARKET PORTFOLIOS
Financial Highlights
THE MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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............................... .056 .051 .055 .053 .055
.055
Less distributions from net investment income ... (.056) (.051) (.055) (.053) (.055)
--------------------------------------------------------------------------
Net asset value, end of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------
Total return(a).................................. 5.75% 5.18% 5.64% 5.47% 5.66%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $4,144,043 $3,672,404 $2,043,629 $1,773,546 $1,550,085
Ratios to average net assets:
Expenses ....................................... .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by
affiliate ..................................... .16% .15% .16% .16% .16%
Net investment income .......................... 5.65% 5.04% 5.50% 5.34% 5.50%
</TABLE>
(a) Total return is not annualized for periods less than one year.
12 See notes to financial statements.
<PAGE>
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
THE MONEY MARKET PORTFOLIO AMOUNT VALUE
------ -----
<S> <C> <C>
BANK NOTES 5.5%
Bank of America NT & SA, 6.29% - 6.77%, 8/01/00 - 8/18/00 ....................... $155,000,000 $ 155,000,328
Wachovia Bank NA, North Carolina Branch, 6.20%, 7/27/00 - 7/28/00 ............... 70,000,000 70,000,253
-------------
TOTAL BANK NOTES (COST $225,000,581) ............................................ 225,000,581
-------------
CERTIFICATES OF DEPOSIT 29.4%
ABN-AMRO Bank NV, Chicago Branch, 5.69% - 5.91%, 7/10/00 - 8/10/00 .............. 80,000,000 79,997,903
Bank of Nova Scotia, Portland Branch, 6.68%, 9/20/00 - 9/21/00 .................. 50,000,000 50,000,000
Barclays Bank PLC, New York Branch, 5.90%, 10/02/00 ............................. 25,000,000 24,930,771
Bayerische Vereinsbank, New York Branch, 6.70% - 6.71%, 9/05/00
- 9/07/00 ...................................................................... 50,000,000 50,000,405
Commerzbank AG, New York Branch, 6.09% - 6.15%, 7/11/00 - 7/14/00 ............... 140,000,000 140,000,438
Credit Agricole Indosuez, New York Branch, 6.76% - 7.10%,
4/11/01 - 6/15/01 .............................................................. 135,000,000 134,989,937
Credit Communal De Belgique, New York Branch, 7.075% - 7.25%,
5/03/01- 5/09/01 ............................................................... 60,000,000 60,006,117
Den Danske Bank, New York Branch, 6.23%, 7/31/00 ................................ 35,000,000 35,000,859
Deutsche Bank AG, New York Branch, 6.69% - 6.70%, 9/18/00 - 9/29/00 ............. 99,900,000 99,902,209
Dexia Bank, New York Branch, 7.105%, 6/18/01 .................................... 25,000,000 24,998,806
Dresdner Bank AG, New York Branch, 6.09% - 6.70%, 7/06/00 - 9/28/00 ............. 75,000,000 75,000,682
Lloyds Bank PLC, New York Branch, 6.21% - 6.25%, 7/20/00 - 7/24/00 .............. 65,000,000 64,999,969
Royal Bank of Canada, New York Branch, 5.70% - 6.48%, 7/03/00
- 1/16/01 ...................................................................... 95,000,000 94,985,347
Societe Generale, New York Branch, 6.26%, 7/24/00 - 7/28/00 ..................... 75,000,000 75,000,000
Svenska Handelsbanken, New York Branch, 6.75%, 8/24/00 - 8/25/00 ................ 50,000,000 50,000,745
Toronto Dominion Bank, New York Branch, 6.30% - 7.16%, 8/01/00
- 6/08/01 ...................................................................... 125,000,000 124,993,135
UBS AG, New York Branch, 7.08%, 6/22/01 ......................................... 24,990,544 24,990,544
-------------
TOTAL CERTIFICATES OF DEPOSIT (COST $1,209,797,867) ............................. 1,209,797,867
-------------
(a)COMMERCIAL PAPER 49.6%
Abbey National North America Corp., 6.00%, 7/17/00 .............................. 35,000,000 34,906,667
American Express Credit Corp., 6.6937% - 6.88%, 7/03/00 - 9/08/00 ............... 205,000,000 204,950,311
Archer Daniels Midland Co., 6.55%, 9/14/00 ...................................... 20,000,000 19,727,083
Asset Securitization Cooperative Corp., 144A, 6.57% - 6.60%,
8/28/00 - 10/04/00 ............................................................. 150,000,000 148,032,945
Bank of Nova Scotia, 6.60%, 9/07/00 ............................................. 25,000,000 24,688,333
Canadian Imperial Holdings Inc., 6.59% - 6.60%, 9/08/00 - 9/27/00 ............... 75,000,000 73,882,882
Ciesco LP, 6.35% - 6.64%, 7/05/00 - 8/15/00 ..................................... 95,000,000 94,550,229
Coca-Cola Co., 6.06% - 6.55%, 7/18/00 - 8/31/00 ................................. 155,000,000 154,129,299
Commonwealth Bank of Australia, 6.11%, 7/26/00 .................................. 35,000,000 34,851,493
Delaware Funding Corp., 144A, 6.65%, 8/23/00 .................................... 25,000,000 24,755,243
Den Danske Corp. Inc., 6.40% - 6.59%, 7/31/00 - 9/11/00 ......................... 38,313,000 37,912,497
Dupont de Nemours Co., 6.09% - 6.11%, 7/25/00 - 8/11/00 ......................... 105,000,000 104,394,558
General Electric Capital Corp., 6.39% - 6.62%, 8/03/00 - 12/12/00 ............... 130,000,000 127,849,814
Halifax Building Society Ltd., 6.58%, 9/25/00 ................................... 25,000,000 24,607,028
International Lease Finance Corp., 6.53% - 6.57%, 8/21/00 - 9/12/00 ............. 96,485,000 95,468,270
J.P. Morgan & Co. Inc., 6.60%, 9/12/00 .......................................... 25,000,000 24,665,417
Merrill Lynch & Co. Inc., 6.55% - 6.63%, 8/14/00 - 8/25/00 ...................... 75,000,000 74,301,618
Morgan Stanley Dean Witter & Co., 6.57% - 6.65%, 8/07/00 - 9/05/00 .............. 155,000,000 153,622,460
National Australia Funding (DE) Inc., 6.57%, 9/15/00 ............................ 25,000,000 24,653,250
National Rural Utilities Cooperative Finance Corp., 6.58% - 6.63%,
8/10/00 - 8/18/00 .............................................................. 75,000,000 74,379,826
Rabobank Nederland NV, 6.92%, 7/05/00 ........................................... 190,000,000 189,853,912
Salomon Smith Barney Holdings Inc., 6.15% - 6.64%, 7/10/00 - 8/11/00 ............ 165,000,000 164,514,089
</TABLE>
13
<PAGE>
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
THE MONEY MARKET PORTFOLIO AMOUNT VALUE
------ -----
<S> <C> <C>
(a)COMMERCIAL PAPER (CONT.)
Schering Corp., 5.94% - 6.15%, 7/06/00 - 8/08/00 ................................. $ 47,000,000 $ 46,762,893
Svenska Handelsbanken Inc., 6.155% - 6.60%, 7/28/00 - 9/22/00 .................... 85,000,000 84,142,917
--------------
TOTAL COMMERCIAL PAPER (COST $2,041,603,034) ..................................... 2,041,603,034
--------------
U.S. GOVERNMENT AGENCY SECURITIES
Federal Home Loan Mortgage Corp., 6.44%, 9/14/00 ................................. 60,000 59,195
Fannie Mae, 6.47%, 9/21/00 ....................................................... 100,000 98,526
--------------
TOTAL U.S. GOVERNMENT AGENCY SECURITIES (COST $157,721) .......................... 157,721
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $3,476,559,203) ............. 3,476,559,203
--------------
(b)REPURCHASE AGREEMENTS 14.9%
Barclays Capital Inc., 6.60%, 7/03/00 (Maturity Value $200,110,000) .............. 200,000,000 200,000,000
Collateralized by U.S. Treasury Notes
J.P. Morgan Securities Inc., 6.50%, 7/03/00 (Maturity Value $107,423,156) ........ 107,365,000 107,365,000
Collateralized by U.S. Treasury Notes
Morgan Stanley & Co., 6.50%, 7/03/00 (Maturity Value $107,423,156) ............... 107,365,000 107,365,000
Collateralized by U.S. Treasury Notes
UBS Warburg, 6.70%, 7/03/00 (Maturity Value $200,111,667) ........................ 200,000,000 200,000,000
--------------
Collateralized by U.S. Treasury Notes
TOTAL REPURCHASE AGREEMENTS (COST $614,730,000) .................................. 614,730,000
--------------
TOTAL INVESTMENTS (COST $4,091,289,203) 99.4% .................................... 4,091,289,203
OTHER ASSETS, LESS LIABILITIES .6% ............................................... 22,753,837
--------------
NET ASSETS 100.0% ................................................................ $4,114,043,040
==============
</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.
14
<PAGE>
THE MONEY MARKET PORTFOLIOS
Financial Highlights
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
<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 .049 .054 .052 .054
Less distributions from net investment income (.054) (.049) (.054) (.052) (.054)
----------------------------------------------------------------------
Net asset value, end of year ................ $1.00 $1.00 $1.00 $1.00 $1.00
----------------------------------------------------------------------
Total return(a) ............................. 5.48% 4.97% 5.53% 5.34% 5.55%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ............. $221,993 $258,458 $263,226 $285,629 $285,701
Ratios to average net assets:
Expenses ................................... .15% .15% .15% .15% .15%
Expenses excluding waiver and payments by
affiliate ................................. .16% .15% .16% .16% .17%
Net investment income ...................... 5.36% 4.84% 5.40% 5.20% 5.45%
</TABLE>
(a) Total return is not annualized for periods less than one year.
See notes to financial statements. 15
<PAGE>
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, JUNE 30, 2000
<TABLE>
<CAPTION>
PRINCIPAL
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO AMOUNT VALUE
------ -----
<S> <C> <C>
GOVERNMENT SECURITIES 17.3% ..............................................
U.S. Treasury Notes, 5.125%, 8/31/00 ..................................... $ 10,000,000 $ 9,993,585
U.S. Treasury Notes, 6.25%, 8/31/00 ...................................... 3,500,000 3,503,503
U.S. Treasury Notes, 4.00%, 10/31/00 ..................................... 5,000,000 4,963,877
U.S. Treasury Notes, 4.625%, 11/30/00 .................................... 5,000,000 4,972,439
U.S. Treasury Notes, 5.375%, 2/15/01 ..................................... 5,000,000 4,967,729
U.S. Treasury Notes, 7.75%, 2/15/01 ...................................... 5,000,000 5,039,338
U.S. Treasury Notes, 6.25%, 4/30/01 ...................................... 5,000,000 4,974,515
------------
TOTAL GOVERNMENT SECURITIES (COST $38,414,986) ....................... 38,414,986
------------
(b)REPURCHASE AGREEMENTS 82.4%
Banc of America Securities LLC, 6.60%, 7/03/00 (Maturity Value $9,004,950) 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
Barclays Capital Inc., 6.45%, 7/03/00 (Maturity Value $9,004,838) ........ 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
Bear, Stearns & Co. Inc., 6.50%, 7/03/00 (Maturity Value $9,004,875) ..... 9,000,000 9,000,000
Collateralized by U.S. Treasury Bills
Dresdner Kleinwort Benson, North America LLC, 6.40%, 7/03/00
(Maturity Value $9,004,800) ............................................. 9,000,000 9,000,000
Collateralized by U.S. Treasury Bills
Goldman, Sachs & Co., 6.38%, 7/03/00 (Maturity Value $9,004,785) ......... 9,000,000 9,000,000
Collateralized by U.S. Treasury Bond
Greenwich Capital Markets Inc., 6.50%, 7/03/00
(Maturity Value $9,004,875) ............................................. 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
J.P. Morgan Securities Inc., 6.40%, 7/03/00 (Maturity Value $21,001,195) . 20,990,000 20,990,000
Collateralized by U.S. Treasury Notes
J.P. Morgan Securities Inc., 6.50%, 7/03/00 (Maturity Value $30,016,250) . 30,000,000 30,000,000
Collateralized by U.S. Treasury Notes
Merrill Lynch Government Securities Inc., 6.25%, 7/03/00
(Maturity Value $9,004,688) ............................................. 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
Morgan Stanley & Co. Inc., 6.50%, 7/03/00 (Maturity Value $21,001,370) ... 20,990,000 20,990,000
Collateralized by U.S. Treasury Notes
Morgan Stanley & Co. Inc., 6.50%, 7/03/00 (Maturity Value $30,016,250) ... 30,000,000 30,000,000
Collateralized by U.S. Treasury Notes
Nesbitt Burns Securities Inc., 6.55%, 7/03/00 (Maturity Value $9,004,913) 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
UBS Warburg, 6.50%, 7/03/00 (Maturity Value $9,004,875) .................. 9,000,000 9,000,000
Collateralized by U.S. Treasury Notes
-----------
TOTAL REPURCHASE AGREEMENTS (COST $182,980,000) .......................... 182,980,000
-----------
TOTAL INVESTMENTS (COST $221,394,986) 99.7% .............................. 221,394,986
OTHER ASSETS, LESS LIABILITIES .3% ....................................... 597,959
-----------
NET ASSETS 100.0% ........................................................ $221,992,945
============
</TABLE>
(b) See note 1(b) regarding repurchase agreements.
16 See notes to financial statements.
<PAGE>
THE MONEY MARKET PORTFOLIOS
Financial Statements
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 2000
<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 $3,476,559,203 $ 38,414,986
Repurchase agreements, at value and cost ... 614,730,000 182,980,000
Cash ....................................... 3,236 9,578
Interest receivable ........................ 23,833,771 630,227
-----------------------------------
Total assets .......................... 4,115,126,210 222,034,791
-----------------------------------
Liabilities:
Payables:
Affiliates ................................ 449,624 29,821
Professional fees ......................... 30,000 10,000
Distribution to shareholders ............... 576,601 113
Other liabilities .......................... 26,945 1,912
-----------------------------------
Total liabilities ..................... 1,083,170 41,846
-----------------------------------
Net assets, at value ........................ $4,114,043,040 $ 221,992,945
====================================
Shares outstanding .......................... 4,114,043,040 221,992,945
====================================
Net asset value per share ................... $ 1.00 $ 1.00
====================================
</TABLE>
See notes to financial statements. 17
<PAGE>
THE MONEY MARKET PORTFOLIOS
Financial Statements (continued)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
--------- ---------
<S> <C> <C>
Investment income:
Interest .......................................... $ 206,206,553 $ 13,671,482
----------------------------------
Expenses:
Management fees (Note 3) .......................... 5,343,198 376,050
Transfer agent fees (Note 3) ...................... 32,576 2,250
Custodian fees .................................... 39,041 2,437
Reports to shareholders ........................... 6,133 569
Professional fees (Note 3) ........................ 56,286 12,294
Trustees' expenses ................................ 4,167 287
Other ............................................. 30,011 4,335
----------------------------------
Total expenses ............................... 5,511,412 398,222
Expenses waived/paid by affiliate (Note 3) ... (164,153) (24,664)
----------------------------------
Net expenses ................................ 5,347,259 373,558
----------------------------------
Net investment income ...................... 200,859,294 13,297,924
----------------------------------
Net realized loss from investments ................. (9,285) --
----------------------------------
Net increase in net assets resulting from operations $ 200,850,009 $ 13,297,924
==================================
</TABLE>
18 See notes to financial statements.
<PAGE>
THE MONEY MARKET PORTFOLIOS
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
THE U.S. GOVERNMENT SECURITIES
THE MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-------------------------- ----------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................ $ 200,859,294 $ 134,356,042 $ 13,297,924 $ 14,158,082
Net realized gain (loss) from investments .... (9,285) 651 -- --
--------------------------------------------------------------------------------
Net increase in net assets resulting
from operations ........................ 200,850,009 134,356,693 13,297,924 14,158,082
Distributions to shareholders from net
investment income ........................... (200,850,009)(a) (134,356,693)(b) (13,297,924) (14,158,082)
Capital share transactions (Note 2) ........... 441,639,255 1,628,774,482 (36,465,436) (4,767,997)
--------------------------------------------------------------------------------
Net increase (decrease) in net assets .... 441,639,255 1,628,774,482 (36,465,436) (4,767,997)
Net assets (there is no undistributed net
investment income at beginning or end of year):
Beginning of year ............................ 3,672,403,785 2,043,629,303 258,458,381 263,226,378
--------------------------------------------------------------------------------
End of year .................................. $ 4,114,043,040 $ 3,672,403,785 $ 221,992,945 $ 258,458,381
================================================================================
</TABLE>
(a) Distributions were decreased by a net realized loss from investments of
$9,285.
(b) Distributions were increased by a net realized gain from investments of
$651.
See notes to financial statements. 19
<PAGE>
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 a diversified, open-end 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 high 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, 2000, 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.
20
<PAGE>
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST
At June 30, 2000, 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, 2000
Shares sold .................................. $ 38,813,462,724 $ 1,220,241,486
Shares issued in reinvestment of distributions 200,275,366 13,291,931
Shares redeemed .............................. (38,572,098,835) (1,269,998,853)
--------------------------------------
Net increase (decrease) ...................... $ 441,639,255 $ (36,465,436)
======================================
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)
======================================
</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, the Institutional Fiduciary Trust,
the Franklin Templeton Money Fund Trust, and the 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.
Included in professional fees are legal fees of $11,240 that were paid to a law
firm in which a partner of that firm was an officer of the Portfolios.
At June 30, 2000, 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 ............................................... 2,883,392,424 70.09%
Institutional Fiduciary Trust - Money Market Portfolio ............ 1,010,362,054 24.56%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund ....... 119,060,923 2.89%
Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund 101,227,639 2.46%
</TABLE>
21
<PAGE>
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (CONT.)
At June 30, 2000, 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 ................. 56,482,885 25.44%
Franklin Federal Money Fund ................................... 165,510,060 74.56%
</TABLE>
4. INCOME TAXES
At June 30, 2000, The Money Market Portfolio had tax basis capital losses of
$8,692, which may be carried over to offset future capital gains. Such losses
expire in 2008.
At June 30, 2000, The Money Market Portfolio has deferred capital losses
occurring subsequent to October 31, 1999 of $9,285. For tax purposes, such
losses will be reflected in the year ending June 30, 2001.
22
<PAGE>
THE MONEY MARKET PORTFOLIOS
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS 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, 2000, 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 accounting principles generally accepted in the United States.
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 auditing standards generally accepted in the United States,
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, 2000 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
August 3, 2000
23
<PAGE>
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