LOGO
TEMPLETON MONEY FUND
700 Central Avenue
St. Petersburg, Florida 33701-3628
November 15, 1996
Dear Shareholder:
Enclosed is a Notice of Meeting for a Special Shareholders Meeting which
has been called for December 31, 1996 at 10:00 a.m., at the offices of Templeton
Money's business manager located at 500 East Broward Blvd., Fort Lauderdale,
Florida 33394-3091. The accompanying Proxy Statement/Prospectus details a
proposal being presented for your consideration and requests your prompt
attention and vote via the enclosed proxy card.
PLEASE TAKE A MOMENT TO FILL OUT, SIGN AND RETURN THE ENCLOSED PROXY CARD!
This meeting is critically important as you are being asked to consider and
approve an Agreement and Plan of Complete Liquidation which would result in an
exchange of shares in your fund for those of a comparable fund administered by
Franklin Advisers, Inc. ("Advisers"), Franklin Money Fund ("Franklin Money"). On
the date of the exchange, you will receive shares in Franklin Money equal in
value to your investment in Templeton Money Fund ("Templeton Money").
The transaction is being proposed because, in the opinion of the Board of
Trustees, a larger fund would achieve greater economies of scale and have a
greater ability to deliver high levels of quality and service to shareholders at
reasonable cost over the long term.
Please take the time to review this document and vote now! To ensure that
your vote is counted, indicate your position on the enclosed proxy card. Sign
and return your card promptly. If you determine at a later date that you wish to
attend this meeting, you may revoke your proxy and vote in person.
Thank you for your attention to this matter.
Sincerely,
Barbara J. Green
Secretary
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TEMPLETON MONEY FUND
700 Central Avenue, St. Petersburg, Florida 33701-3628
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 31, 1996
To the Shareholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
Templeton Money Fund series ("Templeton Money") of Templeton Income Trust (the
"Trust"), will be held at the offices of Templeton Money's business manager
which are located at 500 East Broward Blvd., Fort Lauderdale, Florida 33394-3091
on December 31, 1996, at 10:00 a.m., local time, for the following reasons:
1. To approve or disapprove an Agreement and Plan of Complete Liquidation
between the Trust on behalf of Templeton Money and Franklin Money Fund
("Franklin Money") that provides for the acquisition of substantially all of the
assets of Templeton Money in exchange for shares of Franklin Money, the
distribution of such shares to the shareholders of Templeton Money, and the
liquidation and dissolution of Templeton Money.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The transaction contemplated by the Agreement and Plan of Complete
Liquidation is described in the attached Prospectus/Proxy Statement. A copy of
the Agreement and Plan of Complete Liquidation is attached as Exhibit A thereto.
Shareholders of record as of the close of business on October 25, 1996 are
entitled to notice of, and to vote at, the Special Meeting or any adjournment
thereof.
By Order of the Board of Trustees,
Barbara J. Green
Secretary
November 15, 1996
If you attend the meeting, you may vote your shares in person. If you do
not expect to attend the meeting, the Board of Trustees urges you to complete,
date, sign and return the enclosed proxy card(s) in the enclosed postage- paid
return envelope. It is important that you return your signed proxy promptly so
that a quorum may be ensured.
COMBINED PROXY STATEMENT AND PROSPECTUS
TABLE OF CONTENTS
Page
Cover Page. Cover
Summary............................................... 3
Proposed Transaction............................. 3
Voting Information............................... 3
Tax Consequences................................. 4
Investment Objectives and Policies............... 4
Management of Franklin Money..................... 5
Fees and Expenses................................ 5
Purchase Price, Redemption Price, Distributions.. 7
Risk Factors..................................... 8
Special Information Regarding Franklin Money's
Master/Feeder Fund Structure.................... 9
Reasons for the Transaction........................... 11
Information about the Transaction..................... 12
Method of Carrying Out the Transaction........... 12
Conditions Precedent to Closing.................. 13
Expenses of the Transaction...................... 13
Tax Considerations............................... 13
Description of Shares of Franklin Money.......... 14
Capitalization................................... 15
Comparison of Investment Policies and Risks........... 15
Franklin Money and Templeton Money............... 15
Investment Policies.............................. 16
Investment Restrictions.......................... 17
Risk Factors..................................... 19
Information about Franklin Money...................... 19
Information about the Trust........................... 20
Voting Information and Principal Stockholders......... 20
Transfer Agent and Custodian.......................... 20
Exhibit A-Agreement and Plan of Complete Liquidation.. Attached
Exhibit B-Franklin Money Fund Prospectus dated
November 1, 1996..................................... Accompanies this
proxy statement
Exhibit C-Franklin Money Fund Annual Report........... Accompanies this
proxy statement
COMBINED PROXY STATEMENT AND PROSPECTUS
Dated November 15, 1996
ACQUISITION OF THE ASSETS OF THE
TEMPLETON MONEY FUND SERIES OF
TEMPLETON INCOME TRUST
BY AND IN EXCHANGE FOR SHARES OF
FRANKLIN MONEY FUND
This Prospectus/Proxy Statement is being furnished to you in connection
with the solicitation of proxies by the Board of Trustees of Templeton Income
Trust (the "Trust"). The Trust is a series investment company with two series of
shares of beneficial interest outstanding. Each series represents an interest in
a separate investment portfolio, designated as Templeton Global Bond Fund and
Templeton Money Fund ("Templeton Money" or the "Selling Portfolio"). The
transaction described herein relates solely to Templeton Money.
Proxies solicited will be voted at a Special Meeting of Shareholders to
approve or disapprove an Agreement and Plan of Complete Liquidation (the
"Agreement and Plan"). The Agreement and Plan provides for the acquisition of
substantially all of the assets of Templeton Money by and in exchange for shares
of a mutual fund in the Franklin Templeton Group of Funds, Franklin Money Fund
("Franklin Money" or the "Acquiring Fund"), which is administered by Franklin
Advisers, Inc. ("Advisers"), and which has investment objectives and policies
which correspond to those of Templeton Money. Franklin Money, in turn, invests
all of its assets in The Money Market Portfolio (the "Portfolio"), a separate
series of shares of The Money Market Portfolios ("Money Market"), an open-end,
diversified management investment company. The Portfolio has the same
objectives, policies and restrictions as Franklin Money and is managed by
Advisers.
Following such transfer, shares of Franklin Money will be distributed to
shareholders of Templeton Money in complete liquidation of Templeton Money and
individual shareholders will receive that number of shares of Franklin Money
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares of Templeton Money.
Franklin Money is a no-load, open-end, diversified management investment
company, with principal offices located at 777 Mariners Island Boulevard, San
Mateo, California 94404. Advisers and Templeton Global Bond Managers, a division
of Templeton Investment Counsel, Inc. ("Templeton"), adviser to Templeton Money,
are respectively direct and indirect wholly owned subsidiaries of Franklin
Resources, Inc. Franklin Money has substantially the same investment objectives
as Templeton Money, namely current income, stability of principal and liquidity.
Franklin Money and Templeton Money each seeks to maintain a stable net asset
value of $1.00, although there can be no assurance that either fund will be able
to do so. Investments in Franklin Money and Templeton Money are neither insured
nor guaranteed by the U.S. government.
Shares of Franklin Money are not deposits or obligations of, or guaranteed
or endorsed by, any bank; further, such shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
agency. Shares of Franklin Money involve investment risks including the possible
loss of principal.
The Trust will request broker-dealer firms, custodians, nominees and
fiduciaries to forward proxy material to the beneficial owners of the shares
owned of record by such persons. Such broker-dealer firms, custodians, nominees
and fiduciaries may be reimbursed for their reasonable expenses incurred in
connection with such proxy solicitation. In addition to solicitations by mail,
some of the officers and employees of the Trust and Templeton, without extra
remuneration, may conduct additional solicitations by telephone, telegraph and
personal interviews. The Trust has engaged Shareholder Communications
Corporation to solicit proxies from brokers, banks, other institutional holders
and individual shareholders for an approximate fee, including out-of-pocket
expenses, ranging between $10,652 and $16,352.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about Franklin Money that a
prospective investor should know before investing. This Prospectus/Proxy
Statement is accompanied by the prospectus of Franklin Money dated November 1,
1996, and an Annual Report for Franklin Money dated June 30, 1996, which are
incorporated by reference into this Prospectus/Proxy Statement and included
hereto as Exhibits B and C, respectively. A Statement of Additional Information
dated November 15, 1996, relating to this Prospectus/Proxy Statement, the
transactions described herein and the parties thereto, has been filed with the
U.S. Securities and Exchange Commission and is incorporated by reference into
this Prospectus/Proxy Statement. A copy of that Statement may be obtained
without charge by writing to the address noted above or by calling 1-800/DIAL
BEN. A Prospectus for Templeton Money and a Statement of Additional Information
for the Trust, each dated January 1, 1996, as well as an Annual Report for
Templeton Money as of August 31, 1996 are also on file with the U.S. Securities
and Exchange Commission; each of these documents is incorporated by reference
herein and is available without charge upon request to the Trust. This
Prospectus/Proxy Statement will first be sent to shareholders on or about
November 15, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT
AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR
MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE TRUST OR FRANKLIN MONEY.
SUMMARY
This summary of certain information contained in this Prospectus/Proxy
Statement is qualified by reference to the more complete information contained
elsewhere in this Prospectus/Proxy Statement, the Prospectus of Franklin Money
and the Agreement and Plan of Complete Liquidation (the "Agreement and Plan")
included with this Prospectus/Proxy Statement as Exhibit A.
Proposed Transaction. At a meeting held on October 19, 1996, the Board of
Trustees of the Trust, including a majority of the trustees ("Independent
Trustees") who are not "interested persons" of the Trust as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), approved the
Agreement and Plan providing for the transfer of substantially all of the assets
of Templeton Money to Franklin Money, in exchange for shares issued by Franklin
Money and the distribution of such Franklin Money shares received, in complete
liquidation of Templeton Money. (The proposed transaction is referred to in this
Prospectus/Proxy Statement as the "Transaction.") The value of shares issued by
Franklin Money in connection with the Transaction will equal the value of the
assets of Templeton Money.
Pursuant to the Agreement and Plan, shares issued by Franklin Money to
Templeton Money will be distributed to the shareholders of Templeton Money in
complete liquidation of Templeton Money. As a result, shareholders of Templeton
Money will cease to be shareholders of such fund and will instead be the owners
of that number of full and fractional shares of Franklin Money having an
aggregate net asset value equal to the aggregate net asset value of the shares
of Templeton Money on the Closing Date of the Transaction.
For the reasons set forth below under "Reasons for the Transaction," the
Board of Trustees of the Trust, including all of the Independent Trustees
present at the meeting at which the Transaction was approved, has concluded that
the Transaction is in the best interests of the shareholders of Templeton Money
and, therefore, recommends approval of the Agreement and Plan. The Board of
Trustees of the Trust and the Board of Directors of Franklin Money,
respectively, also concluded that no dilution would result to the shareholders
of Templeton Money or Franklin Money, respectively, as a result of the
Transaction.
Voting Information. The affirmative vote of the holders of a majority of
the outstanding shares of Templeton Money on the Record Date is necessary to
approve the Agreement and Plan. Under relevant state law and the Trust's trust
documents, abstentions and broker non-votes will be included for purposes of
determining whether a quorum is present at the Special Meeting, but will be
treated as votes not cast and, therefore, will not be counted for purposes of
determining whether the matter to be voted upon at the Special Meeting has been
approved.
Each shareholder will be entitled to one vote for each share of Templeton
Money held on the Record Date. If you give no voting instructions on your proxy,
your shares will be voted in favor of the Agreement and Plan.
Shareholders of record of Templeton Money at the close of business on
October 25, 1996 (the "Record Date") will be entitled to vote at the Special
Meeting. On the Record Date, there were 106,173,661.603 outstanding shares of
Templeton Money. If any other matter comes properly before the Special Meeting,
your shares will be voted in accordance with the recommendation of the Trust's
Board of Trustees. You may, however, revoke your proxy by executing another
proxy, by giving written notice of such revocation to the Trust or by attending
the meeting and voting by ballot at the meeting.
Tax Consequences. It is anticipated that the Transaction will not result in
material adverse federal income tax consequences to Templeton Money or Franklin
Money. The holders of the shares of Templeton Money will not recognize any gain
or loss. For further information about the tax consequences of the Transaction,
see "Information About The Transaction-Tax Considerations."
Investment Objectives and Policies. The investment objective of Franklin
Money is to obtain as high a level of current income (in the context of the type
of investments available to the fund) as is consistent with capital preservation
and liquidity. Franklin Money pursues its investment objective by investing all
of its assets in the Portfolio, which has the same investment objectives, and
substantially similar policies and restrictions as Franklin Money. The Portfolio
is a separate diversified series of Money Market, an open-end management
investment company managed by Advisers. Shares of the Portfolio are acquired by
Franklin Money at net asset value with no sales charge. Accordingly, an
investment in Franklin Money is an indirect investment in the Portfolio.
The Portfolio operates in accordance with the requirements of Rule 2a-7
under the 1940 Act. The Portfolio limits its investments to those U.S. dollar
denominated instruments which the Board of Trustees of Money Market determines
present minimal credit risks and which are, as required by the federal
securities laws, rated in one of the two highest rating categories as determined
by nationally recognized statistical rating organizations, or which are unrated
and of comparable quality, with remaining maturities of 397 calendar days or
less. The Portfolio also maintains a dollar weighted average maturity of the
securities in its portfolio of 90 days or less. There is no assurance that it
will be able to maintain a stable net asset value of $1.00 per share. An
investment in Franklin Money or the Portfolio is neither guaranteed nor insured
by the U.S. government.
The investment objective of Templeton Money is current income, stability of
principal and liquidity, which it seeks to achieve by investing in high-grade
"money market" instruments with maturities not exceeding 397 days, consisting
primarily of short-term U.S. government securities, certificates of deposit,
time deposits, bankers' acceptances, commercial paper and repurchase agreements
with banks or broker-dealers with respect to these securities. Templeton Money
operates in accordance with the requirements of Rule 2a-7 under the 1940 Act.
Accordingly, all securities purchased by Templeton Money must be rated in one of
the two highest rating categories for debt obligations by at least two
nationally recognized statistical rating organizations (or one rating
organization if the instrument was rated by only one such organization, subject
to ratification of the investment by the Board of Trustees). If a security is
unrated, it must be of comparable quality as determined in accordance with
procedures established by the Board of Trustees, including approval or
ratification of the security by the Board except in the case of U.S. government
securities. An investment in Templeton Money (like Franklin Money) is neither
insured nor guaranteed by the U.S. government. While Templeton Money (like
Franklin Money) seeks to maintain a stable net asset value of $1.00 per share,
there can be no assurance that it will be able to do so.
Management of Franklin Money. The management of the business and affairs of
Franklin Money is the responsibility of its Board of Directors. Franklin Money
was incorporated under the laws of the State of California on November 7, 1975.
The management of the business and affairs of Money Market, which is a Delaware
Business Trust established on July 10, 1992, is the responsibility of its Board
of Trustees.
Franklin Money is administered by Advisers, whose address is 777 Mariners
Island Boulevard, San Mateo, California 94404. Advisers is a wholly-owned
subsidiary of Franklin Resources, Inc. ("Resources"), a publicly owned holding
company, the principal shareholders of which are Charles B. Johnson and Rupert
H. Johnson, Jr., who own approximately 20% and 16%, respectively, of Resources'
outstanding shares. Through its subsidiaries, Resources is engaged in various
aspects of the financial services industry. Advisers acts as investment manager
to 36 U.S. registered investment companies (124 separate series) with aggregate
assets of over $82 billion. Because Franklin Money invests all of its assets in
the Portfolio, it has no investment manager. The investments of the Portfolio,
however, are managed by Advisers.
Fees and Expenses. Pursuant to an administration agreement which became
effective on July 29, 1994, Franklin Money is obligated to pay Advisers a daily
fee (payable at the request of Advisers) computed at the annual rate of 91/200
of 1% for the first $100 million of its average daily net assets; and 33/100 of
1% of its net assets over $100 million up to and including $250 million; and
7/25 of 1% of its net assets over $250 million. In addition, the Portfolio pays
Advisers a fee equal to an annual rate of 15/100 of 1% of its average daily net
assets for the supervision and implementation of the Portfolio's investment
activities and the provision of certain administrative services and facilities.
Franklin Money shareholders will bear a portion of the Portfolio's operating
expenses, including fees paid to Advisers, to the extent that Franklin Money, as
a shareholder of the Portfolio, bears such expenses.
In connection with the participation of Franklin Money as a feeder fund in
a master/feeder structure, Advisers has agreed, without limitation with respect
to any time period, to limit its administration and management fees in order to
ensure that the total aggregate operating expenses of Franklin Money and the
Portfolio, which are in effect borne by a shareholder of Franklin Money, are not
higher than if Franklin Money did not operate as a feeder fund. This action by
Advisers to limit its administrative and management fees may be terminated by
Advisers at any time. The management fees actually paid by the Portfolio to
Advisers for the Portfolio's fiscal year ended June 30, 1996, after a fee
reduction by Advisers, was 0.14% of average net assets, or $2,034,014.
Franklin Money also receives shareholder accounting and other clerical
services from Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent") in its capacity as transfer agent and dividend
disbursing agent. Investor Services is a wholly owned subsidiary of Resources
and is located at the same address as Advisers.
Templeton Money is obligated to pay Templeton a monthly fee for investment
management services equal on an annual basis to 0.35% of its average daily net
assets, reduced to 0.30% of such net assets in excess of $200,000,000 and
further reduced to 0.25% of such net assets in excess of $1,300,000,000. The
management fees actually paid by Templeton Money to Templeton for the fiscal
year ended August 31, 1996, after a voluntary fee waiver, was 0.15% of average
net assets, or $324,532.
Templeton Money receives administrative services from its business manager,
Templeton Global Investors, Inc., and also receives transfer agent services from
Investor Services. The following table shows comparative fee information for
Franklin Money and Templeton Money.
PRO FORMA FEE TABLES FOR
FRANKLIN MONEY AND TEMPLETON MONEY
(Unaudited)
<TABLE>
<CAPTION>
Actual Pro Forma
Franklin Money(1) Templeton Money(2) After
(fiscal year ended 6/30/96) (fiscal year ended 8/31/96) Transaction
Shareholder Transaction Expenses
<S> <C> <C> <C>
Exchange Fee(3)............ $5.00 $5.00 $5.00
Annual Fund Operating Expenses
(as percentage of average
net assets):
Management Fees (after
fee waivers)................ 0.14% 0.15% 0.14%
Administration Fees (after
fee waivers)................ 0.30% None 0.30%
12b-1 Fees................... None 0.15% None
Other Expenses............... 0.31% 0.76% 0.30%
------ ------ -------
Total Operating Expenses.... 0.75% 0.96% 0.74%
====== ====== =======
</TABLE>
(1) Due to its participation in the master feeder structure, Franklin Money's
operating expenses include management fees paid by the Portfolio and
administration fees paid by Franklin Money. The Portfolio's investment manager
and Franklin Money's administrator have agreed to waive in advance a portion of
the management and administration fees and make certain payments to reduce
expenses of Franklin Money and the Portfolio to ensure total aggregate expenses
of Franklin Money and the Portfolio are not higher than if Franklin Money were
not to invest all of its assets in the Portfolio. Absent any waiver or expense
reduction, management and administrative fees would have represented 0.15% and
0.30%, respectively, and total operating expenses would have represented 0.76%
of the average net assets of Franklin Money.
(2) Templeton Money's investment manager has voluntarily agreed to temporarily
reduce its investment management fees by 0.20%. If this policy were not in
effect, Templeton Money's management fee would be 0.35% and its total operating
expenses would be 1.10%.
(3) The exchange fees are imposed only on Timing Accounts as defined under "May
I Exchange Shares for Shares of Another Fund?" in Franklin Money's prospectus
and under "Exchange Privilege" in Templeton Money's prospectus. All other
exchanges are processed without a fee.
EXAMPLE
Based on the level of total operating expenses listed above (after waivers
or reimbursements), an investor would pay the following expenses on a $1,000
investment, assuming a 5% annual return and redemption at the end of each time
period:
1 Year 3 Years 5 Years 10 Years
Franklin Money. $ 8 $24 $42 $ 94
Templeton Money. $10 $31 $53 $118
Estimated Expenses for
Franklin Money (after
proposed transaction). $ 8 $24 $41 $ 92
The foregoing tables are designed to assist the investor in understanding
the various costs and expenses that a shareholder will bear directly or
indirectly. The example should not be considered a representation of past or
future expenses and actual expenses may be greater or lesser than those shown.
Purchase Price, Redemption Price, Dividends and Distributions. Shares of
both Franklin Money and Templeton Money are sold on a continuous basis at the
net asset value, without a sales charge. Templeton Money has a plan of
distribution or "12b-1 Plan" under which it may reimburse Franklin/Templeton
Distributors, Inc. ("FTD") for FTD's costs and expenses for activities primarily
intended to result in the sale of fund shares. Expenditures by Templeton Money
under the plan may not exceed 0.15% annually of the fund's average daily net
assets. Under the plan, costs and expenses not reimbursed in any one given month
(including costs and expenses not reimbursed because they exceeded the limit of
0.15% per annum of the fund's average daily net assets) may be reimbursed in
subsequent months or years, subject to applicable law. In connection with the
Transaction, any unreimbursed expenses existing at the time of the Transaction
will be waived by FTD.
Franklin Money requires a minimum initial investment of $500 and subsequent
investments of at least $25. The minimums may be waived when the shares are
purchased through plans established by Franklin providing for regular periodic
investment. Templeton Money requires a minimum initial investment of $500 and a
$25 minimum for subsequent investments.
Shares of both Franklin Money and Templeton Money may be redeemed at their
respective net asset value per share, although redemptions in excess of $250,000
or 1% of net assets in any 90-day period may be subject to certain conditions.
Shares of both Franklin Money and Templeton Money may be exchanged for shares of
other members of the Franklin Templeton Group of Funds subject to certain
limitations, as provided in the prospectuses of the respective Franklin
Templeton Funds.
Franklin Money and Templeton Money each have policies of distributing
substantially all of their net investment income and net capital gains to their
respective shareholders.
Franklin Money declares dividends for each day that the fund's net asset
value is calculated, payable to shareholders of record as of the close of
business the preceding day. The amount of dividends may fluctuate from day to
day and dividends may be omitted on some days, depending on changes in the
factors that comprise the fund's net investment income. The fund does not pay
"interest" to its shareholders, nor is any amount of dividends or return
guaranteed in any way. Franklin Money dividends are automatically reinvested
daily in the form of additional shares of the fund at the net asset value per
share at the close of business each day, unless the shareholder has requested
dividend payments in cash, which are paid monthly. The daily dividend includes
accrued interest and any original issue and market discount, plus or minus any
gain or loss on the sale of portfolio securities and changes in unrealized
appreciation or depreciation in portfolio securities (to the extent required to
maintain a stable net asset value per share), less amortization of any premiums
paid on the purchase of portfolio securities and the estimated expenses of the
fund. Templeton Money declares dividends daily, including weekends and holidays,
immediately prior to the determination of net asset value, which are paid to
shareholders monthly. Dividends are declared and reinvested starting on the day
after (whether or not a business day) the fund's shares are issued and including
the day on which the fund's shares are redeemed. Such dividends include net
investment income (consisting of interest accrued or discount earned less
amortization of premium and estimated expenses) and net realized gains. Income
dividends paid by Templeton Money are automatically reinvested on the payable
date in whole or fractional shares of the fund at net asset value as of the
ex-dividend date, unless the shareholder previously requested payment in cash.
Risk Factors. Because of the similarities of the investment objectives and
policies of Franklin Money (and consequently the Portfolio) and Templeton Money,
the investment risks associated with an investment in Franklin Money are
generally the same as those of Templeton Money. There are, however, some
distinctions in the investment program of each of the Portfolio and Templeton
Money. These are summarized below. See "Comparison of Investment Policies and
Risks-Risk Factors" below and the accompanying prospectus of Franklin Money.
The Portfolio and Templeton Money have very similar investment policies and
restrictions. Both the Portfolio and Templeton Money invest primarily in high
quality, short-term money market instruments. Both of the funds pursue their
investment objectives by investing primarily in: U.S. government securities;
bank obligations, such as certificates of deposit, time deposits, bankers'
acceptances, Eurodollar obligations (dollar-denominated obligations of foreign
banks) and Yankee obligations (dollar-denominated obligations of domestic
branches of foreign banks); commercial paper; and repurchase agreements. Each
fund is permitted to lend its portfolio securities subject to restrictions
described in their respective prospectuses. The Portfolio may invest in
short-term, high quality corporate obligations such as floating or variable rate
bonds, debentures or notes. Templeton Money does not have a policy of investing
in such instruments. Templeton Money, however, has adopted restrictions against:
borrowing money; pledging, mortgaging or hypothecating its assets for any
purpose; investing more than 15% of its total assets in securities of foreign
companies that are not listed on a recognized United States or foreign
securities exchange, including no more than 5% of its total assets in restricted
securities and no more than 10% of its total assets in restricted securities and
other securities which are not readily marketable. The Portfolio's policies
differ to the extent, that while the Portfolio may not generally borrow or
mortgage or pledge its assets, it may borrow money from banks for temporary or
emergency purposes only and pledge its assets for such loans in amounts up to 5%
of the value of the Portfolio's total assets. Further, the Portfolio may not
purchase securities in private placements or in other transactions for which
there are legal or contractual restrictions on resale and which are not readily
marketable, or enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 10% of the total assets of the Portfolio
would be invested in such securities or repurchase agreements. Although
Templeton Money does not actively invest in or have any present intention to
invest in warrants, it has also adopted a restriction against investing more
than 5% of its net assets in any types of warrants whether or not listed on the
New York or American Stock Exchanges, and more than 2% of its net assets in
warrants that are not listed on those exchanges. Franklin Money may not purchase
warrants.
The Eurodollar and Yankee obligations in which each of Templeton Money and
Franklin Money invest involve risks. Such investment risks may include future
political and economic developments, the possible imposition of withholding
taxes on interest income payable on the Eurodollar and Yankee obligations held
by the respective fund, possible seizure or nationalization and the possible
establishment of exchange controls or the adoption of other foreign government
laws and restrictions applicable to Eurodollar and Yankee obligations, which
might adversely affect the payment of principal and interest.
Special Information Regarding Franklin Money's Master/Feeder Fund
Structure. An investment in Franklin Money may be subject to certain risks due
to the fund's structure as a feeder fund, such as the potential that, upon
redemption by other shareholders of the Portfolio, Franklin Money's expenses may
increase or the economies of scale which have been achieved as a result of the
structure may be diminished. Institutional investors in the Portfolio that have
a greater pro rata ownership interest in the Portfolio than Franklin Money could
have effective voting control over the operation of the Portfolio. Further, in
the event that the shareholders of Franklin Money do not approve any future
change in the fund's objectives and fundamental policies in order to conform
Franklin Money's objectives or policies to those already approved for the
Portfolio, Franklin Money may be forced to withdraw its investments from the
Portfolio and seek another investment company with substantially similar
objectives and policies.
Franklin Money may withdraw its investment in the Portfolio at any time if
the Board of Directors of Franklin Money considers that it is in the best
interests of the fund to do so. Upon any such withdrawal, the Board of Directors
of Franklin Money would consider what action to take, including the investment
of all the assets of the fund in another pooled investment entity having
substantially similar investment objectives and policies as Franklin Money or
the hiring of an investment adviser to manage Franklin Money's investments. Such
circumstances may cause an increase in fund expenses.
The Franklin Group of Funds_ has three other funds which may invest in the
Portfolio, two are designed for institutional investors only and one, Franklin
Templeton Money Fund II is available only to Class II shareholders in the
Franklin Templeton Group of Funds pursuant to that fund's exchange privilege. It
is possible that in the future other funds may be created which may likewise
invest in the Portfolio or existing funds may be restructured so that they may
invest in the Portfolio. If and when that happens, Franklin Money or Advisers
will forward to any interested shareholders additional information, including a
prospectus and Statement of Additional Information, if requested, regarding such
other funds through which they may make investments in the Portfolio. Any such
fund may be offered at the same or a different public offering price and with
different fee structures; thus, an investor in such fund may experience a
different return from an investment in another investment company which invests
exclusively in the Portfolio. It is currently anticipated that, following the
Transaction, Franklin Money will have an approximate 79% interest in the
Portfolio.
In light of the fact that all of Franklin Money's directors are also
trustees of Money Market, the Board of Directors of Franklin Money and the Board
of Trustees of Money Market have adopted Conflict of Interest Procedures, which
are designed to protect shareholders of Franklin Money. Such procedures require
the independent members of the Board of Directors/Trustees to review, no less
frequently than annually, the master/feeder structure to ensure that conflicts
of interest do not arise between the master fund and the feeder fund and to
report to the full Board after their review. Such potential conflicts include:
the creation of additional feeder funds with different fee structures; the need
to ensure that fee waiver commitments are fulfilled; proposals to revise fee
waiver commitments; the creation of additional feeder funds which could have
controlling voting interests in pass-through voting which could affect
investment and other policies; proposals to increase fees at the master fund
level; and consideration of changes in fundamental policies at the master fund
level which may or may not be acceptable to the fund.
In the event that the independent directors or trustees perceive that there
may be a potential conflict, the procedures require the independent members of
the Board to request a written analysis from management describing whether such
an apparent potential conflict of interest will impede the operation of any
constituent feeder fund and its shareholders. Upon receipt of the written
analysis, the independent members of the Board must then review it, deliberate
and present their conclusion to the full Board. If the independent Board members
determine that no actual potential conflict exists, they will recommend that no
further action be taken. If they determine that the analysis is inconclusive,
they may submit the matter to and be guided by the judgment of an independent
legal counsel issued in a written opinion. If the independent directors
determine that a potential conflict exists, they may take one or more of the
following actions: suggest a course of action designed to eliminate the
potential conflict; if appropriate, request that the full Board submit the
conflict to shareholders for resolution; recommend to the full Board that the
fund no longer invest in the master fund and propose either a search for a new
master fund in which to invest or the hiring of an investment manager to manage
the fund's assets; recommend to the full Board that a new group of directors or
trustees be recommended to shareholders for approval; or take other appropriate
action.
REASONS FOR THE TRANSACTION
The Transaction has been recommended by the Board of Trustees of the Trust
on behalf of Templeton Money as a means of combining the fund with a larger fund
which should be better able to diversify its investments and to obtain certain
economies of scale with attendant savings in costs for the fund and its
shareholders over the long term.
Because of the relatively small size of Templeton Money, and concerns
regarding its ability to operate cost competitively on a stand alone basis,
Templeton recommended to the Trustees the sale of the assets of Templeton Money
to a larger fund which has similar investment objectives and policies, subject
to the approval of the Board of Trustees and approval of the fund's
shareholders.
The Agreement and Plan was originally presented to the Trust's Board of
Trustees at meetings held on October 16, 1993, December 6, 1993 and February 25,
1994. The Board of Trustees approved the Transaction at that time, but
management of each fund later recommended postponement of the Transaction to
allow time to resolve certain operational and record-keeping differences between
the funds. The Agreement and Plan was again presented to the Trustees on October
19, 1996. The Trust's Board of Trustees reviewed the potential benefits to be
gained by shareholders of Templeton Money as well as any additional costs to be
borne by it. In determining whether to recommend approval of the Transaction to
shareholders, the Board of Trustees considered, among other factors: the expense
ratio of Franklin Money as well as similar funds; the comparative investment
performance of Franklin Money with the performance of similar funds; the
compatibility of the investment objectives, policies, restrictions and
portfolios of Franklin Money with Templeton Money; the tax consequences of the
Transaction; and the significant experience Franklin Advisers has as the manager
of more than $2.9 billion in assets in money market mutual funds.
During the course of its deliberations, the Trust's Board of Trustees also
considered the fact that the expenses of the Transaction will be shared equally
by Templeton, Advisers, Franklin Money, and Templeton Money. Templeton and
Advisers have also represented that should the total costs attributable to the
Transaction result in Franklin Money or Templeton Money paying a
disproportionate amount in relation to the benefits received, Templeton and
Advisers will pay such excess amount.
In reaching the decision to recommend that shareholders of Templeton Money
vote to approve the Transaction, the Board of Trustees concluded that the
Transaction is in the best interests of the shareholders of Templeton Money and
that no dilution would result to the shareholders of Templeton Money from the
Transaction. The Board's conclusion was based on a number of factors, including
that the Transaction would permit shareholders to pursue their investment goals
in a larger fund. A larger fund should have enhanced ability to effect portfolio
transactions on more favorable terms and should have greater investment
flexibility. Higher aggregate net assets also should enable shareholders to
obtain the benefits of economies of scale, permitting the reduction or
elimination of certain duplicate costs and expenses which may result in lower
overall expense ratios through the spreading of both fixed and variable costs of
fund operations over a larger asset base. As a general rule, economies can be
expected to be realized primarily with respect to fixed expenses. However,
expenses that are based on the value of assets or the number of shareholder
accounts, such as custody and transfer agent fees, would be largely unaffected
by the Transaction. The Board of Directors of Franklin Money also determined
that the Transaction was in the best interests of its shareholders and that no
dilution would result to such shareholders.
FOR THE REASONS DISCUSSED ABOVE, THE BOARD OF TRUSTEES RECOMMENDS THAT YOU
VOTE FOR THE AGREEMENT AND PLAN. If the Agreement and Plan is not approved, the
Board of Trustees will consider other possible courses of action with respect to
Templeton Money, including dissolution and liquidation.
INFORMATION ABOUT THE TRANSACTION
The following summary of the Agreement and Plan does not purport to be
complete, and is subject in all respects to the provisions of, and is qualified
in its entirety by reference to, the Agreement and Plan, a copy of which is
attached hereto as Exhibit A.
Method of Carrying Out the Transaction. If the shareholders of the Selling
Portfolio approve the Agreement and Plan relating to the Selling Portfolio, the
reorganization of such Portfolio will be consummated promptly after the various
conditions to the obligations of each of the parties are satisfied. (See
"Conditions Precedent to Closing.") Consummation of the Transaction (the
"Closing Date") will be on December 31, 1996, or such other date as is agreed to
by Franklin Money and the Trust on behalf of Templeton Money, provided that the
Agreement and Plan may be terminated by either party if the Closing Date does
not occur on or before January 31, 1997.
On the Closing Date, the Selling Portfolio will deliver substantially all
of its assets in exchange for shares of the Acquiring Fund having an aggregate
net asset value equal to the aggregate value of assets so delivered as of 3:00
P.M. Pacific time on the Closing Date. In the event that the shareholders of
Templeton Money do not approve the Agreement and Plan, the assets of Templeton
Money will not be delivered on the Closing Date and the obligations of the Trust
under the Agreement and Plan relating to Templeton Money shall not be effective.
The stock transfer books of the Trust with respect to Templeton Money, assuming
the shareholders have approved the Plan, will be permanently closed as of 1:00
P.M. Pacific time on the Closing Date and only requests for redemption of shares
of Templeton Money received in proper form prior to 1:00 P.M. Pacific time on
the Closing Date will be accepted by the Trust. Redemption requests relating to
Templeton Money received by the Trust thereafter shall be deemed to be
redemption requests for shares of the Acquiring Fund to be distributed to the
former shareholders of Templeton Money.
Templeton Money will receive, upon consummation of the Transaction, shares
of the Acquiring Fund. The number of shares shall be equal to the dollar value
of the assets delivered to Franklin Money.
Since the relative asset values of Templeton Money and Franklin Money have
not yet been ascertained for the purposes of the Closing, it is not possible to
determine the exact exchange ratio until the Closing Date. Fluctuations and
relative performances of Templeton Money and Franklin Money, among other
matters, will affect this ratio although it is expected that Franklin Money and
Templeton Money will continue to maintain a net asset value of $1.00 per share.
In such event, a shareholder of Templeton Money will receive one (1) share of
Franklin Money for each share of Templeton Money held.
Conditions Precedent to Closing. The obligation of the Trust to deliver the
assets of the Selling Portfolio to the Acquiring Fund pursuant to the Agreement
and Plan is subject to the satisfaction of certain conditions precedent,
including performance by the Acquiring Fund, in all material respects, of its
agreements and undertakings under the Plan, the receipt of certain documents
from the Acquiring Fund, the receipt of an opinion of counsel to the Acquiring
Fund, and requisite approval of the Agreement and Plan by the shareholders of
the Selling Portfolio, as described above. The obligations of the Acquiring Fund
to consummate the Transaction is subject to the satisfaction of certain
conditions precedent, including the performance by the Trust of its agreements
and undertakings under the Agreement and Plan, the receipt of certain documents
and financial statements from the Trust, and the receipt of an opinion of
counsel to the Trust.
Expenses of the Transaction. The expenses relating to the Transaction will
be borne as follows. Templeton, Advisers, Franklin Money and Templeton Money
will each pay one-fourth of the expenses incurred in connection with entering
into and consummating the transaction contemplated by the Agreement and Plan. To
the extent that it should be determined following the consummation of the
transaction that the Acquiring or the Selling Portfolio has paid a
disproportionate amount of expenses in relation to the benefits received,
Templeton and Advisers have agreed to pay such disproportionate amount.
Tax Considerations. It is anticipated that the Transaction contemplated by
the Agreement and Plan will not result in material adverse federal income tax
consequences. Consummation of the Transaction is subject to receipt of an
opinion from Stradley, Ronon, Stevens & Young, LLP, counsel to Franklin Money,
based on certain assumptions and representations received from the Trust and
Franklin Money, that under the Internal Revenue Code of 1986, as amended, the
exchange of assets of Templeton Money for the shares of Franklin Money, and the
transfer of such shares to the Templeton Money shareholders will not result in
material adverse federal income tax consequences to Templeton Money or Franklin
Money. The shareholders of Templeton Money will not recognize any gain or loss
on the receipt of Franklin Money Shares in exchange for shares of Templeton
Money, provided each entity continues to maintain a net asset value of $1.00 per
share as is anticipated. A shareholder's adjusted basis for federal tax purposes
in the shares of Franklin Money after the Transaction will be the net asset
value of the Franklin Money shares received in the Transaction.
Shareholders of Templeton Money should consult their tax advisors regarding
the effect, if any, of the Transaction in light of their individual
circumstances. Since the foregoing discussion only relates to the federal income
tax consequences of the Transaction, shareholders of Templeton Money should also
consult their tax advisers as to state and local tax consequences, if any, of
the Transaction.
Description of Shares of Franklin Money. Shares of Franklin Money will be
issued to shareholders of Templeton Money in accordance with the procedures
under the Agreement and Plan as described above. Each share will be fully paid
and nonassessable when issued with no personal liability attaching to the
ownership thereof, will have no preemptive or conversion rights and will be
transferable upon the books of Franklin Money. In accordance with Franklin
Money's normal procedures as specified in its prospectus, Franklin Money will
not issue certificates for shares of its capital stock to former shareholders of
Templeton Money unless shareholders specifically request them. Ownership of
Franklin Money shares by former shareholders of Templeton Money will be recorded
electronically and Franklin Money will issue a confirmation to such shareholders
relating to those shares acquired as a result of the Transaction. No redemption
or repurchase of any shares of Franklin Money issued to former shareholders of
Templeton Money whose shares are represented by unsurrendered share certificates
shall be permitted until such certificates have been surrendered for
cancellation.
As shareholders of Franklin Money, former shareholders of Templeton Money
will have substantially similar voting rights and rights upon dissolution with
respect to Franklin Money as they currently have with respect to Templeton
Money. Shares of Franklin Money have cumulative voting rights, under California
law, which means that in all elections of directors, each shareholder has the
right to cast a number of votes equal to his number of shares multiplied by the
number of directors to be elected at such election, and each shareholder may
cast the whole number of votes for one candidate or distribute such votes among
two or more candidates. Templeton Money shares, however, do not carry cumulative
voting rights, which means that, in all elections of trustees, the holders of
more than 50% of the shares voting can elect 100% of the trustees, if they
choose to do so and in such event, the holders of the remaining shares voting
will not be able to elect any person or persons to the Board of Trustees.
It is the position of the Division of Investment Management of the U.S.
Securities and Exchange Commission that shareholders of Templeton Money will not
be entitled to any "dissenters' rights" since the Transaction involves two
open-end investment companies registered under the 1940 Act. Although no
dissenters' rights may be available to shareholders of Templeton Money,
shareholders have the right to redeem their shares at net asset value until the
Closing Date, and thereafter such shareholders may redeem their Franklin Money
shares at net asset value or exchange their Franklin Money shares into shares of
certain other funds in the Franklin Templeton Group of Funds subject to the
terms of the Prospectus of the fund being acquired.
Like the Trust, Franklin Money does not routinely hold annual meetings of
shareholders. The Trust is a multi-series investment company that currently
issues shares representing interests in two series, and shareholders of each
series currently vote in the aggregate with the shareholders of the other series
on certain matters (for example, the election of trustees and ratification of
independent accountants). Franklin Money is an investment company with
authorized capital stock which consists of five billion shares of common stock
with $0.10 per share par value. Franklin Money presently issues only one class
of shares and, therefore, its shareholders do not vote in the aggregate with any
other shareholder class.
Capitalization. The following table sets forth, as of November 4, 1996, (i)
the capitalization of Templeton Money, (ii) the capitalization of Franklin
Money, (iii) the capitalization of the Portfolio, (iv) the pro forma combined
capitalization of Franklin Money as adjusted to give effect to the Transaction
and (v) the pro forma combined capitalization of the Portfolio as adjusted to
give effect to the Transaction. The Portfolio currently sells its shares to
three other registered investment companies which invest exclusively in the
Portfolio. The capitalizations of Franklin Money and the Portfolio are likely to
be different when the Transaction is consummated.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
of the Portfolio Franklin Money
Combined Combined The Templeton Franklin
After Transaction After Transaction Portfolio Money Money
-------------------- ------------------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Assets................ $1,700,858,581 $1,351,688,969 $1,585,696,261 $115,162,320 $1,236,526,649
Net asset value per share. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Shares outstanding........ 1,700,858,581 1,351,688,969 1,585,696,261 115,162,320 1,236,526,649
</TABLE>
To the extent permitted by law, the Agreement and Plan may be amended
without shareholder approval by mutual agreement in writing by the Trust and
Franklin Money. The Agreement and Plan may be terminated and the Transaction
abandoned at any time before or, to the extent permitted by law, after the
approval of shareholders of Templeton Money by mutual consent of the parties to
the Agreement and Plan.
COMPARISON OF INVESTMENT POLICIES AND RISKS
Franklin Money and Templeton Money. In seeking to achieve their respective
investment objectives, Franklin Money and Templeton Money are guided by
substantially similar policies and restrictions that should be considered by the
shareholders of Templeton Money. Franklin Money seeks to achieve its objective
by investing all of its assets in the Portfolio. Franklin Money and the
Portfolio have substantially identical objectives, policies and restrictions,
except that Franklin Money's policies and restrictions permit the pursuit of
such policies through investment in another open-end management investment
company. The following discussion of the policies and restrictions relate to the
Portfolio and Templeton Money since the Portfolio will be actively investing,
whereas Franklin Money will not. Unless otherwise specified, the investment
policies of each of Franklin Money, the Portfolio and Templeton Money may be
changed without shareholder approval and the investment restrictions may not.
Policies or restrictions stated as fundamental may not be changed without the
approval of the lesser of (i) a majority of the outstanding shares, or (ii) 67%
of the shares represented at a meeting of shareholders at which the holders of
more than 50% of the outstanding shares are represented.
Investment Policies. Franklin Money is a no-load, open-end, diversified
management investment company registered under the 1940 Act. Templeton Money is
a diversified series of the Trust, a multi-series investment company registered
under the 1940 Act. Franklin Money calculates net asset value at 3:00 p.m.
Pacific time each day that the New York Stock Exchange (the "Exchange") is open
for business. Templeton Money calculates net asset value per share as of the
close of trading (currently 4:00 p.m. Eastern time) on the Exchange on each day
that it is open for business. Such net asset value per share is calculated by
subtracting the aggregate of all liabilities from the gross value of all assets
and dividing the result by the total number of shares outstanding. Franklin
Money and Templeton Money each have a principal investment objective of current
income, liquidity and preservation of capital. Templeton Money achieves its
objective by investing in high quality money market instruments, consisting
primarily of short-term U.S. government securities, certificates of deposit,
time deposits, bankers' acceptances, commercial paper and repurchase agreements.
Franklin Money achieves its objectives by investing in the Portfolio which also
invests in such securities. The investment objectives of Franklin Money, the
Portfolio and Templeton Money are fundamental policies of the respective funds.
The Portfolio and Templeton Money each seek to maintain a stable net asset
value of $1.00 per share. Both of the funds use the amortized cost method of
valuing their respective securities pursuant to Rule 2a-7 under the 1940 Act.
Accordingly, both of the funds: maintain a dollar-weighted average portfolio
maturity of 90 days or less; purchase instruments with remaining maturities of
397 days or less; and invest only in U.S. dollar denominated securities
determined in accordance with procedures established by their respective Boards
to present minimal credit risks and which are rated in one of the two highest
rating categories for debt obligations as determined by nationally recognized
statistical rating agencies, or which are unrated, but of comparable quality.
Both the Portfolio and Templeton Money may invest in U.S. government
securities, which are obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities. Certain of these obligations, including U.S.
Treasury bills, notes and bonds, are issued or guaranteed by the U.S. government
and supported by the full faith and credit of the U.S. government. Other U.S.
government securities are issued or guaranteed by federal agencies or
government-sponsored enterprises and are not direct obligations of the U.S.
government, but involve sponsorship or guarantees by government agencies or
enterprises.
Both the Portfolio and Templeton Money invest in bank obligations
consisting of certificates of deposit, bankers' acceptances and time deposits.
The Portfolio may not invest more than 10% of its assets in time deposits with
maturities in excess of seven calendar days. The Portfolio also invests in
instruments secured by bank obligations and letters of credit. Both of the funds
also invest in dollar-denominated obligations of foreign branches of domestic
banks ("Eurodollar obligations") and dollar-denominated obligations of domestic
branches of foreign banks ("Yankee obligations"). With respect to the Portfolio,
only up to 25% of its assets may be invested in obligations of foreign branches
of U.S. or foreign banks.
Both the Portfolio and Templeton Money may invest in commercial paper.
Templeton Money limits its investments in commercial paper to obligations rated
Prime-1 or Prime-2 by Moody's Investor's Service, Inc. ("Moody's") or A-1 or A-2
by Standard & Poor's Corporation ("S&P") or, if not rated by Moody's or S&P,
issued by companies having an outstanding debt issue currently rated Aaa or Aa
by Moody's or AAA or AA by S&P. With respect to Templeton Money, commercial
paper must be issued by domestic corporations or foreign corporations affiliated
with domestic issuers. The Portfolio may invest in commercial paper of domestic
or foreign issuers which is considered by the fund to present minimal credit
risks and which is rated within the two highest rating categories by nationally
recognized statistical rating organizations or, if unrated, has been determined
by Advisers to be of comparable quality, pursuant to procedures approved by the
fund's Board of Trustees.
The policies of both of the funds permit the funds to lend their portfolio
securities. Templeton Money may lend portfolio securities with an aggregate
market value of up to one-third of its total assets. The Portfolio may make
loans of its portfolio securities in an amount up to 25% of the value of the
fund's total assets (this policy is a fundamental policy).
The Portfolio may also invest in corporate obligations consisting of
floating or variable rate bonds, debentures or notes which are considered by the
fund to present minimal credit risks and are rated within the two highest rating
categories by nationally recognized statistical rating organizations or, if
unrated, have been determined by Advisers to be of comparable quality, pursuant
to procedures approved by the fund's Board of Trustees. Such obligations must
mature in 397 calendar days or less. Templeton Money has no similar policy.
The policies of both of the funds permit the funds to acquire a security
and simultaneously enter into a repurchase agreement, wherein the seller agrees
to repurchase the security at a specified time and price. The repurchase price
is in excess of the purchase price by an amount which reflects an agreed-upon
rate of return, which is not tied to the coupon rate on the underlying security.
Investment Restrictions. The investment restrictions of the Franklin Money,
Portfolio, and Templeton Money are similar. As a matter of fundamental policy,
each of the funds will not: buy securities on margin or sell any securities
short; make loans, except through the purchase of debt securities, the lending
of portfolio securities or the purchase of securities with a simultaneous
agreement by the seller to repurchase them; purchase or retain and, with respect
to Franklin Money, purchase from or sell to the fund's officers and directors or
certain affiliate securities of any company in which trustees or officers of the
trust, or certain affiliates, individually own more than 1/2 of 1% of the
securities of such company and in the aggregate own more than 5% of the
securities of such company; invest in real estate (or, as to Templeton Money,
mortgages on real estate), except certain securities secured by real estate or
interests therein; invest in commodities, or oil, gas or other mineral
exploration or development programs except that, as to these interests,
Templeton Money may invest in publicly issued debentures or equity stock
interests relating thereto; invest in any company for the purpose of exercising
control or management; invest in other investment companies(except in connection
with a merger, consolidation, acquisition or reorganization; in the case of
Templeton Money, this exception applies to open-end investment companies only);
as to securities with legal or contractual restrictions on resale, Templeton
Money may invest up to 5% of its total assets in such securities and may invest
up to 10% of its total assets in restricted securities and other securities
(including repurchase agreements having more than seven days remaining to
maturity) that are not readily marketable, while the Portfolio may not purchase
securities in private placements or in other transactions, for which there are
legal or contractual restrictions on resale and are not readily marketable, or
enter into a repurchase agreement with more than seven days to maturity if, as a
result, more than 10% of its total assets would be invested in such securities
or repurchase agreements; invest more than 25% of its assets in securities of
any industry (except with respect to Templeton Money, that fund may invest in
obligations issued by domestic banks without regard to such limitation and with
respect to the Portfolio, U.S. government obligations are not considered to be
part of any industry and further, the restriction does not apply where the
Portfolio's policies state otherwise in its current prospectus); Templeton Money
may not borrow money or pledge, mortgage or hypothecate its assets (for any
purpose), the Portfolio may not borrow money or mortgage or pledge any of its
assets, except that borrowings (and a pledge of assets therefor) for temporary
or emergency purposes may be made from banks in any amount up to and not in
excess of 5% of the total assets; invest more than 5% of its total assets in
securities of issuers which have been in continuous operation less than three
years (the Portfolio's policy in this regard is not fundamental); invest in
puts, calls, straddles or spreads (except that with respect to the Portfolio,
the fund may purchase, hold and dispose of "obligations with puts attached" or
write covered call options in accordance with its stated investment policies).
Templeton Money also has adopted restrictions against: issuing senior
securities; participating on a joint or a joint and several basis in any trading
account in securities; investing more than 15% of total assets in securities of
foreign companies that are not listed on a recognized United States or foreign
securities exchange and investing more than 5% of its net assets in warrants
whether or not listed on the New York or American Stock Exchanges, and more than
2% of its net assets in warrants that are not listed on those exchanges
(warrants acquired in units or attached to securities are not included in this
restriction); and investing more than 5% of its total assets in the securities
of any one issuer (exclusive of U.S. government securities) or purchase more
than 10% of any class of securities of any one company, including more than 10%
of its outstanding voting securities.
Franklin Money's investment restrictions are identical to those of the
Portfolio with the exception that certain of Franklin Money's policies
specifically exempt from their coverage an investment by Franklin Money in
another open-end management investment company with the same investment
objectives, policies and restrictions as Franklin Money. The policies which
include this exception are Franklin Money's policies concerning purchasing
restricted securities, underwriting securities, purchasing the securities of
other investment companies, investing for the purpose of exercising control or
management, purchasing the securities of an issuer with less than three years'
continuous operations, and investing more than 25% of its assets in any one
industry.
Risk Factors. The risks associated with an investment in either Franklin
Money, and, consequently, the Portfolio, or Templeton Money are similar. Both of
the funds invest in Eurodollar and Yankee obligations. Franklin Money invests in
commercial paper of foreign issuers and Templeton Money invests in commercial
paper issued by foreign corporations affiliated with domestic corporations. Both
investments involve risks that are different from obligations of domestic
entities. These risks may include future unfavorable political and economic
developments, possible withholding taxes, seizure of foreign deposits, currency
control, interest limitations, or other governmental restrictions which might
affect the payment of principal or interest on securities the fund holds. In
addition, there may be less publicly available information regarding such
foreign banks or foreign issuers of commercial paper.
INFORMATION ABOUT FRANKLIN MONEY
Information about Franklin Money is included in its current Prospectus
dated November 1, 1996 which is included with this Prospectus/Proxy Statement
and incorporated by reference herein. Additional information about Franklin
Money is included in a Statement of Additional Information also dated November
1, 1996, has been filed with the Securities and Exchange Commission and is
incorporated by reference herein. A copy of the Statement of Additional
Information may be obtained without charge by writing to Franklin Money, or
calling 1-800/DIAL BEN. Franklin Money is subject to the informational
requirements of the Securities Exchange Act of 1934 and the 1940 Act, as
applicable, and, in accordance with such requirements, files proxy materials,
reports and other information with the U.S. Securities and Exchange Commission.
These materials can be inspected and copied at the Public Reference Facilities
maintained by the U.S. Securities and Exchange Commission at 450 Fifth Street
NW, Washington, DC 20549, and at the offices of Franklin Money at 777 Mariners
Island Boulevard, San Mateo, California 94404 and at the Los Angeles Regional
Office of the U.S. Securities and Exchange Commission at 5670 Wilshire
Boulevard, 11th Floor, Los Angeles, California 90036-3648. Copies of such
material can also be obtained from the Public Reference Branch, Office of
Consumer Affairs and Information Services, U.S. Securities and Exchange
Commission, Washington, DC 20549, at prescribed rates.
INFORMATION ABOUT THE TRUST
Information about the Trust is incorporated herein by reference from
Templeton Money's current Prospectus dated January 1, 1996 and the Trust's
Statement of Additional Information of the same date, a copy of which may be
obtained without charge by writing the Trust at the address shown on the cover
page of this Prospectus/Proxy Statement or by calling 1-800/DIAL BEN. Reports
and other information filed by the Trust can be inspected and copied at the
Public Reference Facilities maintained by the U.S. Securities and Exchange
Commission at 450 Fifth Street NW, Washington, DC 20549, and copies of such
material can be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, U.S. Securities and Exchange Commission.
Washington, DC 20549, at prescribed rates.
VOTING INFORMATION AND PRINCIPAL STOCKHOLDERS
In the event that sufficient votes in favor of the proposal set forth in
the Notice of Special Meeting of Shareholders and Proxy Statement are not
received by the scheduled time of the Meeting, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies, even though a quorum is present. Any such adjournment will require
the affirmative vote of a majority of the votes cast on the question in person
or by proxy at the session of the Meeting to be adjourned. The persons named as
proxies will vote in favor of such adjournment those shares which they are
entitled to vote which have voted in favor of the proposal. They will vote
against any such adjournment those proxies required to be voted against the
proposal. The costs of any such additional solicitation and of any adjourned
session will be shared equally by Templeton, Advisers, Franklin Money and
Templeton Money.
To the knowledge of the Trust and Franklin Money, no person owned 5% or
more of the outstanding securities of Templeton Money or Franklin Money as of
the record date, although from time to time, the number of fund shares held in
"street name" accounts of various securities dealers for the benefit of their
clients or in centralized securities depositories may exceed 5% of the total
outstanding shares of a fund or series. All of the respective officers and
trustees or directors of the Trust and Franklin Money, as a group, owned less
than 1% of the outstanding voting securities of Templeton Money and Franklin
Money, respectively.
TRANSFER AGENT AND CUSTODIAN
Franklin/Templeton Investor Services, Inc. serves as the transfer agent and
dividend disbursing agent for Franklin Money. The main office of
Franklin/Templeton Investor Services, Inc., is 777 Mariners Island Boulevard,
San Mateo, California 94404. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York, 10286, acts as custodian of the
securities and other assets of Franklin Money. Bank of America NT & SA, 555
California Street, 4th Floor, San Francisco, California 94104, acts as custodian
for cash received in connection with the purchase of Franklin Money shares.
Franklin/Templeton Investor Services, Inc. also serves as transfer agent
and dividend agent for the Trust. The Chase Manhattan Bank, N.A., One Chase
Manhattan Plaza, New York, New York 10081, serves as custodian of the Trust's
assets.
By Order of the Board of Trustees
Barbara J. Green, Secretary
EXHIBITS TO COMBINED PROXY
STATEMENT AND PROSPECTUS
Exhibits
A Agreement and Plan of Complete Liquidation between Franklin Money Fund and
Templeton Income Trust, on behalf of Templeton Money Fund.
B Prospectus dated November 1, 1996 of Franklin Money Fund.
C Annual Report of Franklin Money Fund for the fiscal year ended June 30, 1996.
EXHIBIT A
AGREEMENT AND PLAN OF COMPLETE LIQUIDATION
AGREEMENT AND PLAN OF COMPLETE LIQUIDATION (the "Agreement"), made as of
this 19th day of October, 1996 by and between Franklin Money Fund ("Franklin
Money"), a corporation organized under the laws of the State of California, with
its principal place of business at 777 Mariners Island Boulevard, San Mateo,
California 94404 and Templeton Income Trust ("Templeton"), a Massachusetts
business trust with its principal place of business at 700 Central Avenue, St.
Petersburg, Florida 33701-3628.
PLAN OF LIQUIDATION
The transaction (hereinafter referred to as the "Plan of Liquidation") will
consist of (i) the acquisition by Franklin Money of substantially all of the
assets of the Templeton Money Fund series of Templeton ("Templeton Money") in
exchange solely for shares of common stock of Franklin Money, with $0.10 per
share par value, (ii) the distribution of such shares of common stock of
Franklin Money to the shareholders of Templeton Money according to their
respective interests, and (iii) the complete liquidation and dissolution of
Templeton Money as soon as practicable after the closing (as defined in Section
3, hereinafter called the "Closing"), all upon and subject to the terms and
conditions of this Agreement hereinafter set forth.
AGREEMENT
In order to consummate the Plan of Liquidation and in consideration of the
premises and of the covenants and agreements hereinafter set forth, and
intending to be legally bound, the parties hereto covenant and agree as follows:
1. Delivery of Assets, Liquidation and Dissolution of Templeton Money.
(a) Subject to the terms and conditions of this Agreement, and in reliance
on the representations and warranties of Franklin Money herein contained, and in
consideration of the delivery by Franklin Money of the number of its shares
hereinafter provided, Templeton on behalf of Templeton Money agrees that it will
convey, transfer and deliver to Franklin Money at the Closing all of the then
existing assets of Templeton Money free and clear of all liens, encumbrances,
and claims whatsoever (other than shareholders' rights of redemption) except for
cash, bank deposits, or cash equivalent securities in an estimated amount
necessary (1) to pay its costs and expenses of carrying out this Agreement
(including, but not limited to, fees of counsel and accountants, and expenses of
its liquidation and dissolution contemplated hereunder), which costs and
expenses shall be established on Templeton Money's books as liability reserves,
(2) to discharge its unpaid liabilities on its books at the closing date (as
defined in Section 3, hereinafter called the "Closing Date"), including, but not
limited to, its income dividends and capital gains distributions, if any,
payable for the period ending on or before the Closing Date, and (3) to pay such
contingent liabilities as the trustees shall reasonably deem to exist against
Templeton Money, if any, at the Closing Date, for which contingent and other
appropriate liability reserves shall be established on Templeton Money's books
(hereinafter "Net Assets"). Templeton Money shall also retain any and all rights
which it may have over and against any person which may have accrued up to and
including the close of business on the Closing Date.
(b) Subject to the terms and conditions of this Agreement, and in reliance
on the representations and warranties of Templeton herein contained, and in
consideration of such sale, conveyance, transfer, and delivery, Franklin Money
agrees at the Closing to deliver to Templeton Money the number of Franklin Money
shares of common stock (with $0.10 per share par value) determined by dividing
the aggregate value of the net assets of Templeton Money on the Closing Date by
the net asset value per share of common stock of Franklin Money on the Closing
Date. All such values shall be determined in the manner and as of the time set
forth in Section 2 hereof.
(c) Immediately following the Closing, Templeton Money shall dissolve and
distribute pro rata to its shareholders of record as of the close of business on
the Closing Date the shares of common stock of Franklin Money received by
Templeton Money pursuant to this Section I. Such liquidation and distribution
shall be accomplished by the establishment of accounts on the share records of
Franklin Money of the type and in the amounts due such shareholders based on
their respective holdings as of the close of business on the Closing Date.
Fractional shares of common stock of Franklin Money shall be carried to the
third decimal place. As promptly as practicable after the Closing, each holder
of any outstanding certificate or certificates representing shares of beneficial
interest of Templeton Money shall be entitled to surrender the same to the
transfer agent for Franklin Money and request in exchange therefor a certificate
or certificates representing the number of whole shares of common stock of
Franklin Money into which the shares of beneficial interest of Templeton Money
theretofore represented by the certificate or certificates so surrendered shall
have been converted. Certificates of fractional shares of common stock of
Franklin Money shall not be issued, but shall continue to be carried by Franklin
Money for the account of such shareholder as unissued shares. Until so
surrendered, each outstanding certificate which, prior to the Closing,
represented shares of beneficial interest of Templeton Money shall be deemed for
all Franklin Money purposes to evidence ownership of the number of shares of
common stock of Franklin Money into which the shares of beneficial interest of
Templeton Money (which prior to the Closing were represented thereby) have been
converted.
2. Valuation.
(a) The net asset value of a share of common stock of Franklin Money shall
be determined to the nearest full cent as of 3:00 P.M. Pacific Time on the
Closing Date, using the valuation procedures as set forth in Franklin Money's
then effective prospectus.
(b) The net asset value of a share of beneficial interest of Templeton
Money shall be determined to the nearest full cent as of 1:00 P.M. Pacific Time
on the Closing Date, using the valuation procedures as set forth in Templeton
Money's currently effective prospectus.
3. Closing and Closing Date. The Closing Date shall be December 31, 1996 or
such later date as the parties may mutually agree. The Closing shall take place
at the principal office of Franklin Money, 777 Mariners Island Boulevard, San
Mateo, California 94404 at 3:00 P.M. Pacific Time on the Closing Date. Templeton
Money shall have provided for delivery as of the Closing of those Net Assets to
be transferred to Franklin Money's custodian, Bank of New York, Mutual Funds
Division, 90 Washington Street, New York, New York, 10286. Also, Templeton shall
deliver at the Closing a list of names and addresses of the shareholders of
record of Templeton Money and the number of shares of beneficial interest of
Templeton Money owned by each such shareholder, indicating thereon which such
shares are represented by outstanding certificates and which by book-entry
accounts, all as of 1:00 P.M. Pacific Time on the Closing Date, certified by its
Transfer Agent or by its President to the best of their knowledge and belief.
Franklin Money shall issue and deliver a certificate or certificates evidencing
the shares of common stock of Franklin Money to be delivered to said Transfer
Agent registered in such manner as Templeton Money may request, or provide
evidence satisfactory to Templeton Money that such shares of Franklin Money have
been registered in an account on the books of Franklin Money in such manner as
Templeton may request.
4. Representations and Warranties by Templeton. Templeton represents and
warrants to Franklin Money that:
(a) Templeton is a business trust organized under the laws of the
Commonwealth of Massachusetts on June 16, 1986, and is validly existing and in
good standing under the laws of that state. Templeton is duly registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end,
management investment company and all its shares sold have been sold pursuant to
an effective registration statement filed under the Securities Act of 1933, as
amended, except for those shares sold pursuant to the private offering exemption
for the purpose of raising the required initial capital.
(b) Templeton is authorized to issue an unlimited amount of shares of
beneficial interest, with a par value of $0.01, each outstanding share of which
is fully paid, non-assessable, fully transferable and has full voting rights. Of
such shares, one series has been designated as shares of Templeton Money.
(c) The financial statements appearing in Templeton Money's Annual Report
to Shareholders for the period ending August 31, 1996, audited by McGladrey &
Pullen, LLP, copies of which have been delivered to Franklin Money, fairly
present the financial position of Templeton Money as of the respective dates
indicated, in conformity with generally accepted accounting principles applied
on a consistent basis.
(d) The books and records of Templeton Money made available to Franklin
Money and/or its counsel, accurately summarize the accounting data represented
and contain no material omissions with respect to the business and operations of
Templeton Money.
(e) Templeton is not a party to or obligated under any provision of its
Agreement and Declaration of Trust, by-laws, or any contract or any other
commitment or obligation, and is not subject to any order or decree, which would
be violated by its execution of or performance under this Agreement.
5. Representations and Warranties by Franklin Money. Franklin Money
represents and warrants to Templeton that:
(a) Franklin Money is a corporation organized under the laws of the State
of California on November 7, 1975, and is validly existing and in good standing
under the laws of that state. Franklin Money is duly registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end,
management investment company and all its shares sold have been sold pursuant to
an effective Registration Statement filed under the Securities Act of 1933, as
amended, except for those shares sold pursuant to the private offering exemption
for the purpose of raising the required initial capital.
(b) Franklin Money has an authorized capital of 5,000,000,000 shares of
common stock, with $0.10 per share par value. Each outstanding share is fully
paid, non-assessable, fully transferable, and has full voting rights. The shares
of common stock of Franklin Money issued pursuant to this Agreement and Plan of
Complete Liquidation will be fully paid, non-assessable, freely transferable and
have full voting rights.
(c) At the Closing, the shares of common stock of Franklin Money will be
duly qualified for offering to the public in all states of the United States in
which the sale of shares of Templeton Money are qualified, and there are a
sufficient number of such shares registered under the Securities Act of 1933, as
amended, to permit the transfers contemplated by this Agreement to be
consummated.
(d) The financial statements appearing in Franklin Money's Annual Report to
Shareholders for the fiscal year ending June 30, 1996, audited by Coopers &
Lybrand, L.L.P., copies of which have been delivered to Templeton, fairly
present the financial position of Franklin Money as of the respective dates
indicated and the results of its operations for the periods indicated in
conformity with generally accepted accounting principles applied on a consistent
basis.
(e) Franklin Money is not a party to or obligated under any provision of
its articles of incorporation, bylaws, or any contract or any other commitment
or obligation, and is not subject to any order or decree, which would be
violated by its execution of or performance under this Agreement.
6. Representations and Warranties by Templeton and Franklin Money.
Templeton and Franklin Money each represents and warrants to the other that:
(a) The statement of assets and liabilities to be furnished by it, as of
1:00 P.M. Pacific Time for Templeton Money and 3:00 P.M. Pacific Time for
Franklin Money on the Closing Date, for the purpose of determining the number of
shares of common stock of Franklin Money to be issued pursuant to Section I of
this Agreement will accurately reflect its Net Assets in the case of Templeton
Money and its net assets in the case of Franklin Money and outstanding shares of
common stock as to Franklin Money and outstanding shares of beneficial interest
as to Templeton Money as of such date in conformity with generally accepted
accounting principles applied on a consistent basis.
(b) At the Closing it will have good and marketable title to all of the
securities and other assets shown on the statement of assets and liabilities
referred to in "(a)" above, free and clear of all liens or encumbrances of any
nature whatever except such imperfections of title or encumbrances as do not
materially detract from the value or use of the assets subject thereto or
materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus, there is no
material suit, judicial action, or legal or administrative proceeding pending or
threatened against it.
(d) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(e) It has the necessary power and authority to conduct its business as
such business is now being conducted.
(f) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action of its Board of Trustees or Board of
Directors, respectively, and this Agreement constitutes its valid and binding
obligation enforceable in accordance with its terms.
(g) It anticipates that consummation of this Agreement will not cause it to
fail to conform to the requirements of Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), for Federal income taxation as a regulated
investment company at the end of its fiscal year.
7. Covenants of Templeton and Franklin Money.
(a) Templeton and Franklin Money each covenant to operate their respective
businesses as presently conducted between the date hereof and the Closing.
(b) Templeton undertakes that it will not acquire Franklin Money's shares
for the purpose of making distributions thereof other than to Templeton Money's
shareholders.
(c) Templeton Money and Franklin Money each agree that by the Closing, all
of their respective material Federal and other tax returns or tax extensions and
reports required by law to be filed on or before such date shall have been filed
and all Federal and other taxes shown as due on said returns shall have either
been paid or adequate liability reserves shall have been provided for the
payment of such taxes.
(d) Templeton will, at the Closing, provide Franklin Money with a copy of
the shareholder ledger accounts for all the shareholders of record of Templeton
Money as of 1:00 P.M. Pacific Time on the Closing Date, who are to become
stockholders of Franklin Money as a result of the transfer of assets which is
the subject of this Agreement, certified by its Transfer Agent or its President
to the best of their knowledge and belief.
(e) Templeton agrees to mail to each shareholder of record of Templeton
Money entitled to vote at the special meeting of shareholders at which action on
this Agreement is to be considered, in sufficient time to comply with
requirements as to notice thereof, a Combined Proxy Statement and Prospectus
which complies in all material respects with the applicable provisions of
Section 14(a) of the Securities Exchange Act of 1934, as amended, and Section
20(a) of the Investment Company Act of 1940, as amended, and the rules and
regulations, respectively, thereunder.
(f) Franklin Money will file with the U.S. Securities and Exchange
Commission a Registration Statement on Form N-14 under the Securities Act of
1933, as amended ("Registration Statement") relating to the shares of common
stock of Franklin Money issuable hereunder, and will use its best efforts to
provide that the Registration Statement becomes effective as promptly as
practicable. At the time the Registration Statement becomes effective, it (1)
will comply in all material respects with the applicable provisions of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder; and (2) will not contain any untrue statement of material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; at the time the Registration Statement
becomes effective, at the time of Templeton Money's shareholders meeting, and at
the Closing Date, the prospectus and statement of additional information
included therein will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
8. Conditions Precedent to be Fulfilled by Templeton and Franklin Money.
The obligations of Templeton and Franklin Money to effectuate this Agreement and
the Plan of Liquidation hereunder shall be subject to the following respective
conditions:
(a) That (1) all the representations and warranties of the other party
contained herein shall be true and correct as of the Closing with the same
effect as though made as of and at such date; (2) the other party shall have
performed all obligations required by this Agreement to be performed by it prior
to the Closing; and (3) the other party shall have delivered to such party a
certificate signed by the President and by the Secretary or equivalent officer
to the foregoing effect.
(b) That the other party shall have delivered to such party a copy of the
resolutions approving this Agreement adopted by the other party's Board of
Directors, or Board of Trustees, as the case may be, certified by the Secretary
or equivalent officer.
(c) That the U.S. Securities and Exchange Commission shall not have issued
an unfavorable management report under Section 25(b) of the Investment Company
Act of 1940, as amended, nor instituted nor threatened to institute any
proceeding seeking to enjoin consummation of the Plan of Liquidation under
Section 25(c) of the Investment Company Act of 1940, as amended, and no other
legal, administrative or other proceeding shall be instituted or threatened
which would materially affect the financial condition of either party or would
prohibit the transactions contemplated hereby.
(d) That the holders of at least a majority of the outstanding shares of
beneficial interest of Templeton Money shall have voted in favor of the adoption
of this Agreement and the Plan of Liquidation contemplated hereby at an annual
or special meeting to be held no later than December 31, 1996 or other such date
as the parties may agree.
(e) That each party shall have declared a distribution or distributions
prior to the Closing Date which, together with all previous distributions, shall
have the effect of distributing to its shareholders (i) all of its net
investment income and all of its net realized capital gains, if any, for the
period from the close of its last fiscal year to 1:00 P.M. Pacific Time for
Templeton Money and 3:00 P.M. Pacific Time for Franklin Money on the Closing
Date, and (ii) any undistributed net investment income and net realized capital
gains from any period to the extent not otherwise declared for distribution.
(f) That prior to or at the Closing, Franklin Money and Templeton Money
shall receive an opinion from Messrs. Stradley, Ronon, Stevens & Young, LLP, to
the effect that, provided the acquisition contemplated hereby is carried out in
accordance with this Agreement:
(1) Provided the Transaction is carried out in accordance with the
applicable laws of the State of California and Commonwealth of
Massachusetts, the acquisition by Franklin Money of substantially all of
the assets of Templeton Money as provided herein in exchange for shares of
Franklin Money will not result in material adverse federal income tax
consequences to Templeton Money or Franklin Money under the Code;
(2) Provided Templeton Money and Franklin Money have maintained and
continue to maintain a net asset value of $1.00 per share, the holders of
the shares of Templeton Money will not recognize any gain or loss upon the
exchange of their shares in Templeton Money for shares of Franklin Money
(including fractional shares to which they may be entitled); and
(3) The basis of the Franklin Money shares received by the holders of
the shares of Templeton Money (including fractional shares to which they
may be entitled) will be the net asset value of the Franklin Money shares
received in the exchange.
In giving the opinion set forth above, this counsel may state it is relying on
certain assumptions and certificates of the officers of Templeton and Franklin
Money.
(g) That Franklin Money shall have received an opinion in form and
substance satisfactory to it from Messrs. Dechert, Price & Rhoads, counsel to
Templeton, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) Templeton was organized as a business trust under the laws of the
Commonwealth of Massachusetts on June 16, 1986, and is validly existing and
in good standing under the laws of the Commonwealth of Massachusetts;
(2) Templeton has an authorized capital of an unlimited number of
shares of beneficial interest, with a par value of $0.01, of which one
series of shares has been designated as shares of Templeton Money and,
assuming that the initial capital shares of Templeton Money were issued in
accordance with the Investment Company Act of 1940, as amended, and the
Agreement and Declaration of Trust and By-Laws of Templeton and that all
outstanding shares of Templeton Money were sold, issued and paid for in
accordance with the terms of Templeton Money's prospectus in effect at the
time of such sales, each such outstanding share is fully paid,
non-assessable, fully transferable and has full voting rights;
(3) Templeton is an open-end, diversified investment company of the
management type registered as such under the Investment Company Act of
1940, as amended;
(4) Except as disclosed in Templeton's currently effective
prospectuses, such counsel does not know of any material suit, action, or
legal or administrative proceeding pending or threatened against Templeton,
the unfavorable outcome of which would materially and adversely affect
Templeton or Templeton Money;
(5) All actions required to be taken by Templeton to authorize this
Agreement and to effect the Plan of Liquidation contemplated hereby have
been duly authorized by all necessary corporate action on the part of
Templeton; and
(6) This Agreement is the legal, valid and binding obligation of
Templeton and is enforceable against Templeton in accordance with its
terms.
In giving the opinion set forth above, this counsel may state that it is
relying on certificates of the officers of Templeton with regard to matters of
fact and certain certifications and written statements of governmental officials
with respect to the good standing of Templeton.
(h) That Templeton shall have received an opinion in form and substance
satisfactory to it from Messrs. Stradley, Ronon, Stevens & Young, LLP, counsel
to Franklin Money, to the effect that, subject in all respects to the effects of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other laws now or hereafter affecting generally the enforcement of creditors'
rights:
(1) Franklin Money was incorporated under the laws of the State of
California on November 7, 1975, and is validly existing and in good
standing under the laws of that state;
(2) Franklin Money has an authorized capital of 5,000,000,000 shares
of common stock, with $0.10 per share par value, and, assuming that the
initial capital shares of Franklin Money were issued in accordance with the
investment Company Act of 1940, as amended, and its Articles of
Incorporation and By-Laws and that all other shares were sold, issued and
paid for in accordance with the terms of Franklin Money's prospectus in
effect at the time of such sales, each such outstanding share is fully
paid, non-assessable, fully transferable and has full voting rights;
(3) Franklin Money is an open-end, diversified investment company of
the management type registered as such under the Investment Company Act of
1940, as amended;
(4) Except as disclosed in Franklin Money's currently effective
prospectus, such counsel does not know of any material suit, action, or
legal or administrative proceeding pending or threatened against Franklin
Money, the unfavorable outcome of which would materially and adversely
affect Franklin Money;
(5) The shares of common stock of Franklin Money to be issued pursuant
to the terms of this Agreement have been duly authorized and, when issued
and delivered as provided in this Agreement, will have been validly issued
and fully paid and will be nonassessable by Franklin Money;
(6) All corporate actions required to be taken by Franklin Money to
authorize this Agreement and to effect the Plan of Liquidation contemplated
hereby have been duly authorized by all necessary corporate action on the
part of Franklin Money;
(7) Neither the execution, delivery nor performance of this Agreement
by Franklin Money violates any provision of its Articles of Incorporation,
its by-laws, or the provisions of any agreement or other instrument, known
to such counsel to which Franklin Money is a party or by which Franklin
Money is otherwise bound; this Agreement is the legal, valid and binding
obligation of Franklin Money and is enforceable against Franklin Money in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization or other similar laws pertaining to
the enforcement of creditors' rights generally and by equitable principles;
and
(8) The Registration Statement of which the Prospectus of Franklin
Money is a part, dated November 1, 1996, (the "Prospectus"), is, at the
time of the signing of this Agreement, effective under the Securities Act
of 1933, as amended, and, to the best knowledge of such counsel, no stop
order suspending the effectiveness of the Registration Statement has been
issued, and no proceedings for such purpose have been instituted or are
pending before or threatened by the U.S. Securities and Exchange Commission
under the Securities Act of 1933, as amended, and nothing has come to its
attention which causes it to believe that at the time the Prospectus became
effective, or at the time of the signing of this Agreement, or at the
Closing, such Prospectus (except for the financial statements and other
financial and statistical data included therein, as to which counsel need
express no opinion), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading; and such counsel knows of no
legal or government proceedings required to be described in the Prospectus
or of any contract or document of a character required to be described in
the Prospectus that is not described as required.
In giving the opinion set forth above, this counsel may state that it is
relying on certificates of the officers of Franklin Money with regard to matters
of fact and certain certifications and written statements of governmental
officials with respect to the good standing of Franklin Money.
(i) That Templeton shall have received a certificate from the President and
Secretary of Franklin Money to the effect that the statements contained in the
Franklin Money Prospectus dated November 1, 1996, at the time the Prospectus
became effective, at the date of the signing of this Agreement and at the
Closing, did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and
(j) That Franklin Money's Registration Statement with respect to its shares
to be delivered to the Fund shareholders in accordance with this Agreement shall
have become effective, and no stop order suspending the effectiveness of the
Registration Statement or any amendment or supplement thereto, shall have been
issued prior to the Closing Date or shall be in effect at Closing, and no
proceedings for the issuance for such an order shall be pending or threatened on
that date.
(k) That the shares of Franklin Money to be delivered hereunder shall have
been registered by Franklin Money with each state commission or agency with
which such registration is required in order to permit the shares lawfully to be
delivered to each Templeton Money shareholder.
9. Brokerage Fees and Expenses.
(a) Templeton and Franklin Money each represents and warrants to the other
that there are no broker or finders fees payable by it in connection with the
transactions provided for herein.
(b) The expenses of entering into and carrying out the provisions of this
Agreement shall be borne as follows: Franklin Advisers, Inc. ("Franklin"),
Templeton Global Bond Managers, a division of Templeton Investment Counsel, Inc.
("TGBM"), Templeton Money and Franklin Money shall each pay one-fourth of the
total expenses incurred in connection with this Agreement. Following the
consummation of the transactions, Advisers and TGBM will determine if such
arrangement relating to the expenses is disproportionate to either Templeton
Money or to Franklin Money in relation to the benefits derived by each. In such
event, Advisers and TGBM will assume responsibility for paying that portion of
the expenses which is deemed to be so disproportionate.
10. Termination; Waiver; Order.
(a) Anything contained in this Agreement to the contrary notwithstanding,
this Agreement may be terminated and the Plan of Liquidation abandoned at any
time (whether before or after adoption thereof by the shareholders of Templeton
Money) prior to the Closing as follows:
(1) by mutual consent of Templeton and Franklin Money;
(2) by Franklin Money if any condition of its obligations set forth in
Section 8 has not been fulfilled or waived by Franklin Money;
(3) by Templeton if any condition of its obligations set forth in
Section 8 has not been fulfilled or waived by Templeton.
An election by Templeton or Franklin Money to terminate this Agreement and
to abandon the Plan of Liquidation shall be exercised by the Board of Trustees
or Directors of Templeton or Franklin Money, respectively.
(b) If the transactions contemplated by this Agreement have not been
consummated by January 31, 1997, the Agreement shall automatically terminate on
that date, unless a later date is agreed to by both Franklin Money and
Templeton.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of either Templeton or Franklin
Money or persons who are their directors, trustees, officers, agents or
shareholders in respect of this Agreement.
(d) At any time prior to the Closing, any of the terms or conditions of
this Agreement may be waived by either Templeton or Franklin Money, respectively
(whichever is entitled to the benefit thereof), by action taken by the Board of
Trustees of Templeton or Board of Directors of Franklin Money, if, in the
judgment of the Board of Trustees of Templeton or the Board of Directors of
Franklin Money (as the case may be), such action or waiver will not have a
material adverse affect on the benefits intended under this Agreement to the
holders of shares of Templeton Money or Franklin Money, on behalf of which such
action is taken.
(e) The respective representations and warranties contained in Sections 4-7
hereof shall expire with, and be terminated by, the Plan of Liquidation, and
neither Templeton nor Franklin Money nor any of their officers, directors,
trustees, agents or shareholders shall have any liability with respect to such
representations or warranties after the Closing. This provision shall not
protect any officer, director, trustee, agent or shareholder of Templeton Money
or Franklin Money against any liability to the entity for which that officer,
director, trustee, agent or shareholder who so acts or to which that officer,
director, agent or shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties in
the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange Commission
with respect to this Agreement shall be issued prior to the Closing and shall
impose any terms or conditions which are determined by action of the Board of
Trustees of Templeton and Board of Directors of Franklin Money to be acceptable,
such terms and conditions shall be binding as if a part of this Agreement
without further vote or approval of the shareholders of Templeton Money, unless
such terms and conditions shall result in a change in the method of computing
the number of shares of Franklin Money to be issued to Templeton Money in which
event, unless such terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of Templeton Money prior to
the meeting at which the transactions contemplated by this Agreement shall have
been approved, this Agreement shall not be consummated and shall terminate
unless Templeton shall promptly call a special meeting of shareholders of
Templeton Money at which such conditions so imposed shall be submitted for
approval.
11. Entire Agreement and Amendments. This Agreement embodies the entire
Agreement between the parties and there are no agreements, understandings,
restrictions, or warranties between the parties other than those set forth
herein or herein provided for. This Agreement may be amended only by mutual
consent of the parties in writing. Neither this Agreement nor any interest
herein may be assigned without the prior written consent of the other party.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts together shall constitute but one instrument.
13. Notices. Any notice, report, or demand required or permitted by any
provision of this Agreement shall be in writing, shall be deemed to have been
given if delivered or mailed, first class postage prepaid, addressed to:
Templeton at 700 Central Avenue, St. Petersburg, Florida 33701-3628, Attention:
Mr. Gregory E. McGowan, President; or Franklin Money at 777 Mariners Island
Boulevard, P. O. Box 7777, San Mateo, California 94403-7777, Attention: Mr.
Rupert H. Johnson, Jr., President, as the case may be.
14. Governing Law. This Agreement shall be governed by and carried out in
accordance with the internal laws of the State of California.
In Witness Whereof, Templeton and Franklin Money have each caused this
Agreement and Plan of Complete Liquidation to be executed on its behalf by its
duly authorized officers, all as of the day and year first above written.
FRANKLIN MONEY FUND
/s/ Harmon E. Burns
By: Harmon E. Burns
Vice President
TEMPLETON INCOME TRUST
/s/ Barbara J. Green
By: Barbara J. Green
Secretary
TL407 PROXY
PROSPECTUS & APPLICATION
FRANKLIN
MONEY
FUND
INVESTMENT STRATEGY
INCOME
- --------------------------------------------------------------------------------
NOVEMBER 1, 1996
This prospectus describes the Franklin Money Fund (the "Fund"). It contains
information you should know before investing in the Fund. Please keep it for
future reference.
The Fund's SAI, dated November 1, 1996, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/DIAL BEN or
write the Fund at the address shown.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share. Shares of the Fund are not deposits
or obligations of, or guaranteed or endorsed by, any bank, and are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other agency of the U.S. government. Shares of the Fund involve
investment risks, including the possible loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Unlike most funds that invest directly in securities, the Fund seeks to achieve
its investment objective by investing all of its assets in shares of The Money
Market Portfolio (the "Portfolio"). The Portfolio is a series of The Money
Market Portfolios ("Money Market"). Its investment objective is the same as the
Fund's.
This prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
The Portfolio may invest in both domestic and foreign securities.
Franklin Money Fund
Franklin
Money
Fund
- --------------------------------------------------------------------------------
November 1, 1996
When reading this prospectus, you will see terms that are capitalized. This
means the term is explained in our glossary section.
TABLE OF CONTENTS
ABOUT THE FUND
Expense Summary .............. 2
Financial Highlights ......... 3
How does the Fund Invest its Assets? 4
What are the Fund's Potential Risks? 11
Who Administers the Fund? .... 12
How does the Fund Measure Performance? 13
How is the Fund Organized? ... 13
How Taxation Affects You and the Fund 13
About Your Account
How Do I Buy Shares? ......... 14
May I Exchange Shares for Shares
of Another Fund? 16
How Do I Sell Shares? ........ 18
What Distributions Might I Receive
from the Fund? 20
Transaction Procedures and
Special Requirements 21
Services to Help You Manage Your Account 26
Glossary
Useful Terms and Definitions 29
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/DIAL BEN
Franklin Money Fund
ABOUT THE FUND
EXPENSE SUMMARY
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended June 30, 1996. Your
actual expenses may vary.
A. SHAREHOLDER TRANSACTION EXPENSES+
Exchange Fee (per transaction) $5.00*
B. ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management and Administration Fees 0.45%**
Other Expenses of the Fund and the Portfolio 0.31%
--------
Total Fund Operating Expenses 0.76%**
--------
C. EXAMPLE
The following example assumes the Fund's annual return is 5% and its operating
expenses are as described above. For each $1,000 investment, you would pay the
following projected expenses if you sold your shares after the number of years
shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------
$8 $24 $42 $94
THIS IS JUST AN EXAMPLE. IT DOES NOT REPRESENT PAST OR FUTURE EXPENSES OR
RETURNS. ACTUAL EXPENSES AND RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges
without a fee.
**The management fees of the Portfolio and administration fees of the Fund
were 0.15% and 0.30%, respectively. Advisers has agreed in advance,
however, to limit its management fees and make certain payments to reduce
the Fund's and Portfolio's expenses so their total operating expenses are
not more than if the Fund were to invest directly in the securities held by
the Portfolio. With this reduction, management fees were 0.14%. Total Fund
operating expenses were 0.75%.
The Board considered whether the total fees and expenses of the Fund and the
Portfolio would be more or less than if the Fund invested directly in the types
of securities held by the Portfolio. By investing all of its assets in shares of
the Portfolio, the Fund and other investment companies and institutional
investors are able to pool their assets. This may result in a variety of
operating economies. Accordingly, the Board concluded that the total expenses of
the Fund and the Portfolio were expected to be lower than if the Fund invested
directly in various types of money market instruments. Of course, there is no
guarantee that asset growth and lower expenses will be achieved. Advisers,
however, has agreed in advance to limit expenses so that they will not be higher
than if the Fund invested directly in the types of securities held by the
Portfolio. For more information on the fees and expenses of the Fund and the
Portfolio, please see "Who Administers the Fund?"
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Fund's Annual Report to Shareholders for the fiscal
year ended June 30, 1996. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended November 30,
------------------ -----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995+ 1994 1993 1992 1991 1990 1989 1988 1987
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Operating Performance
Net asset value
at beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income .049 .030 .032 .023 .031 .055 .074 .084 .067 .058
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net
investment income (.049) (.030) (.032) (.023) (.031) (.055) (.074) (.084) (.067) (.058)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value
at end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Total return* 4.99% 3.07% 3.28% 2.36% 3.12% 5.66% 7.64% 8.76% 6.92% 6.00%
===================================================================================================================================
Ratios/Supplemental Data
Net assets at end
of year (in 000's) $1,172,639 $1,018,966 $1,124,223 $1,040,026 $1,101,571 $1,353,141 $1,579,053 $1,600,756 $1,373,991 $1,261,286
Ratio of expenses
to average net
assets** .75%++ .80%***++ .91%++ .80% .79% .74% .73% .74% .80% .85%
Ratio of net
investment income to
average net assets 4.86% 5.19%*** 3.23% 2.32% 3.08% 5.53% 7.42% 8.38% 6.66% 5.90%
</TABLE>
*Total Return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends at net asset value and is not
annualized.
**Effective with fiscal year 1994, the expense ratio includes the Fund's share
of the Portfolio's allocated expenses.
+For the seven months ended June 30, 1995.
***Annualized
++Advisers agreed in advance to waive a portion of its management fees incurred
by the Portfolio during the periods indicated and a portion of its
administration fees incurred by the Fund for 1994, 1995 and 1996. Had such
action not been taken, the Fund's ratio expenses to average net assets would
have been as follows:
Ratio of expenses
to average net assets+**
==========================
1994 .93%
1995+ .82%***
1996 .76%
How does the Fund Invest its Assets?
The Fund is a mutual fund that is commonly known as a "money market fund." The
Fund attempts to maintain a share value of $1.00, but there is no guarantee that
this can be accomplished.
The Fund's Investment Objective
The Fund's investment objective is to obtain as high a level of current income
(in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The Fund seeks to achieve
its objective by investing all of its assets in the Portfolio. The investment
objective of the Portfolio is the same as the Fund's. The investment policies of
the Fund are also substantially similar to the Portfolio's except, in all cases,
the Fund may pursue its policies by investing in an open-end management
investment company with the same investment objective and substantially similar
policies and restrictions as the Fund. Any additional exceptions are noted
below.
The Fund acquires shares of the Portfolio at Net Asset Value. An investment in
the Fund is an indirect investment in the Portfolio. The investment objective of
both the Fund and the Portfolio is fundamental and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's objective
will be achieved.
THE FUND'S MASTER/FEEDER FUND STRUCTURE
An investment in the Fund may be subject to certain risks due to the Fund's
structure. These risks include the potential that if other future shareholders
in the Portfolio sell their shares, the Fund's expenses may increase or the
economies of scale that have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could also have effective
voting control over the operation of the Portfolio. Furthermore, if shareholders
of the Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objective and policies.
If the Board considers it to be in the best interest of the Fund, the Fund may
withdraw its investment in the Portfolio at any time. In that event, the Board
would consider what action to take, including the investment of all of the
assets of the Fund in another pooled investment entity with the same investment
objective and substantially similar policies as the Fund or the hiring of an
investment advisor to manage the Fund's investments. Either circumstance may
cause an increase in Fund expenses.
The Fund's structure is a relatively new format that often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement this structure, and the
Board does not believe the additional complexities outweigh the potential
benefits to be gained by shareholders.
The Fund's investment of all of its assets in the Portfolio was previously
approved by shareholders of the Fund. Whenever the Fund, as an investor in the
Portfolio, is asked to vote on a matter relating to the Portfolio, the Fund will
hold a meeting of Fund shareholders and will cast its votes in the same
proportion as the Fund's shareholders have voted.
The Franklin Funds have three other funds that invest in the Portfolio; two are
designed for institutional investors only and one, the Franklin Templeton Money
Fund II, is available only to Class II shareholders in the Franklin Templeton
Funds pursuant to that fund's exchange privilege. In the future, other funds may
be created that may likewise invest in the Portfolio or existing funds may be
restructured so that they may invest in the Portfolio. If requested, we will
forward additional information to you about other funds through which you may
invest in the Portfolio. If you would like to receive this information, please
call Fund Information.
The Portfolio is a diversified series of Money Market, an open-end management
investment company. Money Market was organized as a Delaware business trust on
June 16, 1992, and is registered with the SEC under the 1940 Act. Money Market
currently issues shares in two separate series. In the future, additional series
may be added by the Board of Trustees of Money Market.
For information on the Fund's administrator and its expenses, please see "Who
Administers the Fund?"
WHAT INVESTMENTS DOES THE PORTFOLIO MAKE?
The Portfolio follows certain procedures required by federal securities laws
with respect to the quality, maturity and diversification of its investments and
thus only invest in Eligible Securities. These procedures are designed to help
maintain a stable $1.00 share price. The Portfolio maintains a dollar weighted
average maturity of the securities in its portfolio of 90 days or less.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in U.S. government
securities that consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government ("U.S. government securities"). Certain of these obligations,
including U.S. Treasury bills, notes and bonds and securities of the Government
National Mortgage Association (popularly called "GNMAs" or "Ginnie Maes") and
the Federal Housing Administration, are issued or guaranteed by the U.S.
government or carry a guarantee that is supported by the full faith and credit
of the U.S. government. Other U.S. government securities are issued or
guaranteed by federal agencies or government-sponsored enterprises and are not
direct obligations of the U.S. government, but involve sponsorship or guarantees
by government agencies or enterprises. These obligations include securities
supported by the right of the issuer to borrow from the U.S. Treasury, such as
obligations of the Federal Home Loan Bank, and securities supported by the
credit of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds.
BANK OBLIGATIONS. The Portfolio may invest in bank obligations or instruments
secured by bank obligations. These instruments may include fixed, floating or
variable rate certificates of deposit, letters of credit, time deposits and
bankers' acceptances issued by banks and savings institutions with assets of at
least one billion dollars. Bank obligations may be obligations of U.S. banks,
foreign branches of U.S. banks (referred to as "Eurodollar Investments"), U.S.
branches of foreign banks (referred to as "Yankee Dollar Investments") and
foreign branches of foreign banks ("Foreign Bank Investments"). When investing
in a bank obligation issued by a branch, the parent bank must have assets of at
least five billion dollars. The Portfolio may invest no more than 25% of its
assets in obligations of foreign branches of U.S. or foreign banks. The
Portfolio may, however, invest more than 25% of its assets in certain domestic
bank obligations. Investments in obligations of U.S. branches of foreign banks,
that are considered domestic banks, may only be made if such branches have a
federal or state charter to do business in the U.S. and are subject to U.S.
regulatory authorities. See "What are the Fund's Potential Risks?" below for
more information regarding these investments.
Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Portfolio may not invest more than 10% of its assets in time
deposits with maturities in excess of seven calendar days.
COMMERCIAL PAPER. The Portfolio may also invest in commercial paper of domestic
or foreign issuers. Commercial paper obligations may include variable amount
master demand notes that are obligations that permit the investment of
fluctuating amounts by the Portfolio at varying rates of interest pursuant to
direct arrangements between the Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. The Portfolio may increase
the amount provided by the note agreement, or decrease the amount, and the
borrower may repay up to the full amount of the note without penalty. The
borrower is often a large industrial or finance company that also issues
commercial paper. Typically, these notes provide that the interest rate is set
daily by the borrower; the rate is usually the same or similar to the interest
on other commercial paper being issued by the borrower. Because variable amount
master demand notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that these instruments will be
traded, and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value plus
accrued interest at any time. Accordingly, the Portfolio's right to redeem
depends on the ability of the borrower to pay principal and interest on demand.
In connection with master demand note arrangements, Advisers will consider
earning power, cash flow and other liquidity ratios of the issuer. The Portfolio
has no specific limits on aggregate investments in master demand notes and will
invest in notes of only U.S. issuers that are Eligible Securities.
CORPORATE OBLIGATIONS. The corporate obligations that the Portfolio may buy are
fixed, floating and variable rate bonds, debentures or notes that are considered
by the Portfolio to be Eligible Securities. These obligations must mature in 397
calendar days or less. Generally speaking, the higher an instrument is rated,
the greater its safety and the lower its yield.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities, issued by or on behalf of states, territories and
possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is not
exempt from federal income tax. Generally, municipal securities are used to
raise money for various public purposes such as constructing public facilities
and making loans to public institutions. Taxable municipal bonds are generally
issued to provide funding for privately operated facilities.
OTHER INVESTMENT POLICIES OF THE PORTFOLIO
Depending on its view of market conditions and cash requirements, the Portfolio
may or may not hold securities purchased until maturity. The yield on certain
instruments held by the Portfolio may decline if sold prior to maturity.
Whenever Advisers believes market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Portfolio may do so without restriction or
limitation.
The Portfolio may not invest more than 5% of its total assets in the securities
of companies (including predecessors) which have been in continuous operation
for less than three years, nor invest more than 25% of its total assets in any
particular industry. The Portfolio may, however, invest more than 25% of its
assets in certain domestic bank obligations. The foregoing limitations do not
apply to U.S. government securities and federal agency obligations, or to
repurchase agreements fully collateralized by these government securities or
obligations, although certain tax diversification requirements apply to
investments in repurchase agreements and other securities that are not treated
as U.S. government obligations under the Code.
Because the Portfolio limits its investments to high quality securities, the
Portfolio, and thus the Fund, will generally earn lower yields than if the
Portfolio purchased securities with a lower rating and correspondingly higher
expected rate of return.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Portfolio may also buy and
sell securities on a "when-issued" and "delayed delivery" basis. The price is
subject to market fluctuation and the value at delivery may be more or less than
the purchase price.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions in
which the Portfolio buys a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating the collateral.
The Portfolio, however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are deemed
creditworthy by Advisers. A repurchase agreement is deemed to be a loan by the
Portfolio under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of the Portfolio by a custodian approved
by Money Market's Board of Trustees and will be held pursuant to a written
agreement.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
of Trustees of Money Market and subject to the following conditions, the
Portfolio may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 25% of the
value of the Portfolio's total assets at the time of the most recent loan. The
borrower must deposit with the Portfolio's custodian bank collateral with an
initial market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 100%. This collateral shall consist of cash, securities
issued by the U.S. government, its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Portfolio may engage in security loan arrangements with
the primary objective of increasing the Portfolio's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Portfolio continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
ILLIQUID INVESTMENTS. The Portfolio may not invest more than 10% of its net
assets, at the time of purchase, in securities subject to legal or contractual
restrictions on resale, securities that are not readily marketable, or enter
into repurchase agreements or master demand notes with more than seven days to
maturity. These securities are generally securities that cannot be sold within
seven days in the normal course of business at approximately the amount at which
the Portfolio has valued them.
BORROWING. The Portfolio may borrow from banks for temporary or emergency
purposes only and pledge its assets for such loans in amounts up to 5% of the
Portfolio's total assets. No new investments will be made by the Portfolio while
any outstanding loans exceed 5% of its total assets.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Fund and the Portfolio have a number of
additional investment restrictions that limit their activities to some extent.
Some of these restrictions may only be changed with shareholder approval. For a
list of these restrictions and more information about the Fund's and the
Portfolio's investment policies, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.
WHAT ARE THE FUND'S POTENTIAL RISKS?
FOREIGN SECURITIES RISK. Any of the Portfolio's Eurodollar Investments, Yankee
Dollar Investments, Foreign Bank Investments or investments in commercial paper
of foreign issuers involve risks that are different from investments in
obligations of domestic entities. These risks may include future unfavorable
political and economic developments, possible withholding taxes, seizure of
foreign deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on
securities the Portfolio holds. There may also be less publicly available
information about foreign banks or foreign issuers of commercial paper.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTION RISK. These transactions are
subject to market fluctuation and the value at delivery may be more or less than
the purchase price. In when-issued and delayed delivery transactions, the
Portfolio relies on the seller to complete the transaction. The seller's failure
to complete the transaction may cause the Portfolio to miss a price or yield
considered to be advantageous. Securities bought on a when-issued or delayed
delivery basis do not generally earn interest until their scheduled delivery
date.
CREDIT AND MARKET RISK. Credit risk is a function of the ability of an issuer of
a security to make timely interest payments and to pay the principal of a
security upon maturity. It is generally reflected in a security's underlying
credit rating and its stated interest rate (normally, the coupon rate). A change
in the credit risk associated with a security may cause a corresponding change
in the security's price. Market risk is the risk of price fluctuation of a
security caused by changes in general economic and interest rate conditions
generally affecting the market as a whole. A security's maturity length also
affects its price. Generally, when interest rates rise the value of a municipal
security will fall, and vice versa. The short duration of the Eligible
Securities in which the Portfolio invests generally reduces this price
fluctuation.
WHO ADMINISTERS THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the Fund and Money Market having substantially the same
boards. These procedures call for an annual review of the Fund's relationship
with the Portfolio. If a conflict exists, the boards may take action, which may
include the establishment of a new board. The Board has determined that there
are no conflicts of interest at the present time. For more information, please
see "Summary of Procedures to Monitor Conflicts of Interest" and "Officers and
Directors" in the SAI.
INVESTMENT MANAGER AND ADMINISTRATOR. Advisers is the investment manager of the
Portfolio and other funds with aggregate assets of over $82 billion, including
$43 billion in the municipal securities market. Advisers is also the
administrator of the Fund. It is wholly owned by Resources, a publicly owned
company engaged in the financial services industry through its subsidiaries.
Charles B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources.
SERVICES PROVIDED BY ADVISERS. Advisers manages the Portfolio's assets and makes
its investment decisions. Advisers also provides certain administrative services
and facilities for the Fund and performs similar services for other funds.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
MANAGEMENT FEES. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the Fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the Fund depends on the net assets of other shareholders of the
Portfolio, if any.
During the fiscal year ended June 30, 1996, the Fund's proportionate share of
the Portfolio's management fees and the Fund's administration fees, before any
advance waiver, totaled 0.15% and 0.30%, respectively, of the average daily net
assets of the Fund. Total operating expenses, including fees paid to Advisers
before any advance waiver, totaled 0.76%. Under an agreement by Advisers to
limit its fees, the Fund paid a proportionate share of the Portfolio's
management fees and its own administration fees totaling 0.14% and 0.30%. Total
expenses of the Fund were 0.75%. Advisers may end this arrangement at any time
upon notice to the Board.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
HOW IS THE FUND ORGANIZED?
The Fund is a no-load, diversified open-end management investment company,
commonly called a mutual fund. It was organized as a California corporation on
November 7, 1975, and is registered with the SEC under the 1940 Act. Each share
of the Fund has one vote. All shares have equal voting, participation and
liquidation rights. Shares of the Fund are considered Class I shares for
redemption, exchange and other purposes.
The Fund has cumulative voting rights. This gives each shareholder a number of
votes equal to the number of shares owned times the number of Board members to
be elected. You may cast all of your votes for one candidate or distribute your
votes between two or more candidates.
The Fund does not intend to hold annual shareholder meetings. It may hold a
special meeting, however, for matters requiring shareholder approval under the
1940 Act. A meeting may also be called by the Board in its discretion or by
shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
HOW TAXATION AFFECTS YOU AND THE FUND
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from the Fund, as well as any distributions derived from the excess of
net short-term capital gain over net long-term capital loss, are treated as
ordinary income whether you have elected to receive them in cash or in
additional shares.
The Fund will inform you of the source of its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of such dividends
and distributions.
You should consult your tax advisors with respect to the applicability of state
and local intangible property or income taxes to your shares of the Fund and to
distributions and redemption proceeds you receive from the Fund.
If you are not a U.S. person for purposes of federal income taxation you should
consult with your financial or tax advisors regarding the applicability of U.S.
withholding or other taxes to distributions received by you from the Fund and
the application of foreign tax laws to such distributions.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
You may buy shares of the Fund without a sales charge and write redemption
drafts against your account. Redemption drafts are similar to checks and are
referred to as checks in this prospectus. When you buy shares, it does not
create a checking or other bank account relationship with the Fund or any bank.
MINIMUM
INVESTMENTS*
- -------------------------------------------------------------------------------
To Open Your Account. $500
To Add to Your Account $ 25
*We may waive these minimums for retirement plans. We may also refuse any order
to buy shares.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail For an initial investment:
1. Complete and sign the enclosed shareholder application.
- --------------------------------------------------------------------------------
2. Return the application to the Fund with your check, Federal
Reserve draft or negotiable bank draft made payable to the
Fund. Instruments drawn on other investment companies may
not be accepted.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail (cont.) For additional investments:
1. Send a check or use the deposit slips included with your
monthly statement or checkbook (if you have requested one).
2. If you send a check, please include your account number on
the check.
- --------------------------------------------------------------------------------
By Wire 1. Call Shareholder Services or, if that number is busy, call
1-415/312-2000 collect, to receive a wire control number. A
new number is needed every time you wire money into your
account. If you do not have a currently effective wire
control number, we will return the money to the bank and it
will not be credited to your account.
2. Wire the funds to Bank of America, ABA routing number
121000358, for credit to Franklin Money Fund, A/C
1493-3-04779. Your name and wire control number must be
included.
3. For initial investments, you must also complete and sign the
enclosed shareholder application and return it to the Fund.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
If the Fund receives your order in proper form before 3:00 p.m. Pacific time, it
will be credited to your account that day. Orders received after 3:00 p.m. will
be credited the following business day.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
If you are a municipal investor, you should consult with expert counsel to
determine the effect, if any, of payments by the Fund on arbitrage rebate
calculations if you are considering investing proceeds of bond offerings, and
whether and to what extent shares of the Fund are legal investments for you.
HOW DO I BUY SHARES IN CONNECTION WITH RETIREMENT PLANS?
Your individual or employer-sponsored retirement plan may invest in the Fund.
Plan documents are required for all retirement plans. Trust Company can provide
the plan documents for you and serve as custodian or trustee.
Trust Company can provide you with brochures containing important information
about its plans. To establish a Trust Company retirement plan, you will need an
application other than the one included in this prospectus. For a retirement
plan brochure or application, please call our Retirement Plans Department.
Please consult your legal, tax or retirement plan specialist before choosing a
retirement plan. Your investment representative or advisor can help you make
investment decisions within your plan.
MAY I EXCHANGE SHARES FOR SHARES OF ANOTHER FUND?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all account owners
2. Include any outstanding share certificates for the shares
you're exchanging
- --------------------------------------------------------------------------------
By Phone Call Shareholder Services or TeleFACTS(R)
If you do not want the ability to exchange by phone to
apply to your account, please let us know.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
WILL SALES CHARGES APPLY TO MY EXCHANGE?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge.
EXCHANGE RESTRICTIONS
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the SAME CLASS, except as noted below.
o The accounts must be identically registered. You may exchange shares from a
Fund account requiring two or more signatures into another identically
registered money fund account requiring only one signature for all
transactions. PLEASE NOTIFY US IN WRITING IF YOU DO NOT WANT THIS OPTION TO
BE AVAILABLE ON YOUR ACCOUNT(S). Additional procedures may apply. Please
see "Transaction Procedures and Special Requirements."
o Trust Company IRA or 403(b) retirement plan accounts may exchange shares as
described above. Restrictions may apply to other types of retirement plans.
Please contact our Retirement Plans Department for information on exchanges
within these plans.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange
out of the Fund within two weeks of an earlier exchange request, (ii)
exchange shares out of the Fund more than twice in a calendar quarter, or
(iii) exchange shares equal to at least $5 million, or more than 1% of the
Fund's net assets. Shares under common ownership or control are combined
for these limits. If you exchange shares as described in this paragraph,
you will be considered a Market Timer. Each exchange by a Market Timer, if
accepted, will be charged $5.00. Some of our funds do not allow investments
by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
LIMITED CLASS II EXCHANGES
If retirement plan assets are only temporarily invested in the Fund pending
final allocation or investment instructions involving Class II shares, Fund
shares may be exchanged for Class II shares of another Franklin Templeton Fund.
The time the shares are held in the Fund will not count, however, towards the
Contingency Period for purposes of the Contingent Deferred Sales Charge on Class
II shares. This privilege is not available to retirement plan assets that were
previously subject to a sales charge in another Franklin Templeton Fund.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
By Check 1. You may request redemption drafts (checks)
(Only available if there free of charge on the shareholder application
are no outstanding share or by calling TeleFACTS(R).
certificates for your
account) 2. You may make checks payable to any person and
in any amount of $100 or more. You will
continue to earn daily income dividends until
the check has cleared. Please see "More
Information About Selling Your Shares By
Check" below.
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by all
account owners
2. Include any outstanding share certificates for
the shares you are selling
3. Provide a signature guarantee if required
4. Corporate, partnership and trust accounts may
need to send additional documents. Accounts
under court jurisdiction may have additional
requirements.
- --------------------------------------------------------------------------------
By Wire 1. Complete the "Wire Redemption Privilege" section
(Only avaialable for of the shareholder application and send it to us.
requests over $1,000)
2. Call Shareholder Services
3. If we receive your request in proper form before
3:00 p.m. Pacific time, your wire payment will be
sent the next business day. You may have
redemption proceeds wired to an escrow account
the same day, if we receive your request
in proper form before 9:00 a.m. Pacific time.
- --------------------------------------------------------------------------------
By Phone Call Shareholder Services
(For requests over
$1,000, this option Telephone requests will be accepted:
is only available if
you have completed o If the request is $50,000 or less. Institutional
and sent to us the accounts may exceed $50,000 by completing a
telephone redemption separate agreement. Call Institutional Services
agreement included to receive a copy.
with this prospectus)
o If there are no share certificates issued for the
shares you want to sell or you have already
returned them to the Fund
METHOD STEPS TO FOLLOW
- --------------------------------------------------------------------------------
o Unless you are selling shares in a Trust Company
retirement plan account
o Unless the address on your account was changed by
phone within the last 30 days
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. If you sell your shares by phone, the check may only be
made payable to all registered owners on the account and sent to the address of
record. We are not able to receive or pay out cash in the form of currency.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
MORE INFORMATION ABOUT SELLING YOUR SHARES BY CHECK
The checks are drawn through Bank of America NT & SA (the "Bank"), the Fund's
custodian. The Bank may terminate this service at any time upon notice to you.
When a check is presented for payment, we will redeem an equivalent number of
shares in your account to cover the amount of the check. Your shares will be
redeemed at the Net Asset Value next determined after we receive a check that
does not exceed the collected balance in your account. If a check is presented
for payment that exceeds the collected balance in your account, the Bank may
return the check unpaid. Since you will not know the exact amount in your
account on the day a check clears, you should not use a check to close your
account.
You will generally not be able to convert a check drawn on your Fund account
into a certified or cashier's check by presenting it at the Bank. Because the
Fund is not a bank, we cannot assure that a stop payment order written by you
will be effective. We will use our best efforts, however, to see that these
orders are carried out.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS
To comply with IRS regulations, you need to complete additional forms before
selling shares in a Trust Company retirement plan account. Tax penalties
generally apply to any distribution from these plans to a participant under age
591/2, unless the distribution meets an exception stated in the Code. To obtain
the necessary forms, please call our Retirement Plans Department.
CONTINGENT DEFERRED SALES CHARGE
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated DOLLAR AMOUNT, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated NUMBER OF SHARES, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
WHAT DISTRIBUTIONS MIGHT I RECEIVE FROM THE FUND?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business the day before.
The daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. THE FUND DOES NOT PAY
"INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON AN INVESTMENT IN
ITS SHARES.
DIVIDEND OPTIONS
Dividends will automatically be reinvested each day in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business.
If you complete the "Special Payment Instructions for Dividends" section of the
shareholder application included with this prospectus, you may direct your
dividends to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
You may also choose to receive dividends in cash. If you have the money sent to
another person or to a checking account, you may need a signature guarantee. If
you send the money to a checking account, please see "Electronic Fund Transfers"
under "Services to Help You Manage Your Account." For Trust Company retirement
plans, special forms are required to receive distributions in cash.
If you choose one of these options, the dividends reinvested and credited to
your account during the month will be redeemed as of the close of business on
the last business day of the month and paid as directed on the shareholder
application. You may change your dividend option at any time by notifying us by
mail or phone. Please allow at least seven days for us to process the new
option.
TRANSACTION PROCEDURES AND SPECIAL REQUIREMENTS
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share at 3:00 p.m. Pacific time. To calculate Net Asset
Value per share, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The Fund's assets are valued as described under "How are
Fund Shares Valued?" in the SAI.
THE PRICE WE USE WHEN YOU BUY OR SELL SHARES
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund.
PROPER FORM
An order to buy shares is in proper form when we receive your signed shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
registered owners, with a signature guarantee if necessary. We must also receive
any outstanding share certificates for those shares.
Many of the Fund's investments, through the Portfolio, must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the Federal Reserve Bank of San Francisco and elsewhere. The Fund generally
cannot invest money received from you until it is converted into and is
available to the Fund in federal funds. Therefore, your purchase order may not
be considered in proper form until the money received from you is available in
federal funds, which may take up to two days. If the Fund is able to make
investments immediately (within one business day), it may accept your order with
payment in other than federal funds.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
SIGNATURE GUARANTEES
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. YOU SHOULD
VERIFY THAT THE INSTITUTION IS AN ELIGIBLE GUARANTOR PRIOR TO SIGNING. A
NOTARIZED SIGNATURE IS NOT SUFFICIENT.
SHARE CERTIFICATES
We will credit your shares to your Fund account. We do not issue share
certificates unless you specifically request them. This eliminates the costly
problem of replacing lost, stolen or destroyed certificates. If a certificate is
lost, stolen or destroyed, you may have to pay an insurance premium of up to 2%
of the value of the certificate to replace it.
Any outstanding share certificates must be returned to the Fund if you want to
sell or exchange those shares or if you would like to start a systematic
withdrawal plan. The certificates should be properly endorsed. You can do this
either by signing the back of the certificate or by completing a share
assignment form. For your protection, you may prefer to complete a share
assignment form. In this case, you should send the certificate and assignment
form in separate envelopes.
TELEPHONE TRANSACTIONS
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call
Shareholder Services.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal or other
identifying information, and will also record calls. For your protection, we may
delay a transaction or not implement one if we are not reasonably satisfied that
telephone instructions are genuine. If this occurs, we will not be liable for
any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
TRUST COMPANY RETIREMENT PLAN ACCOUNTS. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
JOINT OWNERSHIP. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
GIFTS AND TRANSFERS TO MINORS. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
TRUSTS. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
REQUIRED DOCUMENTS. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
CORPORATION Corporate Resolution
- --------------------------------------------------------------------------------
PARTNERSHIP 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
TYPE OF ACCOUNT DOCUMENTS REQUIRED
- --------------------------------------------------------------------------------
TRUST 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- --------------------------------------------------------------------------------
STREET OR NOMINEE ACCOUNTS. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
ELECTRONIC INSTRUCTIONS. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
TAX IDENTIFICATION NUMBER
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
KEEPING YOUR ACCOUNT OPEN
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $250. We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to $500.
SERVICES TO HELP YOU MANAGE YOUR ACCOUNT
AUTOMATIC INVESTMENT PLAN
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please refer to the automatic investment plan application
included with this prospectus or contact your investment representative. You may
discontinue the program at any time by notifying Investor Services by mail or
phone.
AUTOMATIC PAYROLL DEDUCTION
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
RIGHTS OF ACCUMULATION
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
SYSTEMATIC WITHDRAWAL PLAN
Our systematic withdrawal plan allows you to sell your shares and receive
regular payments from your account on a monthly, quarterly, semiannual or annual
basis. The value of your account must be at least $5,000 and the minimum payment
amount for each withdrawal must be at least $50. For retirement plans subject to
mandatory distribution requirements, the $50 minimum will not apply.
If you would like to establish a systematic withdrawal plan, call Shareholder
Services. You may choose to direct your payments to buy the same class of shares
of another Franklin Templeton Fund or have the money sent directly to you, to
another person, or to a checking account. If you choose to have the money sent
to a checking account, please see "Electronic Fund Transfers" below.
You will generally receive your payment by the fifth business day of the month
in which a payment is scheduled. When you sell your shares under a systematic
withdrawal plan, it is a taxable transaction.
You may discontinue a systematic withdrawal plan, change the amount and schedule
of withdrawal payments, or suspend one payment by notifying us in writing at
least seven business days before the end of the month preceding a scheduled
payment. Please see "How Do I Buy, Sell and Exchange Shares? - Systematic
Withdrawal Plan" in the SAI for more information.
ELECTRONIC FUND TRANSFERS
You may choose to have distributions from the Fund or payments under a
systematic withdrawal plan sent directly to a checking account. If the checking
account is with a bank that is a member of the Automated Clearing House, the
payments may be made automatically by electronic funds transfer. If you choose
this option, please allow at least fifteen days for initial processing. We will
send any payments made during that time to the address of record on your
account.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o exchange shares between identically registered Franklin accounts; and
o request duplicate statements, money fund checks, and deposit slips.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 111.
STATEMENTS AND REPORTS TO SHAREHOLDERS
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call Fund Information if you would like an
additional free copy of the Fund's financial reports or an interim quarterly
report.
INSTITUTIONAL ACCOUNTS
Additional methods of buying, selling or exchanging shares of the Fund may be
available to institutional accounts. For further information, call Institutional
Services.
Special procedures have been designed for banks and other institutions that
would like to open multiple accounts in the Fund. Please see the SAI for more
information.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you. Please contact your investment representative.
WHAT IF I HAVE QUESTIONS ABOUT MY ACCOUNT?
If you have any questions about your account, you may write to Investor Services
at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California 94403-7777.
The Fund, Distributors and Advisers are also located at this address. You may
also contact us by phone at one of the numbers listed below.
HOURS OF OPERATION (PACIFIC TIME)
DEPARTMENT NAME TELEPHONE NO. (MONDAY THROUGH FRIDAY)
- --------------------------------------------------------------------------------
Shareholder Services 1-800/632-2301 5:30 a.m. to 5:00 p.m.
Dealer Services 1-800/524-4040 5:30 a.m. to 5:00 p.m.
Fund Information 1-800/DIAL BEN 5:30 a.m. to 8:00 p.m.
(1-800/342-5236) 6:30 a.m. to 2:30 p.m. (Saturday)
Retirement Plans 1-800/527-2020 5:30 a.m. to 5:00 p.m.
Institutional Services 1-800/321-8563 6:00 a.m. to 5:00 p.m.
TDD (hearing impaired) 1-800/851-0637 5:30 a.m. to 5:00 p.m.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
USEFUL TERMS AND DEFINITIONS
1940 ACT - Investment Company Act of 1940, as amended
ADVISERS - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
BOARD - The Board of Directors of the Fund
CLASS I AND CLASS II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
CODE - Internal Revenue Code of 1986, as amended
CONTINGENCY PERIOD - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
CONTINGENT DEFERRED SALES CHARGE (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
DISTRIBUTORS - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Directors."
ELIGIBLE SECURITIES - The Portfolio limits its investments to U.S. dollar
denominated instruments that:
o The Board of Trustees of Money Market determines present minimal credit risks
o That are rated in one of the two highest rating categories by nationally
recognized statistical rating organizations, or that are unrated but of
comparable quality,
o Have remaining maturities of 397 calendar days or less
EXCHANGE - New York Stock Exchange
FRANKLIN FUNDS - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
FRANKLIN TEMPLETON FUNDS - The Franklin Funds and the Templeton Funds
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MARKET TIMER(S) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
NET ASSET VALUE (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
SECURITIES DEALER - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TELEFACTS(R) - Franklin Templeton's automated customer servicing system
TEMPLETON FUNDS - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
TRUST COMPANY - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
CHAIRMAN'S MESSAGE
Your Fund's Objective:
The Franklin 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 Money Market Portfolio (the Portfolio), which
has the same investment objective. The Portfolio, in turn, invests in various
money market instruments such as U.S. government securities and other U.S.
dollar-denominated securities. The fund attempts to maintain a stable net asset
value of $1.00 per share.1
August 15, 1996
Dear Shareholder:
We are pleased to bring you the Franklin Money Fund's annual report for the
period ended June 30, 1996.
Slow economic growth and mild inflation characterized most of the period under
review. Nearing the end of a two-year economic slowdown, the first seven months
of this fiscal year were distinctly different from the last five months. In an
attempt to stimulate economic activity, the Federal Reserve Board (Fed) cut its
federal funds rate (the interest rate banks charge each other for overnight
loans) from 6.00% to 5.75% in July 1995, then to 5.50% in December. Despite
these cuts, gross domestic product (GDP), a measure of the nation's economic
output, grew at an annual rate of only 0.3% in the fourth quarter of 1995.2 The
Fed once again lowered its federal funds rate in late January 1996 to 5.25%.
1. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution. There is no assurance that the
$1.00 per share price will be maintained.
GDP expanded at an annual rate of 2.0% during the first quarter of 1996,
however, following the release of surprisingly impressive employment reports.
Consumer confidence, industrial production, and employment figures, which are
three key indicators of future economic strength, surged through the end of the
reporting period. GDP increased at an estimated annual rate of 4.2% during the
second quarter of 1996.
Short-term market rates reflected this growth pattern. The 90-day Treasury bill
yield dropped from 5.57% on June 30, 1995, to 5.14% on March 30, 1996. Three
months later, this yield rose to 5.16%.3
Since we maintained a relatively short-weighted average maturity during the
reporting period (54 days on June 30, 1996), the fund's seven-day yield mirrored
movements in Treasury bill rates.The fund's seven-day yield began the period at
5.47%, declined to 4.70% on March 30, 1996, then rose to 4.76% on June 30, 1996.
We continue to invest in the highest quality securities 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 that we believe involve undue risk.
This discussion reflects the strategies we employed for the fund during the 12
months under review and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
2. Source for all GDP figures: U.S. Commerce Dept.
3. Source: Bloomberg.
Looking forward, lower unemployment rates and stronger business activity should
work to strengthen the economy. If economic growth continues at its current
pace, however, the Fed may raise short-term interest rates as it seeks to
prevent inflation from getting out of control.
As a Franklin Money Fund shareholder, you continue to benefit from convenient,
easy access to your money, and a high degree of credit safety. You can also
enjoy a wide range of services, including draft writing for amounts of $100 or
more, free draft books, and access to TeleFACTS(R), our around-the-clock
automated customer service line.
Thank you for your continued support of the Franklin Money Fund, and we look
forward to serving you in the years to come.
Sincerely,
Charles B. Johnson
Chairman
Franklin Money Fund
Performance Summary
- -----------------------------------------------------
Franklin Money Fund
June 30, 1996
Seven-day annualized yield 4.65%
Seven-day effective yield* 4.76%
- -----------------------------------------------------
*The seven-day effective yield assumes the compounding of daily dividends, and
reflects fluctuations in interest rates on portfolio investments, as well as
fund expenses. Yields should be viewed in terms of the current, low rate of
inflation--just as high inflation usually results in higher yields, low
inflation often results in lower yields. Past performance is not predictive of
future results.
Franklin Advisers, Inc., the fund's administrator and the manager of the fund's
underlying portfolio, has agreed in advance to waive a portion of its fees,
which reduces expenses and increases yield to shareholders. Without these
reductions, the fund's yield would have been lower. The fee waiver may be
discontinued at any time upon notice to the fund's Board of Directors.
FRANKLIN MONEY FUND
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
<S> <C> <C>
Mutual Funds 100.1%
$1,173,771,347 The Money Market Portfolio (Note 1) ......................................... $1,173,771,347
-------------
Total Investments (Cost $1,173,771,347) 100.1% ................... 1,173,771,347
Liabilities in Excess of Other Assets (.1)% ...................... (1,132,723)
-------------
Net Assets 100.0% ................................................ $1,172,638,624
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
The accompanying notes are an integral part of these financial statements.
FRANKLIN MONEY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1996
Assets:
Investment in securities, at value and cost $1,173,771,347
--------------
Total assets 1,173,771,347
--------------
Liabilities:
Payables:
Capital shares repurchased 346,184
Administration fees 292,197
Shareholder servicing costs 174,936
Accrued expenses and other liabilities 319,406
--------------
Total liabilities 1,132,723
--------------
Net assets (equivalent to $1.00 per share
based on 1,172,638,624 shares of capital
stock outstanding) $1,172,638,624
==============
Statement of Operations
for the year ended June 30, 1996
Investment income:
Dividends $60,297,195
Expenses:
Administration fees (Note 5) $3,351,257
Shareholder servicing costs
(Note 5) 2,024,331
Reports to shareholders 934,296
Registration fees 142,065
Directors' fees and expenses 81,425
Professional fees 20,347
Other 24,473
--------------
Total expenses 6,578,194
--------------
Net investment income $53,719,001
==============
Statements of Changes in Net Assets
for the year ended June 30, 1996
and the seven months ended June 30, 1995
Seven Months
Year Ended Ended
June 30, 1996 June 30, 1995
-------------- --------------
Increase (decrease)
in net assets:
Operations:
Net investment income $ 53,719,001 $ 31,252,091
Distributions to
shareholders from
net investment income (53,719,001) (31,252,091)
Increase (decrease)
in net assets from
capital share trans-
actions (Note 2) 153,672,341 (105,256,444)
-------------- --------------
Net increase
(decrease) in
net assets 153,672,341 (105,256,444)
Net assets (there is
no undistributed net
investment income
at beginning or end
of period):
Beginning of
period 1,018,966,283 1,124,222,727
-------------- --------------
End of period $1,172,638,624 $1,018,966,283
============== ==============
The accompanying notes are an integral part of these financial statements.
FRANKLIN MONEY FUND
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Money Fund (the Fund) is a no-load, open-end, diversified management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Fund's investment objectives are high current income
consistent with capital preservation and liquidity.
The Fund invests substantially all of its assets in The Money Market Portfolio
(the Portfolio), which is a no-load, open-end, diversified management investment
company having the same investment objectives as the Fund. The financial
statements of the Portfolio, including the Statement of Investments in
Securities and Net Assets, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
On December 13, 1994, the Board of Directors authorized a change in the fiscal
year end of the Fund from November 30 to June 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
The Fund holds Portfolio shares that are valued at its proportionate interest in
the net asset value of the Portfolio. As of June 30, 1996, the Fund owns 75.72%
of the Portfolio.
b. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and any changes in unrealized portfolio
appreciation or depreciation.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distribution (as defined above),
and are payable to shareholders of record as of the close of business the
preceding day. Such distributions are automatically reinvested daily in
additional shares of the Fund at net asset value.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At June 30, 1996, there were 5,000,000,000 shares of $.10 par value capital
stock authorized. Transactions in the Fund's shares at $1.00 per share were as
follows:
<TABLE>
<CAPTION>
Seven Months
Year Ended Ended
June 30, 1996 June 30, 1995
------------ ------------
<S> <C> <C>
Shares sold..................................... $ 2,415,077,056 $ 1,532,810,434
Shares issued in reinvestment of distributions.. 53,666,653 31,240,837
Shares redeemed................................. (2,315,071,368) (1,669,307,715)
------------ ------------
Net increase (decrease)......................... $ 153,672,341 $ (105,256,444)
============ ============
</TABLE>
3. CAPITAL LOSS CARRYOVERS
At June 30, 1996, for tax purposes, the Fund had capital loss carryovers as
follows:
Capital loss carryovers expiring in: 2001........ $ 763
2002........ 4,038
------
$4,801
======
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended June 30, 1996 aggregated
$751,298,456 and $596,218,424, respectively.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Administration Agreement:
Under the terms of an administration agreement, Franklin Advisers, Inc.
(Advisers), provides various administrative, statistical, and other services,
and receives fees computed monthly based on the average daily net assets of the
Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------ -------------------------------------------------
0.455% First $100 million
0.330% Over $100 million, up to and including $250 million
0.280% Over $250 million
The terms of the administration agreement provide that aggregate annual expenses
of the Fund be limited to the extent necessary to comply with the limitations
set forth in the laws, regulations and administrative interpretations of the
states in which the Fund's shares are registered. For the year ended June 30,
1996, the Fund's expenses did not exceed these limitations.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the year ended June 30, 1996 aggregated $2,024,331, of which $2,012,261 was paid
to Investor Services.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Other Affiliates and Related Party Transactions:
Certain officers and directors of the Fund are also officers and/or directors of
Advisers, Investor Services (all wholly-owned subsidiaries of Franklin
Resources, Inc.), and of the Portfolio.
6. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period are
as follows:
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended November 30,
----------------- --------------------------
1996 1995+++ 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value at beginning of period .............. $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- --------
Net investment income ............................... .049 .030 .032 .023 .031
Distributions from net investment income ............ (.049) (.030) (.032) (.023) (.031)
-------- -------- -------- -------- --------
Net asset value at end of period .................... $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Total Return* ....................................... 4.99% 3.07% 3.28% 2.36% 3.12%
Ratios/Supplemental Data
Net assets at end of period (in 000's) .............. $1,172,639 $1,018,966 $1,124,223 $1,040,026 $1,101,571
Ratio of expenses to average net assets++ ........... .75%** .80%+** .91** .80% .79%
Ratio of net investment income
to average net assets .............................. 4.86% 5.19%+ 3.23% 2.32% 3.08%
</TABLE>
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at net asset value.
+Annualized
++Effective with fiscal year 1994, the expense ratio includes the Fund's share
of the Portfolio's allocated expenses.
+++For the seven months ended June 30, 1995.
**Advisers agreed in advance to waive a portion of its management fees incurred
by the Portfolio during the periods indicated and a portion of its
administration fees incurred by the Fund for 1994 and 1995. Had such action not
been taken, the Fund's ratio of expenses to average net assets would have been
as follows:
Ratio of
Expenses
to Average
Net Assets++
--------------
1994............................................ .93%
1995+++......................................... .82%+
1996............................................ .76%
FRANKLIN MONEY FUND
Report of Independent Auditors
To the Shareholders and Board of Directors
of Franklin Money Fund
We have audited the accompanying statement of assets and liabilities of Franklin
Money Fund, including the statement of investments in securities and net assets,
as of June 30, 1996, 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, 1996. 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
Franklin Money Fund as of June 30, 1996, and 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.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 6, 1996
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount The Money Market Portfolio (Note 1)
<S> <C> <C>
aShort Term Investments 90.5%
Bank Notes .6%
$ 10,000,000 Bank of America NT & SA, 5.45%, 09/18/96 (Cost $9,999,766) .................... $ 9,999,766
-------------
Certificates of Deposit 22.3%
65,000,000 Bank of Nova Scotia, Portland Branch, 5.035% - 5.58%, 07/05/96 - 01/24/97 ..... 64,999,984
35,000,000 Bayerische Landesbank, New York Branch, 5.06% - 5.36%, 07/08/96 - 07/10/96 .... 35,000,141
25,000,000 Commerzbank, AG, New York Branch, 5.37%, 09/06/96 ............................. 25,000,459
25,000,000 Credit Suisse, New York Branch, 5.35%, 09/13/96 ............................... 25,000,506
15,000,000 Dresdner Bank, AG, New York Branch, 4.94%, 01/06/97 ........................... 14,948,167
20,000,000 Lloyds Bank, Plc., New York Branch, 5.70%, 09/11/96 ........................... 20,000,378
25,000,000 National Westminster Bank, New York Branch, 5.50%, 09/12/96 ................... 25,000,000
20,000,000 Rabobank Nederland, NV, New York Branch, 5.37%, 09/09/96 ...................... 20,000,380
20,000,000 Royal Bank of Canada, New York Branch, 5.02%, 08/01/96 ........................ 20,000,313
75,000,000 Societe Generale, New York Branch, 5.36% - 5.51%, 08/15/96 - 10/09/96 ......... 75,000,381
20,000,000 Westpac Banking Corp., New York Branch, 5.36%, 09/05/96 ....................... 20,000,000
-------------
Total Certificates of Deposit (Cost $344,950,709)........................ 344,950,709
-------------
Commercial Paper 67.6%
20,000,000 ABN AMRO North America Finance, Inc., 4.975%, 08/26/96 ........................ 19,845,222
20,000,000 AIG Funding, Inc., 5.39%, 09/23/96 ............................................ 19,748,465
60,000,000 American Express Credit Corp., 4.88% - 5.28%, 07/22/96 - 08/20/96 ............. 59,694,249
20,000,000 ANZ (DE), Inc., 5.27%, 08/29/96 ............................................... 19,827,261
65,000,000 Associates Corp. of North America, 5.27% - 5.28%, 07/01/96 - 09/03/96 ......... 64,621,600
65,000,000 AT&T Corp., 4.91% - 5.30%, 07/19/96 - 09/20/96 ................................ 64,555,765
30,000,000 BBV Finance, Inc., 5.32% - 5.39%, 08/07/96 - 09/16/96 ......................... 29,775,358
60,000,000 Canadian Imperial Holdings, Inc., 5.27% - 5.44%, 07/02/96 - 09/16/96 .......... 59,570,954
35,000,000 Cheltnham & Gloucester Building Society, 5.33% - 5.38%, 09/09/96 - 09/25/96 ... 34,599,939
65,000,000 CIESCO, L.P., 5.27% - 5.29%, 07/25/96 - 08/28/96 .............................. 64,623,425
35,000,000 Den Danske Corp., Inc., 5.27% - 5.275%, 07/22/96 - 08/30/96 ................... 34,749,467
65,000,000 General Electric Capital Corp., 5.27% - 5.31%, 07/31/96 - 08/12/96 ............ 64,651,476
65,000,000 Generale Bank, Inc., 5.07% - 5.31%, 07/11/96 - 08/14/96 ....................... 64,683,717
40,000,000 Halifax Building Society, 4.88% - 5.26%, 08/08/96 - 09/26/96 .................. 39,642,745
40,000,000 Metlife Funding, Inc., 5.28% - 5.40%, 08/26/96 - 10/01/96 ..................... 39,555,755
40,000,000 National Rural Utilities Cooperative Finance Corp., 5.28% - 5.39%,
08/16/96 - 09/18/96 ......................................................... 39,628,506
15,245,000 PepsiCo, Inc., 5.38%, 09/25/96 ................................................ 15,049,068
75,000,000 Prudential Funding Corp., 5.27% - 5.32%, 07/30/96 - 09/10/96 .................. 74,463,990
55,350,000 Schering Corp., 5.31% - 5.38%, 08/27/96 - 10/03/96 ............................ 54,664,248
65,000,000 Svenska Handelsbanken, Inc., 5.29% - 5.40%, 07/15/96 - 09/17/96 ............... 64,522,195
20,000,000 Toronto Dominion Holdings USA, Inc., 5.28%, 08/21/96 .......................... 19,850,400
40,000,000 Toyota Motor Credit Corp., 5.38% - 5.39%, 09/19/96 - 10/01/96 ................. 39,485,466
Commercial Paper (cont.)
$ 20,000,000 Westpac Capital Corp., 5.27%, 07/29/96 ........................................ $ 19,918,021
40,119,000 Wool International, 4.90% - 5.30%, 07/12/96 - 08/23/96 ........................ 39,932,821
-------------
Total Commercial Paper (Cost $1,047,660,113)............................. 1,047,660,113
-------------
Total Investments before Repurchase Agreements
(Cost $1,402,610,588)................................................... 1,402,610,588
-------------
bReceivables from Repurchase Agreements 9.3%
79,993,000 J.P. Morgan Securities, Inc., 5.42%, 07/01/96 (Maturity Value $74,133,469)
Collateral: U.S. Treasury Bills, 06/26/97 .................................... 74,100,000
69,620,000 Morgan Stanley & Co., Inc., 5.35%, 07/01/96 (Maturity Value $70,031,208)
Collateral: U.S. Treasury Notes, 6.875%, 02/28/97 ............................ 70,000,000
-------------
Total Receivables from Repurchase Agreements (Cost $144,100,000)......... 144,100,000
-------------
Total Investments (Cost $1,546,710,588) 99.8%....................... 1,546,710,588
Other Assets and Liabilities, Net .2%............................... 3,374,659
-------------
Net Assets 100.0% .................................................. $1,550,085,247
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.P. - Limited Partnership
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount The U.S. Government Securities Money Market Portfolio (Note 1)
<S> <C> <C>
aShort Term Government Securities100.1%
Government Securities 17.3%
$ 50,000,000 U.S. Treasury Bills, 4.75% - 5.14%, 08/08/96 - 12/12/96 (Cost $49,361,211) ..................... $ 49,361,211
-------------
bReceivables from Repurchase Agreements 82.8%
11,690,000 B.A. Securities, Inc., 5.40%, 07/01/96 (Maturity Value $12,005,400)
Collateral: U.S. Treasury Notes, 8.00%, 01/15/97 .............................................. 12,000,000
12,530,000 B.T. Securities Corp., 5.42%, 07/01/96 (Maturity Value $12,005,420)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01 .............................................. 12,000,000
11,509,000 Barclays de Zoete Wedd Securities, Inc., New York, 5.35%, 07/01/96
(Maturity Value $12,005,350)
Collateral: U.S. Treasury Notes, 7.875%, 01/15/98 ............................................. 12,000,000
12,185,000 Chase Securities, Inc., 5.40%, 07/01/96 (Maturity Value $12,005,400)
Collateral: U.S. Treasury Notes, 6.125%, 05/31/97 ............................................. 12,000,000
12,120,000 Citicorp Securities, Inc., 5.50%, 07/01/96 (Maturity Value $12,005,500)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97 .............................................. 12,000,000
12,195,000 Merrill Lynch Government Securities, Inc., 5.20%, 07/01/96
(Maturity Value $12,005,200)
Collateral: U.S. Treasury Notes, 5.875%, 04/30/98 ............................................. 12,000,000
18,201,000 J.P. Morgan Securities, Inc., 5.32%, 07/01/96 (Maturity Value $17,507,758)
Collateral: U.S. Treasury Bills, 11/07/96 ..................................................... 17,500,000
57,501,000 J.P. Morgan Securities, Inc., 5.42%, 07/01/96 (Maturity Value $55,024,842)
Collateral: U.S. Treasury Bills, 12/12/96 ..................................................... 55,000,000
68,530,000 Morgan Stanley & Co., Inc., 5.35%, 07/01/96 (Maturity Value $68,015,310)
Collateral: U.S. Treasury Bills, 09/12/96
U.S. Treasury Notes, 5.75% - 11.75%, 09/30/96 - 02/15/01........................... 67,985,000
12,506,000 SBC Capital Markets, Inc., 5.47%, 07/01/96 (Maturity Value $12,005,470)
Collateral: U.S. Treasury Notes, 5.125%, 11/30/98 ............................................. 12,000,000
11,507,000 UBS Securities, Inc., 5.43%, 07/01/96 (Maturity Value $12,005,430)
Collateral: U.S. Treasury Notes, 8.125%, 02/15/98 ............................................. 12,000,000
-------------
Total Receivables from Repurchase Agreements (Cost $236,485,000).......................... 236,485,000
-------------
Total Investments (Cost $285,846,211) 100.1% ........................................ $285,846,211
Liabilities in Excess of Other Assets (.1)% ......................................... (145,107)
-------------
Net Assets 100.0%.................................................................... $285,701,104
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
June 30, 1996
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
----------- -----------
Assets:
Investment in securities,
at value and cost $1,402,610,588 $ 49,361,211
Receivables from
repurchase agree-
ments, at value
and cost 144,100,000 236,485,000
Cash 3,626 --
Receivables:
Interest 4,328,950 106,080
From affiliates 6,003 19,602
----------- -----------
Total assets 1,551,049,167 285,971,893
----------- -----------
Liabilities:
Payables:
Capital shares
repurchased 767,784 233,906
Management fees 170,313 29,565
Accrued expenses and
other liabilities 25,823 7,318
----------- -----------
Total liabilities 963,920 270,789
----------- -----------
Net assets, at value $1,550,085,247 $285,701,104
=========== ===========
Shares outstanding 1,550,085,247 285,701,104
=========== ===========
Net asset value per share $1.00 $1.00
=========== ===========
Statements of Operations
for the year ended June 30, 1996
The The U.S.
Money Government
Market Securities Money
Portfolio Market Portfolio
--------- -----------
Investment income:
Interest $81,172,665 $18,038,015
--------- -----------
Expenses:
Management fees
(Note 5a) 2,162,519 484,382
Professional fees 44,663 8,889
Custodian fees 26,784 22,841
Reports to shareholders 27,241 5,685
Trustees' fees and
expenses 7,447 10,769
Other 21,476 10,049
Management fees
waived by manager (128,505) (59,534)
--------- -----------
Total expenses 2,161,625 483,081
--------- -----------
Net investment
income 79,011,040 17,554,934
--------- -----------
Net realized gain on
investments -- 683
--------- -----------
Net increase in net
assets resulting from
operations $79,011,040 $17,555,617
========= ===========
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
The U.S. Government Securities
The Money Market Portfolio Money Market Portfolio
------------------------ -----------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................ $ 79,011,040 $ 65,941,077 $ 17,554,934 $ 22,234,614
Net realized gain from security transactions. -- 1,356 683 392
----------- ------------ ----------- -----------
Net increase in net assets resulting from
operations................................... 79,011,040 65,942,433 17,555,617 22,235,006
Distributions to shareholders from undistributed
net investment income........................ (79,011,040) (65,942,433)a (17,555,617)b (22,235,006)c
Increase (decrease) in net assets from capital
share transactions (Note 2).................. 244,510,834 1,086,385,190 (188,953,282) 256,106,321
----------- ------------ ----------- -----------
Net increase (decrease) in net assets......... 244,510,834 1,086,385,190 (188,953,282) 256,106,321
Net assets (there is no undistributed net
investment income at beginning or end
of the year):
Beginning of year........................... 1,305,574,413 219,189,223 474,654,386 218,548,065
----------- ------------ ----------- -----------
End of year................................. $1,550,085,247 $1,305,574,413 $285,701,104 $474,654,386
=========== ============ =========== ===========
</TABLE>
aDistributions were increased by a net realized gain from security transactions
of $1,356.
bDistributions were increased by a net realized gain from security transactions
of $683.
cDistributions were increased by a net realized gain from security transactions
of $392.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (the Money Market) is a no load, open-end,
diversified management investment company (mutual fund), registered under the
Investment Company Act of 1940, as amended. The Money Market has two portfolios
(the Portfolios) consisting of The Money Market Portfolio and The U.S.
Government Securities Money Market Portfolio. The portfolio's investment
objectives are high current income consistent with capital preservation and
liquidity. Each of the Portfolios issues a separate series of shares and
maintains a totally separate and distinct investment portfolio. The shares of
the Money Market are issued in private placements and are thus exempt from
registration under the Securities Act of 1933.
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuations:
Securities in the Portfolios are valued at amortized cost, which approximates
value. Each of the Portfolios must maintain a dollar weighted average maturity
of 90 days or less and only purchase instruments having remaining maturities of
397 days or less. If a Portfolio has a remaining weighted average maturity of
greater than 90 days, the Portfolio will be stated at value based on recorded
closing sales on a national securities exchange or, in the absence of a recorded
sale, within the range of the most recent quoted bid and asked prices. The
trustees have established procedures designed to stabilize, to the extent
reasonably possible, each Portfolio's price per share as computed for the
purpose of sales and redemptions at $1.00.
b. Income Taxes:
Each Portfolio intends to continue to qualify for the tax treatment applicable
to regulated investment companies under the Internal Revenue Code and to make
the requisite distributions to their shareholders which will be sufficient to
relieve it from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis,
amortization of original issue and market discount or premium, if any, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and changes in unrealized portfolio
appreciation or depreciation, if any.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distributions (as defined above),
and are payable to shareholders of record as of the close of business that day.
Such distributions are automatically reinvested daily in additional shares of
the Portfolio at net asset value.
e. Expense Allocation:
Common expenses incurred by the Money Market are allocated among the Portfolios
based on the ratio of net assets of each Portfolio to the combined net assets.
In all other respects, expenses are charged to each Portfolio as incurred on a
specific identification basis.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. 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.
g. Repurchase Agreements:
The Portfolios may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the joint repurchase agreement are
allocated to the Portfolios based on their pro rata interest.
A repurchase agreement is accounted for as a loan by the Portfolios to the
seller, collateralized by underlying U.S. government 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, 1996, all outstanding repurchase agreements held by the Portfolios had been
entered into on June 28, 1996.
2. TRUST SHARES
Transactions in each of the Portfolio's shares at $1.00 per share were as
follows:
<TABLE>
<CAPTION>
The U.S. Government
The Money Securities Money
Market Portfolio Market Portfolio
------------ -------------
<S> <C> <C>
1996
Shares sold................................................................. $2,507,821,633 $ 824,267,024
Shares issued in reinvestment of distributions.............................. 79,019,113 17,555,181
Shares redeemed............................................................. (2,342,329,912) (1,030,775,487)
------------ -------------
Net increase (decrease)..................................................... $ 244,510,834 $ (188,953,282)
============ =============
1995
Shares sold................................................................. $ 2,811,245,134 $ 2,270,754,653
Shares issued in reinvestment of distributions.............................. 65,932,187 22,235,271
Shares redeemed............................................................. (2,923,489,920) (2,175,508,395)
Shares issued in connection with assets transfer (Note 6)................... 1,132,697,789 138,624,792
------------ -------------
Net increase................................................................ $ 1,086,385,190 $ 256,106,321
============ =============
</TABLE>
3. CAPITAL LOSS CARRYOVERS
At June 30, 1996, for tax purposes, The Money Market Portfolio had an
accumulated net realized capital loss carryover expiring in year 2002 of $3,790.
For tax purposes, the aggregate cost of securities are the same for financial
statement purposes at June 30, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales/maturities of securities, including repurchase agreements,
for the year ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
The U.S. Government
The Money Securities Money
Market Portfolio Market Portfolio
------------ -------------
<S> <C> <C>
Purchases................................................................... $60,355,427,309 $62,680,289,047
Sales....................................................................... $60,113,260,920 $62,869,560,372
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers)
provides investment advice, administrative services, office space and facilities
to the Portfolios, and receives fees computed monthly based on the average daily
net assets of the Portfolios during the month. The Portfolios pay fees equal to
an annualized rate of 15/100 of 1% of their daily net assets. For the year ended
June 30, 1996, the Portfolios expenses did not exceed these limitations.
However, Advisers agreed in advance to waive management fees and assume payment
of other expenses, as noted in the Statements of Operations.
b. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Portfolios are also officers and/or
directors of Advisers and Investor Services (all wholly-owned subsidiaries of
Franklin Resources, Inc.).
6. ASSET TRANSFER
On August 1, 1994, the Franklin Money Fund and the Franklin Federal Money Fund
transferred substantially all of their assets, respectively, into The Money
Market Portfolio and The U.S. Government Securities Money Market Portfolio. The
transfers were accompanied by a tax-free exchange of 1,132,697,789 capital
shares of The Money Market Portfolio for net assets valued at $1,132,697,789 of
the Franklin Money Fund and 138,624,792 capital shares of The U.S. Government
Securities Money Market Portfolio for net assets valued at $138,624,792 of the
Franklin Federal Money Fund.
As of June 30,1996, 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............................................................. 1,173,771,347 75.72%
Institutional Fiduciary Trust - Money Market Portfolio.......................... 341,314,800 22.02%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund..................... 30,405,256 1.96%
Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund II.......... 4,593,844 0.30%
</TABLE>
As of June 30,1996, 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.. 152,155,022 53.26%
Franklin Federal Money Fund................................................................. 133,546,082 46.74%
</TABLE>
7. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------ ---------------------------
Net Asset Distributions Net Assets Ratio of Ratio of Net
Year Values at Net From Net Net Asset at End Expenses Income
Ended Beginning Investment Investment Values at Total of Period to Average to Average
June 30 of Period Income Income End of Period Return+ (in 000's) Net Assets++ Net Assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Money Market Portfolio
1993* $1.00 $0.027 $(0.027) $1.00 2.92%** $ 222,358 0.15%** 3.18%**
1994 1.00 0.033 (0.033) 1.00 3.33 219,189 0.15 3.25
1995 1.00 0.053 (0.053) 1.00 5.46 1,305,574 0.15 5.42
1996 1.00 0.055 (0.055) 1.00 5.66 1,550,085 0.15 5.50
The U.S. Government Securities Money Market Portfolio
1993* 1.00 0.021 (0.021) 1.00 2.27** 310,319 0.15** 3.05**
1994 1.00 0.032 (0.032) 1.00 3.25 218,548 0.15 3.20
1995 1.00 0.052 (0.052) 1.00 5.32 474,654 0.15 5.25
1996 1.00 0.054 (0.054) 1.00 5.55 285,701 0.15 5.45
</TABLE>
*July 28, 1992 (Effective date of registration) to June 30, 1993.
**Annualized
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized (except as noted). It assumes reinvestment of
dividends and capital gains at net asset value.
++Advisers agreed in advance to waive a portion of its management fees of the
Portfolios during the periods indicated. Had such action not been taken, the
ratios of expenses to average net assets would have been as follows:
Ratio of Expenses to
Average Net Assets
-----------
The Money Market Portfolio
1993*...................................... .17%**
1994....................................... .17
1995....................................... .16
1996....................................... .16
The U.S. Government Securities
Money Market Portfolio
1993*...................................... .18**
1994....................................... .17
1995....................................... .16
1996....................................... .17
THE MONEY MARKET PORTFOLIOS
Report of Independent Auditors
To the Shareholders and Board of Trustees
The Money Market Portfolios
We have audited the accompanying statements of assets and liabilities of the two
portfolios comprising The Money Market Portfolios, including each Portfolio's
statement of investments in securities and net assets, as of June 30, 1996, and
the related statements of operations for the year them ended, the statements of
changes in net assets and the financial highlights for each of the periods
presented thereon. These financial statements and financial highlights for each
of the two years in the period then ended 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, 1996, 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
two Portfolios comprising The Money Market Portfolios as of June 30, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 6, 1996
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
TEMPLETON INCOME TRUST
(THE "TRUST")
SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 31, 1996
TEMPLETON MONEY FUND THE UNDERSIGNED HEREBY REVOKES ALL PREVIOUS PROXIES
PROXY SERVICES FOR HIS SHARES AND APPOINTS BARBARA J. GREEN, JAMES R.
P.O. BOX 9156 BAIO, AND JOHN K. CARTER, AND EACH OF THEM, PROXIES OF
FARMINGDALE, NY 11735 THE UNDERSIGNED WITH FULL POWER OF SUBSTITUTION TO VOTE
ALL SHARES OF TEMPLETON MONEY WHICH THE UNDERSIGNED IS
ENTITLED TO VOTE AT THE TRUST'S SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD AT THE OFFICES OF TEMPLETON MONEY
FUND'S BUSINESS MANAGER AT 500 EAST BROWARD BLVD., FORT
LAUDERDALE, FLORIDA 33394-3091 AT 10:00 A.M. LOCAL TIME
ON THE 31ST DAY OF DECEMBER, 1996, INCLUDING ANY
ADJOURNMENTS THEREOF, UPON SUCH BUSINESS AS MAY LEGALLY
BE BROUGHT BEFORE THE MEETING.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
TRUSTEES. IT WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE, THIS PROXY SHALL BE VOTED IN
FAVOR OF PROPOSAL NO. 1 AND WITHIN THE DISCRETION OF THE
PROXYHOLDERS AS TO ITEM 2.
PLEASE SIGN AND PROMPTLY RETURN IN THE ACCOMPANYING
ENVELOPE. NO POSTAGE REQUIRED IF MAILED IN THE U.S.
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THE PROXY. IF SIGNING FOR
ESTATES, TRUSTS, OR CORPORATIONS, TITLE OR CAPACITY SHOULD BE STATED. IF SHARES
ARE HELD JOINTLY, EACH HOLDER MUST SIGN.
IMPORTANT
PLEASE SEND IN YOUR PROXY TODAY!
YOU ARE URGED TO DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY. THIS WILL SAVE
THE EXPENSE OF FOLLOW-UP LETTERS TO SHAREHOLDERS WHO HAVE NOT RESPONDED.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS [X]
TEMPMF KEEP THIS PORTION FOR YOUR RECORDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
TEMPLETON INCOME TRUST
TEMPLETON MONEY FUND
VOTE ON PROPOSALS FOR AGAINST ABSTAIN
1. TO APPROVE AN AGREEMENT AND PLAN OF
COMPLETE LIQUIDATION BETWEEN TEMPLETON
INCOME TRUST, ON BEHALF OF TEMPLETON MONEY
FUND ("TEMPLETON MONEY") AND FRANKLIN MONEY
FUND ("MONEY FUND")THAT PROVIDES FOR THE
ACQUISITION OF SUBSTANTIALLY ALL OF THE
ASSETS OF TEMPLETON MONEY IN EXCHANGE FOR
SHARES OF FRANKLIN MONEY, THE DISTRIBUTION
OF SUCH SHARES TO THE SHAREHOLDERS OF
TEMPLETON MONEY, AND THE LIQUIDATION AND
DISSOLUTION OF TEMPLETON MONEY.
2. IN THEIR DISCRETION, THE PROXYHOLDERS
ARE AUTHORIZED TO VOTE UPON SUCH OTHER
MATTERS WHICH MAY LEGALLY COME BEFORE THE
MEETING OR ANY ADJOURNMENT THEREOF.
____________________ ________________________ ___________
Signature Signature (Joint Owners) Date
MF STKSAo
STATEMENT OF ADDITIONAL INFORMATION
FOR
FRANKLIN MONEY FUND
This Statement of Additional Information relates specifically to the
proposed delivery of substantially all of the assets of the Templeton Money Fund
series of Templeton Income Trust to and in exchange for shares of Franklin Money
Fund ("Franklin Money").
This Statement of Additional Information consists of this Cover Page, a
Statement of Additional Information dated November 1, 1996 relating to the
Prospectus of Franklin Money, which Prospectus is included as Exhibit B to the
Proxy Statement/Prospectus dated November 15, 1996, and a copy of Franklin
Money's Annual Report which includes audited financial statements for the fiscal
year ended June 30, 1996. Also included is a copy of Templeton Money Fund's
Annual Report which includes audited financial statements for the fiscal year
ended August 31, 1996.
This Statement of Additional Information is not a Prospectus; a Proxy
Statement/Prospectus dated November 15, 1996, relating to the above-referenced
transaction may be obtained from Templeton Income Trust, 700 Central Avenue, St.
Petersburg, Florida 33701-3628, 1-800/DIAL BEN and Franklin Money at 777
Mariners Island Boulevard, P. O. Box 7777, San Mateo, California 94403-7777,
1-800/DIAL BEN. This document should be read in conjunction with such Proxy
Statement/Prospectus. The date of this Statement of Additional Information is
November 15, 1996.
FRANKLIN
MONEY
FUND
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
NOVEMBER 1, 1996
- --------------------------------------------------------------------------------
Contents Page
How does the Fund Invest its Assets? ............. 2
Investment Restrictions .......................... 2
Officers and Directors ........................... 3
Investment Management and
Other Services .................................. 7
How does the Portfolio Buy
Securities for its Portfolio? ................... 9
How Do I Buy, Sell and
Exchange Shares? ................................ 9
How are Fund Shares Valued? ...................... 11
Additional Information on
Distributions and Taxes ......................... 11
The Fund's Underwriter ........................... 13
How does the Fund
Measure Performance? ............................ 13
Miscellaneous Information......................... 14
Financial Statements ............................. 15
Useful Terms and Definitions ..................... 15
Appendices
Summary of Procedures to
Monitor Conflicts of Interest .................. 15
Description of Ratings .......................... 16
- --------------------------------------------------------------------------------
When reading this SAI, you will see certain terms that are capitalized. This
means the term is explained under "Useful Terms and Definitions."
- --------------------------------------------------------------------------------
The Franklin Money Fund (the "Fund") is a no-load, diversified open-end
management investment company. The Fund's investment objective is to obtain as
high a level of current income (in the context of the type of investments
available to the Fund) as is consistent with capital preservation and liquidity.
The Fund seeks to achieve its objective by investing all of its assets in shares
of The Money Market Portfolio (the "Portfolio"). The Portfolio in turn invests
primarily in various types of money market instruments, such as U.S. government
and federal agency obligations, certificates of deposit, bankers' acceptances,
time deposits of major financial institutions, high grade commercial paper, high
grade short-term corporate obligations, taxable municipal securities, and
repurchase agreements (secured by U.S. government securities). The Portfolio is
a series of The Money Market Portfolios ("Money Market"). Its investment
objective is the same as the Fund's.
The Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/DIAL BEN or write the Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
- --------------------------------------------------------------------------------
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
O ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT; O ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK; O ARE SUBJECT
TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
111 SAI 11/96
HOW DOES THE FUND INVEST ITS ASSETS?
- --------------------------------------------------------------------------------
The following provides more detailed information about some of the securities
the Portfolio may buy and its investment policies. You should read it together
with the section in the Prospectus entitled "How does the Fund Invest its
Assets?"
The investment policies of the Fund, fundamental and nonfundamental, are
identical to those described below for the Portfolio except, in all cases, the
Fund may pursue its policies by investing in an open-end management investment
company with the same investment objective and substantially similar policies
and restrictions as the Fund.
The achievement of the Portfolio's objective will depend on market conditions
generally and on Advisers' analytical and portfolio management skills. It should
also be noted that because the Portfolio is limiting its investments to high
quality securities, there will be a generally lower yield than if the Portfolio
purchased securities with a lower rating and correspondingly greater risk. The
value of the securities held will fluctuate inversely with interest rates, and
therefore there is no assurance that the Portfolio's, and thus the Fund's
objective will be achieved.
In addition, because of short-term variations in market or business conditions,
management's revised evaluation of a portfolio security, or the need to obtain
cash to meet redemptions, the Portfolio may sell portfolio securities prior to
maturity. The Portfolio may also invest in deposits fully insured by the U.S.
government or its agencies or instrumentalities. Such deposits may include
deposits in banking and savings institutions up to the limit (currently $100,000
per depository) of the insurance on principal provided by the Federal Deposit
Insurance Corporation. Such deposits are frequently combined in larger units by
an intermediate bank or other institution.
When-Issued or Delayed-Delivery Transactions. When the Portfolio is the buyer in
the transaction, it will keep in a segregated account with its custodian bank,
cash or high-grade marketable securities having an aggregate value equal to the
amount of the purchase commitments until payment is made. To the extent the
Portfolio engages in when-issued and delayed-delivery transactions, it will do
so for the purpose of acquiring securities for its portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.
Loans of Portfolio Securities. The Portfolio may make loans of its portfolio
securities in accordance with guidelines adopted by Money Market's Board of
Trustees. The lending of securities is a common practice in the securities
industry. The Portfolio will engage in security loan arrangements with the
primary objective of increasing the Portfolio's income either through investing
cash collateral in short-term, interest bearing obligations or by receiving a
loan premium from the borrower. The Portfolio will continue to be entitled to
all dividends or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail financially. The Portfolio
will not lend its portfolio securities if such loans are not permitted by the
laws or regulations of any state in which its shares are qualified for sale.
Loans will be subject to termination by the Portfolio in the normal settlement
time, currently three business days after notice, or by the borrower on one
day's notice. Borrowed securities must be returned when the loan is terminated.
Any gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to the Portfolio and its shareholders. The
Portfolio may pay reasonable finders', borrowers', administrative and custodial
fees in connection with a loan of its securities.
Portfolio Turnover Rate. Because the Portfolio will not purchase any instrument
with a remaining maturity of greater than 397 calendar days, it is not expected
to have any reportable annual portfolio turnover rate.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objectives and policies of the Portfolio, (b) to the extent
the entry into a repurchase agreement is deemed to be a loan, or (c) by the loan
of its portfolio securities in accordance with the policies described above.
3. Acquire, lease or hold real estate, provided that this limitation shall not
prohibit the purchase of municipal and other debt securities secured by real
estate or interests therein.
4. Buy any securities "on margin" or sell any securities "short," except that it
may use such short-term credits as are necessary for the clearance of
transactions.
5. Invest in commodities and commodity contracts, puts, calls, straddles,
spreads, or any combination thereof, or interests in oil, gas, or other mineral
exploration or development programs, except that it may purchase, hold and
dispose of "obligations with puts attached" or write covered call options in
accordance with its stated investment policies.
6. Purchase securities in private placements or in other transactions, for which
there are legal or contractual restrictions on resale and which are not readily
marketable, or enter into a repurchase agreement with more than seven days to
maturity if, as a result, more than 10% of the total assets of the Fund would be
invested in such securities or repurchase agreements, except that, to the extent
this restriction is applicable, the Fund may purchase, in private placements,
shares of another registered investment company having the same investment
objectives and policies as the Fund.
7. Act as underwriter of securities issued by other persons except insofar as
the Fund may technically be deemed an underwriter under the federal securities
laws in connection with the disposition of portfolio securities, except that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objectives and policies
as the Fund.
8. Purchase the securities of other investment companies, except in connection
with a merger, consolidation, acquisition, or reorganization; provided that all
or substantially all of the assets of the Fund may be invested in another
registered investment company having the same investment objectives and policies
as the Fund.
9. Invest in any issuer for purposes of exercising control or management, except
that, to the extent this restriction is applicable, all or substantially all of
the assets of the Fund may be invested in another registered investment company
having the same investment objectives and policies as the Fund.
10. Purchase securities from or sell to the Fund's officers and directors, or
any firm of which any officer or director is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Fund, one or more of the
Fund's officers, directors, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and directors
together own beneficially more than 5% of such securities.
11. Invest more than 25% of its assets in securities of any industry, although
for purposes of this limitation, U.S. government obligations are not considered
to be part of any industry. This prohibition does not apply where the Fund's
policies, as described in its current prospectus, state otherwise, and further
does not apply to the extent that the Fund invests all of its assets in another
registered investment company having the same investment objectives and
policies.
As a matter of fundamental policy (that may not be changed without shareholder
approval), the Portfolio may not purchase any securities other than obligations
of the U.S. government, its agencies or instrumentalities, if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets would
be invested in securities of any one issuer with respect to 75% of the
Portfolio's total assets, or more than 10% of the outstanding voting securities
of any one issuer would be owned by the Portfolio, except to the extent that the
Fund invests all of its assets in another registered investment company having
substantially similar investment objectives and policies as the Fund. As stated
in the Prospectus, in accordance with procedures adopted pursuant to Rule 2a-7,
the Portfolio will not invest more than 5% of the Portfolio's total assets in
Eligible Securities of a single issuer, other than U.S. government securities.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
Money Market's trustees have elected to value the Portfolio's assets in
accordance with SEC Rule 2a-7. This rule also imposes various restrictions on
the Portfolio which are, in some cases, more restrictive than the Portfolio's
other stated fundamental policies and investment restrictions. The rule provides
that any fund which holds itself out as a money market fund must follow certain
portfolio provisions of the rule regarding the maturity and quality of each
portfolio investment, and the diversity of such investments. The Portfolio must
comply with these provisions unless its shareholders vote to change its policy
of being a money market fund.
OFFICERS AND DIRECTORS
- --------------------------------------------------------------------------------
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
- --------------------------------------------------------------------------------
Positions and Offices Principal Occupation
Name, Age and Address with the Fund During the Past Five Years
- -------------------------------------------------------------------------------
Frank H. Abbott, III (75) Director
1045 Sansome St.
San Francisco, CA 94111
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Harris J. Ashton (64) Director
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
- --------------------------------------------------------------------------------
S. Joseph Fortunato (64) Director
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
David W. Garbellano (81) Director
111 New Montgomery St., 402
San Francisco, CA 94105
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
- --------------------------------------------------------------------------------
* Charles B. Johnson (63) Chairman of the
777 Mariners Island Blvd. Board and
San Mateo, CA 94404 Director
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general partner,
as the case may be, of most other subsidiaries of Franklin Resources, Inc. and
of 56 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
* Rupert H. Johnson, Jr. (56) President and
777 Mariners Island Blvd. Director
San Mateo, CA 94404
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Frank W. T. LaHaye (67) Director
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
- --------------------------------------------------------------------------------
Gordon S. Macklin (68) Director
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of most
other subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee of 60 of the investment companies in the Franklin Templeton Group of
Funds.
- --------------------------------------------------------------------------------
Kenneth V. Domingues (64) Vice President -
777 Mariners Island Blvd. Financial Reporting
San Mateo, CA 94404 and Accounting
Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Martin L. Flanagan (36) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
- --------------------------------------------------------------------------------
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting
Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Edward V. McVey (59) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
- --------------------------------------------------------------------------------
Thomas J. Runkel (38) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Richard C. Stoker (59) Vice President
11615 Spring Ridge Rd.
Potomac, Maryland 20854
Senior Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Management, Inc.; and officer of five of the funds in the Franklin
Group of Funds.
- --------------------------------------------------------------------------------
R. Martin Wiskemann (69) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
The officers and Board members of the Fund are also officers and trustees of
Money Market, except as follows: Charles E. Johnson, President and Trustee of
Money Market is not an officer or director of the Fund; Rupert H. Johnson, Jr.
is President and Director of the Fund and Vice President and Trustee of Money
Market; and Richard C. Stoker and Thomas J. Runkel, Vice Presidents of the Fund
are not officers or trustees of Money Market. Background information with
respect to the Trustee of Money Market not appearing above has been included
below, as follows:
Position and Office Principal Occupation
Name, Age and Address with Money Market During the Past Five Years
- --------------------------------------------------------------------------------
* Charles E. Johnson (40) President and
500 East Broward Blvd. Trustee
Fort Lauderdale, FL 33394-3091
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------------
The tables above show the officers and Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. Nonaffiliated Board
members are currently paid $560 per month plus $560 per meeting attended.
Nonaffiliated trustees of Money Market are currently paid $50 per month plus $50
per meeting attended. As shown above, some of the nonaffiliated Board members
and trustees of Money Market also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members and
trustees of Money Market by the Fund, by Money Market, and by other funds in the
Franklin Templeton Group of Funds.
Number of
Boards in
the Franklin
Total Fees Total Fees Total Fees Templeton
Received Received Received from the Group of Funds
from the from Money Franklin Templeton on Which Each
Name Fund* Market* Group of Funds** Serves***
- --------------------------------------------------------------------------------
Frank H. Abbott, III.... $13,440 $1,200 $162,420 31
Harris J. Ashton........ 13,440 1,200 327,925 55
S. Joseph Fortunato..... 13,440 1,200 344,745 57
David W. Garbellano..... 13,440 1,200 146,100 30
Frank W.T. LaHaye....... 12,880 1,150 143,200 26
Gordon S. Macklin....... 13,440 1,200 321,525 52
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members and trustees of Money Market are responsible. The Franklin Templeton
Group of Funds currently includes 60 registered investment companies, with
approximately 167 U.S. based funds or series.
Nonaffiliated members of the Board and trustees of Money Market are reimbursed
for expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member or
trustee of Money Market received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund, Money Market or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of Money Market who are shareholders of Resources may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of October 3, 1996, the officers and Board members, as a group, owned of
record and beneficially approximately 2,134,703.905 shares, or less than 1% of
the Fund's total outstanding shares. Many of the Board members also own shares
in other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
- --------------------------------------------------------------------------------
INVESTMENT MANAGER AND ADMINISTRATOR AND SERVICES PROVIDED. Advisers is the
investment manager of the Portfolio and is also the administrator of the Fund.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Portfolio to buy, hold or sell and
the selection of brokers through whom the Portfolio's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of Money Market to whom Advisers renders periodic reports of
the Portfolio's investment activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Portfolio. Advisers also
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services and provides certain telephone and other mechanical
services. Advisers is covered by fidelity insurance on its officers, directors
and employees for the protection of the Fund and the Portfolio.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the
Portfolio. Similarly, with respect to the Portfolio, Advisers is not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act, may
buy or sell for its or their own account or for the accounts of any other fund.
Advisers is not obligated to refrain from investing in securities held by the
Portfolio or other funds that it manages or administers. Of course, any
transactions for the accounts of Advisers and other access persons will be made
in compliance with the Portfolio's Code of Ethics.
Management and Administration Fees. The administration fee will be reduced as
necessary to comply with the most stringent limits on Fund expenses of any state
where the Fund offers its shares. Currently, the most restrictive limitation on
a fund's allowable expenses for each fiscal year, as a percentage of its average
net assets, is 2.5% of the first $30 million in assets, 2% of the next $70
million, and 1.5% of assets over $100 million. Expense reductions have not been
necessary based on state requirements.
Advisers provides various administrative, statistical, and other services to the
Fund. Under its administration agreement, the Fund pays Advisers an
administration fee equal to an annual rate of 91/200 of 1% for the first $100
million of the Fund's average daily net assets; 33/100 of 1% of the Fund's
average daily net assets over $100 million up to and including $250 million; and
7/25 of 1% of the Fund's average daily net assets in excess of $250 million. The
fee is computed at the close of business on the last business day of each month.
Prior to August 1, 1994, the Fund's assets were managed pursuant to a management
agreement with Advisers. Management fees for the eight month period ended July
31, 1994 were $3,489,156. Administration fees for the four month period ended
November 30, 1994, and the seven month period ended June 30, 1995 were $955,758,
$1,777,513, and $3,351,257, respectively. The administration fees which would
have been incurred by the Fund, absent a fee reduction by Advisers, for the
seven month period ended June 30, 1995 were $1,830,324. For the fiscal year
ended June 30, 1996, administration fees totaling $3,351,257 were paid to
Advisers by the Fund.
For the fiscal years ended June 30, 1994, 1995 and 1996, management fees of the
Portfolio, before any advance waiver, totaled $463,296, $1,823,637 and
$2,162,519, respectively. Under an agreement by Advisers to limit its fees so
that the total operating expenses of the Fund and the Portfolio are not higher
than if the Fund were to invest directly in the securities held by the
Portfolio, the Portfolio paid management fees totaling $415,655, $1,730,028 and
$2,034,014.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1997. It may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board of Trustees of Money Market or by a vote of the holders of a majority of
the Portfolio's outstanding voting securities, and in either event by a majority
vote of the trustees of Money Market who are not parties to the management
agreement or interested persons of any such party (other than as members of the
Board of Trustees of Money Market), cast in person at a meeting called for that
purpose. The management agreement may be terminated without penalty on 30 days'
written notice to Advisers by the Board of Trustees of Money Market or by a vote
of the holders of a majority of the Portfolio's outstanding voting securities,
or by Advisers on 60 days' written notice, and will automatically terminate in
the event of its assignment, as defined in the 1940 Act.
SHAREHOLDER SERVICING AGENT. Investor Services, a wholly owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
CUSTODIANS. Bank of New York, Mutual Funds Division, 90 Washington
Street, New York, New York, 10286, acts as custodian of the securities and other
assets of the Fund. Bank of America NT & SA, 555 California Street, 4th Floor,
San Francisco, California 94104, acts as custodian for cash received in
connection with the purchase of Fund shares. Citibank Delaware, One Penn's Way,
New Castle, Delaware 19720, acts as custodian in connection with transfer
services through bank automated clearing houses. The custodians do not
participate in decisions relating to the purchase and sale of portfolio
securities.
AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996 their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
HOW DOES THE PORTFOLIO BUY SECURITIES FOR ITS PORTFOLIO?
The Fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
If purchases or sales of securities of the
Portfolio and one or more other investment companies or clients supervised by
Advisers are considered at or about the same time, transactions in these
securities will be allocated among the several investment companies and clients
in a manner deemed equitable to all by Advisers, taking into account the
respective sizes of the funds and the amount of securities to be purchased or
sold. In some cases this procedure could have a detrimental effect on the price
or volume of the security so far as the Portfolio is concerned. In other cases
it is possible that the ability to participate in volume transactions and to
negotiate lower brokerage commissions will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may not
buy securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Portfolio may, however,
sell securities prior to maturity to meet redemptions or as a result of a
revised management evaluation of the issuer. During the fiscal years ended June
30, 1994, 1995 and 1996, the Portfolio paid brokerage commissions. As of June
30, 1996, neither the Fund nor the Portfolio owned securities of its regular
broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
All purchases of Fund shares will be credited to you, in full and fractional
shares of the Fund (rounded to the nearest 1/1000 of a share), in an account
maintained for you by the Fund's transfer agent. No share certificates will be
issued for fractional shares at any time. No certificates will be issued to you
if you have elected to redeem shares by check or by preauthorized bank or
brokerage firm account methods. The offering of shares of the Fund may be
suspended at any time and resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
SYSTEMATIC WITHDRAWAL PLAN. There are no service charges for establishing or
maintaining a systematic withdrawal plan. Payments under the plan will be made
from the redemption of an equivalent amount of shares in your account, generally
on the first business day of the month in which a payment is scheduled.
Redeeming shares through a systematic withdrawal plan may reduce or exhaust the
shares in your account if payments exceed distributions received from the Fund.
If a withdrawal amount exceeds the value of your account, your account will be
closed and the remaining balance in your account will be sent to you. Because
the amount withdrawn under the plan may be more than your actual yield or
income, part of the payment may be a return of your investment.
The Fund may discontinue a systematic withdrawal plan by notifying you in
writing and will automatically discontinue a systematic withdrawal plan if all
shares in your account are withdrawn or if the Fund receives notification of the
shareholder's death or incapacity.
REDEMPTIONS IN KIND. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
SPECIAL SERVICES. The Franklin Templeton Institutional Services Department
provides specialized services, including recordkeeping, for institutional
investors. The cost of these services is not borne by the Fund.
Investor Services may pay certain financial institutions that maintain omnibus
accounts with the Fund on behalf of numerous beneficial owners for recordkeeping
operations performed with respect to such owners. For each beneficial owner in
the omnibus account, the Fund may reimburse Investor Services an amount not to
exceed the per account fee that the Fund normally pays Investor Services. These
financial institutions may also charge a fee for their services directly to
their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
processing a large number of checks each month. Fees for special services will
not increase the expenses borne by the Fund.
Special procedures have been designed for banks and other institutions wishing
to open multiple accounts. An institution may open a single master account by
filing one application form with the Fund, signed by personnel authorized to act
for the institution. Individual sub-accounts may be opened at the time the
master account is filed by listing them, or instructions may be provided to the
Fund at a later date. These sub-accounts may be established by the institution
with registration either by name or number. The investment minimums applicable
to the Fund are applicable to each sub-account.
The Fund will provide each institution with a written confirmation for each
transaction in a sub-account and arrangements may be made at no additional
charge for the transmittal of duplicate confirmations to the beneficial owner of
the sub-account. The Fund will provide to each institution, on a quarterly basis
or more frequently if requested, a statement setting forth each sub-account's
share balance, income earned for the period, income earned for the year to date,
and total current market value.
HOW ARE FUND SHARES VALUED?
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We calculate the Net Asset Value per share as of 3:00 p.m. Pacific time, each
day that the Exchange is open for trading. As of the date of this SAI, the Fund
is informed that the Exchange observes the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
The valuation of the Portfolio's portfolio securities, including any securities
held in a separate account maintained for when-issued securities, is based on
the amortized cost of the securities, which does not take into account
unrealized capital gains or losses. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
calculation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument. During periods of declining interest rates, the daily
yield on shares of the Portfolio computed as described above may tend to be
higher than a like computation made by a fund with identical investments but
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by the Portfolio resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield than would result from an investment in a fund utilizing only
market values, and existing investors in the Portfolio would receive less
investment income. The opposite would be true in a period of rising interest
rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
Net Asset Value per share of $1.00, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and only buy instruments having remaining maturities of 397 calendar days or
less. The Portfolio must also invest only in those U.S. dollar-denominated
instruments that the Board of Trustees of Money Market determines present
minimal credit risks. This means that they must be rated in one of the two
highest rating categories by nationally recognized statistical rating agencies,
or if unrated be deemed comparable in quality, or be instruments issued by an
issuer that, with respect to an outstanding issue of short-term debt that is
comparable in priority and protection, has received a rating within the two
highest rating categories. Securities subject to floating or variable interest
rates with demand features that comply with applicable SEC rules may have stated
maturities in excess of one year.
The Board of Trustees of Money Market has agreed to establish procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share at $1.00, as computed for the purpose of sales and redemptions. These
procedures will include a review of the Portfolio's holdings by the Board of
Trustees of Money Market, at such intervals as it may deem appropriate, to
determine if the Portfolio's Net Asset Value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Board of Trustees of Money
Market. If a deviation exceeds 1/2 of 1%, the trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees of
Money Market determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, they
will take corrective action that they regard as necessary and appropriate, which
may include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a Net Asset Value per share by using
available market quotations.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
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DISTRIBUTIONS
The Portfolio's daily dividend includes accrued interest and any original issue
and market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable Net Asset Value per
share), less amortization of any premium paid on the purchase of portfolio
securities and the estimated expenses of the Portfolio. The Fund's daily
dividend consists of the income dividends paid by the Portfolio less the
estimated expenses of the Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a
$1.00 Net Asset Value and may result in under or over distributions of
investment company taxable income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Portfolio's portfolio is composed of short-term securities,
the Fund does not expect to realize any long-term capital gains or losses. Any
net short-term or long-term capital gains that are realized by the Fund
(adjusted for any daily amounts of unrealized appreciation or depreciation and
taking into account any capital loss carryforward or post October loss deferral)
will generally be made once each year and may be distributed more frequently if
necessary to avoid federal excise taxes. Any distributions of capital gain will
be reinvested in additional shares of the Fund at Net Asset Value, unless you
have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Code. The Board reserves the right
not to maintain the qualification of the Fund as a regulated investment company
if it determines this course of action to be beneficial to shareholders. In that
case, the Fund will be subject to federal and possibly state corporate taxes on
its taxable income and gains, and distributions to shareholders will be taxable
to the extent of the Fund's available earnings and profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in December but which, for operational reasons, may not be
paid to the shareholder until the following January, will be treated for tax
purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare and pay these dividends in December to avoid the imposition of this
tax, but does not guarantee that its distributions will be sufficient to avoid
any or all federal excise taxes.
Distributions to you, which are derived from the Portfolio from the excess of
net long-term capital gain over net short-term capital loss, are treated as
long-term capital gain regardless of the length of time you have owned Fund
shares and regardless of whether the distributions are received in cash or in
additional shares.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. government, subject in some states to minimum investment requirements that
must be met by the fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by U.S.
government securities do not generally qualify for tax-free treatment. At the
end of each calendar year, the Fund will provide you with the percentage of any
dividends paid which may qualify for such tax-free treatment. You should then
consult with your own tax advisors with respect to the application of your state
and local laws to these distributions.
Since the Fund's income is derived from income dividends of the Portfolio,
rather than qualifying dividend income, no portion of the Fund's distributions
will generally be eligible for the corporate dividends-received deduction. None
of the distributions paid by the Fund for the fiscal year ended June 30, 1996,
qualified for this deduction and it is not anticipated that any of the current
year's dividends will so qualify.
Redemptions and exchanges of Fund shares are taxable events on which you may
realize a capital gain or loss. Any loss incurred on the redemption or exchange
of the Fund's shares, held for six months or less, will be treated as a
long-term capital loss to the extent of capital gain dividends received with
respect to these shares. However, since the Fund seeks to maintain a stable net
asset value of $1.00 for both purchases and redemptions, you are not expected to
realize a capital gain or loss upon redemption or exchange of Fund shares.
THE FUND'S UNDERWRITER
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Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
For the fiscal years ended June 30, 1994, 1995 and 1996, Distributors received
$0, $3,617 and $23,898, respectively, in connection with redemptions or
repurchases of shares of the Fund.
HOW DOES THE FUND MEASURE PERFORMANCE?
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Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results.
YIELD
CURRENT YIELD. Current yield shows the income per share earned by the Fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The Fund's current yield for the seven day period ended June 30, 1996,
was 4.65%.
EFFECTIVE YIELD. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended June 30, 1996, was 4.76%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/71]
OTHER PERFORMANCE QUOTATIONS
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report(R) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free, and government money
funds.
b) Bank Rate Monitor - A weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income
Fund Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - A weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation published by Ibbotson Associates - a
historical measure of yield, price, and total return for common and small
company stock, long term government bonds, Treasury bills, and inflation.
g) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines - provide
performance statistics over specified time periods. Advertisements or
information may also compare the Fund's performance to the return on CDs or
other investments. You should be aware, however, that an investment in the Fund
involves the risk of fluctuation of principal value, a risk generally not
present in an investment in a CD issued by a bank. For example, as the general
level of interest rates rise, the value of the Fund's fixed-income investments,
as well as the value of its shares that are based upon the value of such
portfolio investments, can be expected to decrease. Conversely, when interest
rates decrease, the value of the Fund's shares can be expected to increase. CDs
are frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
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The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.2 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 116 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
SUMMARY OF CODE OF ETHICS. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
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The audited financial statements contained in the Annual Report to Shareholders
of the Fund, for the fiscal year ended June 30, 1996, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
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1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator Board - The Board of Directors of the Fund
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996, as may be
amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
APPENDICES
Summary of Procedures to
Monitor Conflicts of Interest
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The Board of Trustees of Money Market, on behalf of its series ("master funds"),
and the Board of the Fund ("feeder fund"), both of which, except in the case of
one trustee, are composed of the same individuals recognize that there is the
potential for certain conflicts of interest to arise between the master fund and
the feeder fund in this format. These potential conflicts of interest could
include, among others: the creation of additional feeder funds with different
fee structures; the creation of additional feeder funds that could have
controlling voting interests in any pass-through voting which could affect
investment and other policies; a proposal to increase fees at the master fund
level; and any consideration of changes in fundamental policies at the master
fund level that may or may not be acceptable to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
of Trustees of Money Market and the Board of the Fund have adopted certain
procedures under which i) management of the master fund and the feeder fund
will, on a yearly basis, report to each board, including the independent members
of each board, on the operation of the master/feeder fund structure; ii) the
independent members of each board will have ongoing responsibility for reviewing
all proposals at the master fund level to determine whether any proposal
presents a potential for a conflict of interest and to the extent any other
potential conflicts arise prior to the normal annual review, they will act
promptly to review the potential conflict; iii) if the independent members of
each board determine that a situation or proposal presents a potential conflict,
they will request a written analysis from the master fund management describing
whether the apparent potential conflict of interest will impede the operation of
the constituent feeder fund and the interests of the feeder fund's shareholders;
and iii) upon receipt of the analysis, the independent members of each board
shall review the analysis and present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
objectives and policies; iv) recommend to the full boards that a new board be
recommended to shareholders for approval; or v) recommend such other action as
may be considered appropriate.
DESCRIPTION OF RATINGS
MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa: Municipal bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories. Fitch AAA:
Municipal bonds rated AAA are considered to be of investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefor impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus are not
used for the AAA category.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest. Commercial Paper Ratings
Moody's
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Fitch's
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
CHAIRMAN'S MESSAGE
Your Fund's Objective:
The Franklin 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 Money Market Portfolio (the Portfolio), which
has the same investment objective. The Portfolio, in turn, invests in various
money market instruments such as U.S. government securities and other U.S.
dollar-denominated securities. The fund attempts to maintain a stable net asset
value of $1.00 per share.1
August 15, 1996
Dear Shareholder:
We are pleased to bring you the Franklin Money Fund's annual report for the
period ended June 30, 1996.
Slow economic growth and mild inflation characterized most of the period under
review. Nearing the end of a two-year economic slowdown, the first seven months
of this fiscal year were distinctly different from the last five months. In an
attempt to stimulate economic activity, the Federal Reserve Board (Fed) cut its
federal funds rate (the interest rate banks charge each other for overnight
loans) from 6.00% to 5.75% in July 1995, then to 5.50% in December. Despite
these cuts, gross domestic product (GDP), a measure of the nation's economic
output, grew at an annual rate of only 0.3% in the fourth quarter of 1995.2 The
Fed once again lowered its federal funds rate in late January 1996 to 5.25%.
1. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution. There is no assurance that the
$1.00 per share price will be maintained.
GDP expanded at an annual rate of 2.0% during the first quarter of 1996,
however, following the release of surprisingly impressive employment reports.
Consumer confidence, industrial production, and employment figures, which are
three key indicators of future economic strength, surged through the end of the
reporting period. GDP increased at an estimated annual rate of 4.2% during the
second quarter of 1996.
Short-term market rates reflected this growth pattern. The 90-day Treasury bill
yield dropped from 5.57% on June 30, 1995, to 5.14% on March 30, 1996. Three
months later, this yield rose to 5.16%.3
Since we maintained a relatively short-weighted average maturity during the
reporting period (54 days on June 30, 1996), the fund's seven-day yield mirrored
movements in Treasury bill rates.The fund's seven-day yield began the period at
5.47%, declined to 4.70% on March 30, 1996, then rose to 4.76% on June 30, 1996.
We continue to invest in the highest quality securities 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 that we believe involve undue risk.
This discussion reflects the strategies we employed for the fund during the 12
months under review and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.
2. Source for all GDP figures: U.S. Commerce Dept.
3. Source: Bloomberg.
Looking forward, lower unemployment rates and stronger business activity should
work to strengthen the economy. If economic growth continues at its current
pace, however, the Fed may raise short-term interest rates as it seeks to
prevent inflation from getting out of control.
As a Franklin Money Fund shareholder, you continue to benefit from convenient,
easy access to your money, and a high degree of credit safety. You can also
enjoy a wide range of services, including draft writing for amounts of $100 or
more, free draft books, and access to TeleFACTS(R), our around-the-clock
automated customer service line.
Thank you for your continued support of the Franklin Money Fund, and we look
forward to serving you in the years to come.
Sincerely,
Charles B. Johnson
Chairman
Franklin Money Fund
Performance Summary
- -----------------------------------------------------
Franklin Money Fund
June 30, 1996
Seven-day annualized yield 4.65%
Seven-day effective yield* 4.76%
- -----------------------------------------------------
*The seven-day effective yield assumes the compounding of daily dividends, and
reflects fluctuations in interest rates on portfolio investments, as well as
fund expenses. Yields should be viewed in terms of the current, low rate of
inflation--just as high inflation usually results in higher yields, low
inflation often results in lower yields. Past performance is not predictive of
future results.
Franklin Advisers, Inc., the fund's administrator and the manager of the fund's
underlying portfolio, has agreed in advance to waive a portion of its fees,
which reduces expenses and increases yield to shareholders. Without these
reductions, the fund's yield would have been lower. The fee waiver may be
discontinued at any time upon notice to the fund's Board of Directors.
FRANKLIN MONEY FUND
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Value
Shares (Note 1)
<S> <C> <C>
Mutual Funds 100.1%
$1,173,771,347 The Money Market Portfolio (Note 1) ......................................... $1,173,771,347
-------------
Total Investments (Cost $1,173,771,347) 100.1% ................... 1,173,771,347
Liabilities in Excess of Other Assets (.1)% ...................... (1,132,723)
-------------
Net Assets 100.0% ................................................ $1,172,638,624
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
The accompanying notes are an integral part of these financial statements.
FRANKLIN MONEY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 1996
Assets:
Investment in securities, at value and cost $1,173,771,347
--------------
Total assets 1,173,771,347
--------------
Liabilities:
Payables:
Capital shares repurchased 346,184
Administration fees 292,197
Shareholder servicing costs 174,936
Accrued expenses and other liabilities 319,406
--------------
Total liabilities 1,132,723
--------------
Net assets (equivalent to $1.00 per share
based on 1,172,638,624 shares of capital
stock outstanding) $1,172,638,624
==============
Statement of Operations
for the year ended June 30, 1996
Investment income:
Dividends $60,297,195
Expenses:
Administration fees (Note 5) $3,351,257
Shareholder servicing costs
(Note 5) 2,024,331
Reports to shareholders 934,296
Registration fees 142,065
Directors' fees and expenses 81,425
Professional fees 20,347
Other 24,473
--------------
Total expenses 6,578,194
--------------
Net investment income $53,719,001
==============
Statements of Changes in Net Assets
for the year ended June 30, 1996
and the seven months ended June 30, 1995
Seven Months
Year Ended Ended
June 30, 1996 June 30, 1995
-------------- --------------
Increase (decrease)
in net assets:
Operations:
Net investment income $ 53,719,001 $ 31,252,091
Distributions to
shareholders from
net investment income (53,719,001) (31,252,091)
Increase (decrease)
in net assets from
capital share trans-
actions (Note 2) 153,672,341 (105,256,444)
-------------- --------------
Net increase
(decrease) in
net assets 153,672,341 (105,256,444)
Net assets (there is
no undistributed net
investment income
at beginning or end
of period):
Beginning of
period 1,018,966,283 1,124,222,727
-------------- --------------
End of period $1,172,638,624 $1,018,966,283
============== ==============
The accompanying notes are an integral part of these financial statements.
FRANKLIN MONEY FUND
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Franklin Money Fund (the Fund) is a no-load, open-end, diversified management
investment company (mutual fund), registered under the Investment Company Act of
1940, as amended. The Fund's investment objectives are high current income
consistent with capital preservation and liquidity.
The Fund invests substantially all of its assets in The Money Market Portfolio
(the Portfolio), which is a no-load, open-end, diversified management investment
company having the same investment objectives as the Fund. The financial
statements of the Portfolio, including the Statement of Investments in
Securities and Net Assets, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
On December 13, 1994, the Board of Directors authorized a change in the fiscal
year end of the Fund from November 30 to June 30.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuation:
The Fund holds Portfolio shares that are valued at its proportionate interest in
the net asset value of the Portfolio. As of June 30, 1996, the Fund owns 75.72%
of the Portfolio.
b. Income Taxes:
The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and any changes in unrealized portfolio
appreciation or depreciation.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distribution (as defined above),
and are payable to shareholders of record as of the close of business the
preceding day. Such distributions are automatically reinvested daily in
additional shares of the Fund at net asset value.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. CAPITAL STOCK
At June 30, 1996, there were 5,000,000,000 shares of $.10 par value capital
stock authorized. Transactions in the Fund's shares at $1.00 per share were as
follows:
<TABLE>
<CAPTION>
Seven Months
Year Ended Ended
June 30, 1996 June 30, 1995
------------ ------------
<S> <C> <C>
Shares sold..................................... $ 2,415,077,056 $ 1,532,810,434
Shares issued in reinvestment of distributions.. 53,666,653 31,240,837
Shares redeemed................................. (2,315,071,368) (1,669,307,715)
------------ ------------
Net increase (decrease)......................... $ 153,672,341 $ (105,256,444)
============ ============
</TABLE>
3. CAPITAL LOSS CARRYOVERS
At June 30, 1996, for tax purposes, the Fund had capital loss carryovers as
follows:
Capital loss carryovers expiring in: 2001........ $ 763
2002........ 4,038
------
$4,801
======
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended June 30, 1996 aggregated
$751,298,456 and $596,218,424, respectively.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Administration Agreement:
Under the terms of an administration agreement, Franklin Advisers, Inc.
(Advisers), provides various administrative, statistical, and other services,
and receives fees computed monthly based on the average daily net assets of the
Fund as follows:
Annualized Fee Rate Average Daily Net Assets
------------------ -------------------------------------------------
0.455% First $100 million
0.330% Over $100 million, up to and including $250 million
0.280% Over $250 million
The terms of the administration agreement provide that aggregate annual expenses
of the Fund be limited to the extent necessary to comply with the limitations
set forth in the laws, regulations and administrative interpretations of the
states in which the Fund's shares are registered. For the year ended June 30,
1996, the Fund's expenses did not exceed these limitations.
b. Shareholder Services Agreement:
Under the terms of a shareholder services agreement with Franklin/Templeton
Investor Services, Inc. (Investor Services), the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the year ended June 30, 1996 aggregated $2,024,331, of which $2,012,261 was paid
to Investor Services.
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
c. Other Affiliates and Related Party Transactions:
Certain officers and directors of the Fund are also officers and/or directors of
Advisers, Investor Services (all wholly-owned subsidiaries of Franklin
Resources, Inc.), and of the Portfolio.
6. FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period are
as follows:
<TABLE>
<CAPTION>
Year Ended June 30, Year Ended November 30,
----------------- --------------------------
1996 1995+++ 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net asset value at beginning of period .............. $1.00 $1.00 $1.00 $1.00 $1.00
-------- -------- -------- -------- --------
Net investment income ............................... .049 .030 .032 .023 .031
Distributions from net investment income ............ (.049) (.030) (.032) (.023) (.031)
-------- -------- -------- -------- --------
Net asset value at end of period .................... $1.00 $1.00 $1.00 $1.00 $1.00
======== ======== ======== ======== ========
Total Return* ....................................... 4.99% 3.07% 3.28% 2.36% 3.12%
Ratios/Supplemental Data
Net assets at end of period (in 000's) .............. $1,172,639 $1,018,966 $1,124,223 $1,040,026 $1,101,571
Ratio of expenses to average net assets++ ........... .75%** .80%+** .91** .80% .79%
Ratio of net investment income
to average net assets .............................. 4.86% 5.19%+ 3.23% 2.32% 3.08%
</TABLE>
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at net asset value.
+Annualized
++Effective with fiscal year 1994, the expense ratio includes the Fund's share
of the Portfolio's allocated expenses.
+++For the seven months ended June 30, 1995.
**Advisers agreed in advance to waive a portion of its management fees incurred
by the Portfolio during the periods indicated and a portion of its
administration fees incurred by the Fund for 1994 and 1995. Had such action not
been taken, the Fund's ratio of expenses to average net assets would have been
as follows:
Ratio of
Expenses
to Average
Net Assets++
--------------
1994............................................ .93%
1995+++......................................... .82%+
1996............................................ .76%
FRANKLIN MONEY FUND
Report of Independent Auditors
To the Shareholders and Board of Directors
of Franklin Money Fund
We have audited the accompanying statement of assets and liabilities of Franklin
Money Fund, including the statement of investments in securities and net assets,
as of June 30, 1996, 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, 1996. 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
Franklin Money Fund as of June 30, 1996, and 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.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 6, 1996
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount The Money Market Portfolio (Note 1)
<S> <C> <C>
aShort Term Investments 90.5%
Bank Notes .6%
$ 10,000,000 Bank of America NT & SA, 5.45%, 09/18/96 (Cost $9,999,766) .................... $ 9,999,766
-------------
Certificates of Deposit 22.3%
65,000,000 Bank of Nova Scotia, Portland Branch, 5.035% - 5.58%, 07/05/96 - 01/24/97 ..... 64,999,984
35,000,000 Bayerische Landesbank, New York Branch, 5.06% - 5.36%, 07/08/96 - 07/10/96 .... 35,000,141
25,000,000 Commerzbank, AG, New York Branch, 5.37%, 09/06/96 ............................. 25,000,459
25,000,000 Credit Suisse, New York Branch, 5.35%, 09/13/96 ............................... 25,000,506
15,000,000 Dresdner Bank, AG, New York Branch, 4.94%, 01/06/97 ........................... 14,948,167
20,000,000 Lloyds Bank, Plc., New York Branch, 5.70%, 09/11/96 ........................... 20,000,378
25,000,000 National Westminster Bank, New York Branch, 5.50%, 09/12/96 ................... 25,000,000
20,000,000 Rabobank Nederland, NV, New York Branch, 5.37%, 09/09/96 ...................... 20,000,380
20,000,000 Royal Bank of Canada, New York Branch, 5.02%, 08/01/96 ........................ 20,000,313
75,000,000 Societe Generale, New York Branch, 5.36% - 5.51%, 08/15/96 - 10/09/96 ......... 75,000,381
20,000,000 Westpac Banking Corp., New York Branch, 5.36%, 09/05/96 ....................... 20,000,000
-------------
Total Certificates of Deposit (Cost $344,950,709)........................ 344,950,709
-------------
Commercial Paper 67.6%
20,000,000 ABN AMRO North America Finance, Inc., 4.975%, 08/26/96 ........................ 19,845,222
20,000,000 AIG Funding, Inc., 5.39%, 09/23/96 ............................................ 19,748,465
60,000,000 American Express Credit Corp., 4.88% - 5.28%, 07/22/96 - 08/20/96 ............. 59,694,249
20,000,000 ANZ (DE), Inc., 5.27%, 08/29/96 ............................................... 19,827,261
65,000,000 Associates Corp. of North America, 5.27% - 5.28%, 07/01/96 - 09/03/96 ......... 64,621,600
65,000,000 AT&T Corp., 4.91% - 5.30%, 07/19/96 - 09/20/96 ................................ 64,555,765
30,000,000 BBV Finance, Inc., 5.32% - 5.39%, 08/07/96 - 09/16/96 ......................... 29,775,358
60,000,000 Canadian Imperial Holdings, Inc., 5.27% - 5.44%, 07/02/96 - 09/16/96 .......... 59,570,954
35,000,000 Cheltnham & Gloucester Building Society, 5.33% - 5.38%, 09/09/96 - 09/25/96 ... 34,599,939
65,000,000 CIESCO, L.P., 5.27% - 5.29%, 07/25/96 - 08/28/96 .............................. 64,623,425
35,000,000 Den Danske Corp., Inc., 5.27% - 5.275%, 07/22/96 - 08/30/96 ................... 34,749,467
65,000,000 General Electric Capital Corp., 5.27% - 5.31%, 07/31/96 - 08/12/96 ............ 64,651,476
65,000,000 Generale Bank, Inc., 5.07% - 5.31%, 07/11/96 - 08/14/96 ....................... 64,683,717
40,000,000 Halifax Building Society, 4.88% - 5.26%, 08/08/96 - 09/26/96 .................. 39,642,745
40,000,000 Metlife Funding, Inc., 5.28% - 5.40%, 08/26/96 - 10/01/96 ..................... 39,555,755
40,000,000 National Rural Utilities Cooperative Finance Corp., 5.28% - 5.39%,
08/16/96 - 09/18/96 ......................................................... 39,628,506
15,245,000 PepsiCo, Inc., 5.38%, 09/25/96 ................................................ 15,049,068
75,000,000 Prudential Funding Corp., 5.27% - 5.32%, 07/30/96 - 09/10/96 .................. 74,463,990
55,350,000 Schering Corp., 5.31% - 5.38%, 08/27/96 - 10/03/96 ............................ 54,664,248
65,000,000 Svenska Handelsbanken, Inc., 5.29% - 5.40%, 07/15/96 - 09/17/96 ............... 64,522,195
20,000,000 Toronto Dominion Holdings USA, Inc., 5.28%, 08/21/96 .......................... 19,850,400
40,000,000 Toyota Motor Credit Corp., 5.38% - 5.39%, 09/19/96 - 10/01/96 ................. 39,485,466
Commercial Paper (cont.)
$ 20,000,000 Westpac Capital Corp., 5.27%, 07/29/96 ........................................ $ 19,918,021
40,119,000 Wool International, 4.90% - 5.30%, 07/12/96 - 08/23/96 ........................ 39,932,821
-------------
Total Commercial Paper (Cost $1,047,660,113)............................. 1,047,660,113
-------------
Total Investments before Repurchase Agreements
(Cost $1,402,610,588)................................................... 1,402,610,588
-------------
bReceivables from Repurchase Agreements 9.3%
79,993,000 J.P. Morgan Securities, Inc., 5.42%, 07/01/96 (Maturity Value $74,133,469)
Collateral: U.S. Treasury Bills, 06/26/97 .................................... 74,100,000
69,620,000 Morgan Stanley & Co., Inc., 5.35%, 07/01/96 (Maturity Value $70,031,208)
Collateral: U.S. Treasury Notes, 6.875%, 02/28/97 ............................ 70,000,000
-------------
Total Receivables from Repurchase Agreements (Cost $144,100,000)......... 144,100,000
-------------
Total Investments (Cost $1,546,710,588) 99.8%....................... 1,546,710,588
Other Assets and Liabilities, Net .2%............................... 3,374,659
-------------
Net Assets 100.0% .................................................. $1,550,085,247
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
PORTFOLIO ABBREVIATIONS:
L.P. - Limited Partnership
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Statement of Investments in Securities and Net Assets, June 30, 1996
<TABLE>
<CAPTION>
Face Value
Amount The U.S. Government Securities Money Market Portfolio (Note 1)
<S> <C> <C>
aShort Term Government Securities100.1%
Government Securities 17.3%
$ 50,000,000 U.S. Treasury Bills, 4.75% - 5.14%, 08/08/96 - 12/12/96 (Cost $49,361,211) ..................... $ 49,361,211
-------------
bReceivables from Repurchase Agreements 82.8%
11,690,000 B.A. Securities, Inc., 5.40%, 07/01/96 (Maturity Value $12,005,400)
Collateral: U.S. Treasury Notes, 8.00%, 01/15/97 .............................................. 12,000,000
12,530,000 B.T. Securities Corp., 5.42%, 07/01/96 (Maturity Value $12,005,420)
Collateral: U.S. Treasury Notes, 5.25%, 01/31/01 .............................................. 12,000,000
11,509,000 Barclays de Zoete Wedd Securities, Inc., New York, 5.35%, 07/01/96
(Maturity Value $12,005,350)
Collateral: U.S. Treasury Notes, 7.875%, 01/15/98 ............................................. 12,000,000
12,185,000 Chase Securities, Inc., 5.40%, 07/01/96 (Maturity Value $12,005,400)
Collateral: U.S. Treasury Notes, 6.125%, 05/31/97 ............................................. 12,000,000
12,120,000 Citicorp Securities, Inc., 5.50%, 07/01/96 (Maturity Value $12,005,500)
Collateral: U.S. Treasury Notes, 5.75%, 09/30/97 .............................................. 12,000,000
12,195,000 Merrill Lynch Government Securities, Inc., 5.20%, 07/01/96
(Maturity Value $12,005,200)
Collateral: U.S. Treasury Notes, 5.875%, 04/30/98 ............................................. 12,000,000
18,201,000 J.P. Morgan Securities, Inc., 5.32%, 07/01/96 (Maturity Value $17,507,758)
Collateral: U.S. Treasury Bills, 11/07/96 ..................................................... 17,500,000
57,501,000 J.P. Morgan Securities, Inc., 5.42%, 07/01/96 (Maturity Value $55,024,842)
Collateral: U.S. Treasury Bills, 12/12/96 ..................................................... 55,000,000
68,530,000 Morgan Stanley & Co., Inc., 5.35%, 07/01/96 (Maturity Value $68,015,310)
Collateral: U.S. Treasury Bills, 09/12/96
U.S. Treasury Notes, 5.75% - 11.75%, 09/30/96 - 02/15/01........................... 67,985,000
12,506,000 SBC Capital Markets, Inc., 5.47%, 07/01/96 (Maturity Value $12,005,470)
Collateral: U.S. Treasury Notes, 5.125%, 11/30/98 ............................................. 12,000,000
11,507,000 UBS Securities, Inc., 5.43%, 07/01/96 (Maturity Value $12,005,430)
Collateral: U.S. Treasury Notes, 8.125%, 02/15/98 ............................................. 12,000,000
-------------
Total Receivables from Repurchase Agreements (Cost $236,485,000).......................... 236,485,000
-------------
Total Investments (Cost $285,846,211) 100.1% ........................................ $285,846,211
Liabilities in Excess of Other Assets (.1)% ......................................... (145,107)
-------------
Net Assets 100.0%.................................................................... $285,701,104
=============
</TABLE>
At June 30, 1996, there was no unrealized appreciation or depreciation for
financial statement or income tax purposes.
aCertain short-term securities are traded on a discount basis; the rates shown
are the discount rates at the time of purchase by the Fund. Other securities
bear interest at the rates shown, payable at fixed dates or upon maturity.
bFace amount for repurchase agreements is for the underlying collateral.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
June 30, 1996
The U.S.
Government
The Money Securities Money
Market Portfolio Market Portfolio
----------- -----------
Assets:
Investment in securities,
at value and cost $1,402,610,588 $ 49,361,211
Receivables from
repurchase agree-
ments, at value
and cost 144,100,000 236,485,000
Cash 3,626 --
Receivables:
Interest 4,328,950 106,080
From affiliates 6,003 19,602
----------- -----------
Total assets 1,551,049,167 285,971,893
----------- -----------
Liabilities:
Payables:
Capital shares
repurchased 767,784 233,906
Management fees 170,313 29,565
Accrued expenses and
other liabilities 25,823 7,318
----------- -----------
Total liabilities 963,920 270,789
----------- -----------
Net assets, at value $1,550,085,247 $285,701,104
=========== ===========
Shares outstanding 1,550,085,247 285,701,104
=========== ===========
Net asset value per share $1.00 $1.00
=========== ===========
Statements of Operations
for the year ended June 30, 1996
The The U.S.
Money Government
Market Securities Money
Portfolio Market Portfolio
--------- -----------
Investment income:
Interest $81,172,665 $18,038,015
--------- -----------
Expenses:
Management fees
(Note 5a) 2,162,519 484,382
Professional fees 44,663 8,889
Custodian fees 26,784 22,841
Reports to shareholders 27,241 5,685
Trustees' fees and
expenses 7,447 10,769
Other 21,476 10,049
Management fees
waived by manager (128,505) (59,534)
--------- -----------
Total expenses 2,161,625 483,081
--------- -----------
Net investment
income 79,011,040 17,554,934
--------- -----------
Net realized gain on
investments -- 683
--------- -----------
Net increase in net
assets resulting from
operations $79,011,040 $17,555,617
========= ===========
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
The U.S. Government Securities
The Money Market Portfolio Money Market Portfolio
------------------------ -----------------------
1996 1995 1996 1995
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income........................ $ 79,011,040 $ 65,941,077 $ 17,554,934 $ 22,234,614
Net realized gain from security transactions. -- 1,356 683 392
----------- ------------ ----------- -----------
Net increase in net assets resulting from
operations................................... 79,011,040 65,942,433 17,555,617 22,235,006
Distributions to shareholders from undistributed
net investment income........................ (79,011,040) (65,942,433)a (17,555,617)b (22,235,006)c
Increase (decrease) in net assets from capital
share transactions (Note 2).................. 244,510,834 1,086,385,190 (188,953,282) 256,106,321
----------- ------------ ----------- -----------
Net increase (decrease) in net assets......... 244,510,834 1,086,385,190 (188,953,282) 256,106,321
Net assets (there is no undistributed net
investment income at beginning or end
of the year):
Beginning of year........................... 1,305,574,413 219,189,223 474,654,386 218,548,065
----------- ------------ ----------- -----------
End of year................................. $1,550,085,247 $1,305,574,413 $285,701,104 $474,654,386
=========== ============ =========== ===========
</TABLE>
aDistributions were increased by a net realized gain from security transactions
of $1,356.
bDistributions were increased by a net realized gain from security transactions
of $683.
cDistributions were increased by a net realized gain from security transactions
of $392.
The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (the Money Market) is a no load, open-end,
diversified management investment company (mutual fund), registered under the
Investment Company Act of 1940, as amended. The Money Market has two portfolios
(the Portfolios) consisting of The Money Market Portfolio and The U.S.
Government Securities Money Market Portfolio. The portfolio's investment
objectives are high current income consistent with capital preservation and
liquidity. Each of the Portfolios issues a separate series of shares and
maintains a totally separate and distinct investment portfolio. The shares of
the Money Market are issued in private placements and are thus exempt from
registration under the Securities Act of 1933.
The following is a summary of significant accounting policies consistently
followed by the Portfolios in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuations:
Securities in the Portfolios are valued at amortized cost, which approximates
value. Each of the Portfolios must maintain a dollar weighted average maturity
of 90 days or less and only purchase instruments having remaining maturities of
397 days or less. If a Portfolio has a remaining weighted average maturity of
greater than 90 days, the Portfolio will be stated at value based on recorded
closing sales on a national securities exchange or, in the absence of a recorded
sale, within the range of the most recent quoted bid and asked prices. The
trustees have established procedures designed to stabilize, to the extent
reasonably possible, each Portfolio's price per share as computed for the
purpose of sales and redemptions at $1.00.
b. Income Taxes:
Each Portfolio intends to continue to qualify for the tax treatment applicable
to regulated investment companies under the Internal Revenue Code and to make
the requisite distributions to their shareholders which will be sufficient to
relieve it from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Net investment income includes income, calculated on an accrual basis,
amortization of original issue and market discount or premium, if any, and
estimated expenses which are accrued daily. The total available for distribution
is computed daily and includes the net investment income, plus or minus any
gains or losses on security transactions and changes in unrealized portfolio
appreciation or depreciation, if any.
Distributions are normally declared each day the New York Stock Exchange is open
for business, equal to the total available for distributions (as defined above),
and are payable to shareholders of record as of the close of business that day.
Such distributions are automatically reinvested daily in additional shares of
the Portfolio at net asset value.
e. Expense Allocation:
Common expenses incurred by the Money Market are allocated among the Portfolios
based on the ratio of net assets of each Portfolio to the combined net assets.
In all other respects, expenses are charged to each Portfolio as incurred on a
specific identification basis.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. 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.
g. Repurchase Agreements:
The Portfolios may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the joint repurchase agreement are
allocated to the Portfolios based on their pro rata interest.
A repurchase agreement is accounted for as a loan by the Portfolios to the
seller, collateralized by underlying U.S. government 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, 1996, all outstanding repurchase agreements held by the Portfolios had been
entered into on June 28, 1996.
2. TRUST SHARES
Transactions in each of the Portfolio's shares at $1.00 per share were as
follows:
<TABLE>
<CAPTION>
The U.S. Government
The Money Securities Money
Market Portfolio Market Portfolio
------------ -------------
<S> <C> <C>
1996
Shares sold................................................................. $2,507,821,633 $ 824,267,024
Shares issued in reinvestment of distributions.............................. 79,019,113 17,555,181
Shares redeemed............................................................. (2,342,329,912) (1,030,775,487)
------------ -------------
Net increase (decrease)..................................................... $ 244,510,834 $ (188,953,282)
============ =============
1995
Shares sold................................................................. $ 2,811,245,134 $ 2,270,754,653
Shares issued in reinvestment of distributions.............................. 65,932,187 22,235,271
Shares redeemed............................................................. (2,923,489,920) (2,175,508,395)
Shares issued in connection with assets transfer (Note 6)................... 1,132,697,789 138,624,792
------------ -------------
Net increase................................................................ $ 1,086,385,190 $ 256,106,321
============ =============
</TABLE>
3. CAPITAL LOSS CARRYOVERS
At June 30, 1996, for tax purposes, The Money Market Portfolio had an
accumulated net realized capital loss carryover expiring in year 2002 of $3,790.
For tax purposes, the aggregate cost of securities are the same for financial
statement purposes at June 30, 1996.
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales/maturities of securities, including repurchase agreements,
for the year ended June 30, 1996, were as follows:
<TABLE>
<CAPTION>
The U.S. Government
The Money Securities Money
Market Portfolio Market Portfolio
------------ -------------
<S> <C> <C>
Purchases................................................................... $60,355,427,309 $62,680,289,047
Sales....................................................................... $60,113,260,920 $62,869,560,372
</TABLE>
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers)
provides investment advice, administrative services, office space and facilities
to the Portfolios, and receives fees computed monthly based on the average daily
net assets of the Portfolios during the month. The Portfolios pay fees equal to
an annualized rate of 15/100 of 1% of their daily net assets. For the year ended
June 30, 1996, the Portfolios expenses did not exceed these limitations.
However, Advisers agreed in advance to waive management fees and assume payment
of other expenses, as noted in the Statements of Operations.
b. Other Affiliates and Related Party Transactions:
Certain officers and trustees of the Portfolios are also officers and/or
directors of Advisers and Investor Services (all wholly-owned subsidiaries of
Franklin Resources, Inc.).
6. ASSET TRANSFER
On August 1, 1994, the Franklin Money Fund and the Franklin Federal Money Fund
transferred substantially all of their assets, respectively, into The Money
Market Portfolio and The U.S. Government Securities Money Market Portfolio. The
transfers were accompanied by a tax-free exchange of 1,132,697,789 capital
shares of The Money Market Portfolio for net assets valued at $1,132,697,789 of
the Franklin Money Fund and 138,624,792 capital shares of The U.S. Government
Securities Money Market Portfolio for net assets valued at $138,624,792 of the
Franklin Federal Money Fund.
As of June 30,1996, 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............................................................. 1,173,771,347 75.72%
Institutional Fiduciary Trust - Money Market Portfolio.......................... 341,314,800 22.02%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund..................... 30,405,256 1.96%
Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund II.......... 4,593,844 0.30%
</TABLE>
As of June 30,1996, 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.. 152,155,022 53.26%
Franklin Federal Money Fund................................................................. 133,546,082 46.74%
</TABLE>
7. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------ ---------------------------
Net Asset Distributions Net Assets Ratio of Ratio of Net
Year Values at Net From Net Net Asset at End Expenses Income
Ended Beginning Investment Investment Values at Total of Period to Average to Average
June 30 of Period Income Income End of Period Return+ (in 000's) Net Assets++ Net Assets
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Money Market Portfolio
1993* $1.00 $0.027 $(0.027) $1.00 2.92%** $ 222,358 0.15%** 3.18%**
1994 1.00 0.033 (0.033) 1.00 3.33 219,189 0.15 3.25
1995 1.00 0.053 (0.053) 1.00 5.46 1,305,574 0.15 5.42
1996 1.00 0.055 (0.055) 1.00 5.66 1,550,085 0.15 5.50
The U.S. Government Securities Money Market Portfolio
1993* 1.00 0.021 (0.021) 1.00 2.27** 310,319 0.15** 3.05**
1994 1.00 0.032 (0.032) 1.00 3.25 218,548 0.15 3.20
1995 1.00 0.052 (0.052) 1.00 5.32 474,654 0.15 5.25
1996 1.00 0.054 (0.054) 1.00 5.55 285,701 0.15 5.45
</TABLE>
*July 28, 1992 (Effective date of registration) to June 30, 1993.
**Annualized
+Total return measures the change in value of an investment over the periods
indicated. It is not annualized (except as noted). It assumes reinvestment of
dividends and capital gains at net asset value.
++Advisers agreed in advance to waive a portion of its management fees of the
Portfolios during the periods indicated. Had such action not been taken, the
ratios of expenses to average net assets would have been as follows:
Ratio of Expenses to
Average Net Assets
-----------
The Money Market Portfolio
1993*...................................... .17%**
1994....................................... .17
1995....................................... .16
1996....................................... .16
The U.S. Government Securities
Money Market Portfolio
1993*...................................... .18**
1994....................................... .17
1995....................................... .16
1996....................................... .17
THE MONEY MARKET PORTFOLIOS
Report of Independent Auditors
To the Shareholders and Board of Trustees
The Money Market Portfolios
We have audited the accompanying statements of assets and liabilities of the two
portfolios comprising The Money Market Portfolios, including each Portfolio's
statement of investments in securities and net assets, as of June 30, 1996, and
the related statements of operations for the year them ended, the statements of
changes in net assets and the financial highlights for each of the periods
presented thereon. These financial statements and financial highlights for each
of the two years in the period then ended 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, 1996, 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
two Portfolios comprising The Money Market Portfolios as of June 30, 1996, the
results of their operations for the year then ended, the changes in their net
assets for each of the two years in the period then ended, and their financial
highlights for each of the periods presented, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
August 6, 1996
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
determined by the presence of a regular beeping tone.
TEMPLETON MONEY FUND
Auditors
McGladrey & Pullen, LLP
555 Fifth Avenue
New York, New York 10017-2416
Principal Underwriter:
Franklin Templeton
Distributors, Inc.
700 Central Avenue
St. Petersburg,
Florida 33701-3628
Shareholder Services
1-800-632-2301
Fund Information
1-800-342-5236
This report must be preceded or accompanied by the prospectus of Templeton
Money Fund, which contains more complete information including charges and
expenses. Like any investment in securities, the Fund's portfolio will be
subject to the risk of loss from market, economic, political, and other factors,
as well as investment decisions by the investment manager, Therefore, investors
who cannot accept the risk of such losses should not invest in shares of the
Fund.
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded, and accessed. These calls can be
determined by the presence of a regular beeping tone.
[RECYCLE LOGO] TL407 A96 10/96
TEMPLETON
MONEY
FUND
Annual Report
August 31, 1996
[FRANKLIN TEMPLETON LOGO]
[BACKGROUND GRAPHIC OF WORLD GLOBE]
PAGE
TEMPLETON MONEY FUND
YOUR FUND'S OBJECTIVE:
The Templeton Money Fund seeks current income, stability of principal, and
liquidity by investing in high-quality money market instruments with maturities
not exceeding 397 days, consisting primarily of short-term U.S. government
securities, bank certificates of deposit, time deposits, banker's acceptances,
commercial paper and repurchase agreements.(1)
OCTOBER 15, 1996
Dear Shareholder:
We are pleased to bring you the Templeton Money Fund's ninth annual report,
which covers the 12 months ended August 31, 1996.
During this period, the U.S. economy experienced an inconsistent pattern of
growth. In the fourth quarter of 1995, Gross Domestic Product (GDP) increased at
an annualized rate of only 0.3%.(2)This weak performance stemmed from declines
in consumer spending and inventory investment, and in part from federal
government shutdowns in November and December 1995. In an attempt to stimulate
the economy, the Federal Reserve Board (the Fed) lowered its federal funds rate
in December from 5.75% to 5.50%. At the end of January 1996, the Fed cut this
rate to 5.25% to prevent the economy from falling into a recessionary slump. By
the end of March, however, unemployment had dropped, GDP had rebounded, and the
Fed
1. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT OR BY ANY OTHER ENTITY OR INSTITUTION. WHILE THE FUND SEEKS TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE CAN BE NO ASSURANCE
THAT IT WILL BE ABLE TO DO SO.
2. SOURCE FOR ALL GDP FIGURES: BLOOMBERG.
1
PAGE
stopped easing monetary policy. Although GDP increased at an annualized rate of
4.8% between April and June, the economy slowed in July and August, and the Fed
left monetary policy unchanged.
These economic conditions were also reflected in the 90-day U.S. Treasury bill
yield, which in turn affected the Fund's seven-day effective yield. The Treasury
bill yield declined from 5.45% on August 31, 1995, to 5.02% on February 29,
1996.(3) Afterward, it steadily rose to 5.29% on August 31, 1996. At the
beginning of the reporting period, the Templeton Money Fund's seven-day
effective yield was 4.91%. It dropped to 4.23% at the end of February, and then
advanced to 4.43% on August 31, 1996.
As interest rates declined during the first half of the fiscal year, we extended
the average maturity of the Fund's portfolio, from 39 days on August 31, 1995,
to 40 days on February 29, 1996, in an effort to seek higher yields. During the
second half, we reduced the average maturity to 19 days by August 31, 1996, as a
defensive strategy in a potentially rising interest rate environment.
Looking forward, the Fed may tighten monetary policy to some degree before the
end of 1996 if evidence points to a stronger economy. In our opinion, the Fund's
diversified and highly liquid portfolio (66.3% invested in short-term U.S.
government agency securities, 33.5% in repurchase agreements backed by U.S.
government collateral, and 0.2% in other net assets) positions it to respond
quickly to future conditions.
This discussion reflects the strategies we employed for the Fund during the 12
months under review, and includes our opinions as of the close of the period.
Since economic and market conditions are constantly changing, our strategies,
evaluations, conclusions, and decisions regarding portfolio holdings may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the Fund.
Templeton Money Fund shareholders continue to benefit from convenience, easy
access to their money, and a high degree of credit safety. They also enjoy a
variety of services, including free, unlimited check
3. SOURCE FOR ALL 90-DAY U.S. TREASURY BILL YIELD FIGURES: BLOOMBERG.
2
PAGE
writing for amounts of $500 or more, unlimited transactions, automatic dividend
reinvestment and daily compounding of dividends. In addition, shares of the Fund
are bought and sold at net asset value, which means there is never a sales
charge on your purchases.
We thank you for your participation in the Templeton Money Fund and welcome any
comments or suggestions you may have.
Sincerely,
/S/Thomas Latta
_____________________
Thomas Latta
Portfolio Manager
Templeton Money Fund
TEMPLETON MONEY FUND
<TABLE>
<CAPTION>
Yield for August 31, 1996
<S> <C>
Seven-day effective yield 4.43%
Seven-day annualized yield 4.34%
</TABLE>
YIELD REFLECTS FLUCTUATIONS IN INTEREST RATES ON PORTFOLIO INVESTMENTS, AS WELL
AS FUND EXPENSES. THE SEVEN-DAY EFFECTIVE YIELD ASSUMES THE COMPOUNDING OF DAILY
DIVIDENDS. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE RESULTS.
3
PAGE
TEMPLETON MONEY FUND
Financial Highlights
- --------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(For a share outstanding throughout the year)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- ------- --------
Net investment income .044 .046 .026 .021 .036
Dividends from net investment income (.044) (.046) (.026) (.021) (.036)
-------- -------- -------- ------- --------
Change in net asset value -- -- -- -- --
-------- -------- -------- ------- --------
Net asset value, end of year $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======= ========
TOTAL RETURN 4.45% 4.73% 2.66% 2.10% 3.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000) $165,185 $137,245 $144,415 $81,874 $125,445
Ratio of expenses to average net assets 1.10% .99% .90% 1.39% 1.04%
Ratio of expenses, net of reimbursement, to average
net assets .96% .99% .90% 1.39% 1.04%
Ratio of net investment income to average net assets 4.61% 4.62% 2.77% 2.50% 3.65%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
PAGE
TEMPLETON MONEY FUND
Investment Portfolio, August 31, 1996
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ANNUALIZED
PRINCIPAL MATURITY YIELD AT DATE VALUE
AMOUNT DATE OF PURCHASE (NOTE 1)
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
BONDS--GOVERNMENT AND GOVERNMENT AGENCIES: 66.3%
- ---------------------------------------------------------------------------------------------------------------------------
FEDERAL FARM CREDIT BANK:
$ 605,000 9/05/96 5.25% $ 604,647
8,000,000 9/23/96 5.16 7,974,773
8,000,000 9/25/96 5.14 7,972,587
8,000,000 10/02/96 5.17 7,964,384
5,000,000 10/02/96 5.54 5,000,087
8,000,000 10/10/96 5.15 7,955,367
FEDERAL HOME LOAN BANK:
8,000,000 9/04/96 5.25 7,996,500
5,000,000 9/09/96 5.21 4,994,211
6,000,000 9/30/96 5.22 5,974,770
2,500,000 10/03/96 5.23 2,488,378
2,000,000 10/30/96 5.60 1,999,684
FEDERAL HOME LOAN MORTGAGE CORP.:
1,300,000 9/03/96 5.22 1,299,623
8,000,000 9/12/96 5.27 7,987,118
8,000,000 9/18/96 5.22 7,980,280
8,000,000 10/03/96 5.21 7,962,951
FEDERAL NATIONAL MORTGAGE ASSN.:
5,020,000 9/09/96 5.22 5,014,177
8,000,000 9/24/96 5.29 7,972,962
2,500,000 10/11/96 5.23 2,485,472
8,000,000 10/23/96 5.17 7,940,258
------------
TOTAL BONDS--GOVERNMENT AND GOVERNMENT AGENCIES (cost $109,568,229) 109,568,229
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MATURITY
VALUE
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: 33.5%
- ---------------------------------------------------------------------------------------------------------------------------
BANK OF AMERICA:
Collateralized by $27,740,000, U.S. Treasury
Note,
6.25%, 7/31/98, value $27,809,350 27,259,000 9/03/96 5.23 27,259,000
UBS SECURITIES INC.:
Collateralized by $28,201,000, U.S. Treasury
Note,
7.25%, 2/15/98, value $28,588,764 28,000,000 9/03/96 5.24 28,000,000
------------
TOTAL REPURCHASE AGREEMENTS (cost $55,259,000) 55,259,000
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS: 99.8% (cost $164,827,229*) 164,827,229
OTHER ASSETS, LESS LIABILITIES: 0.2% 357,829
------------
TOTAL NET ASSETS: 100.0% $165,185,058
============
</TABLE>
* COST FOR FEDERAL INCOME TAXES IS THE SAME AS VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
5
PAGE
TEMPLETON MONEY FUND
Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996
Assets:
Investments in securities, at value
and cost $164,827,229
Cash 139,255
Receivables:
Fund shares sold 908,991
Interest 107,152
------------
Total assets 165,982,627
------------
Liabilities:
Payables:
Fund shares redeemed 631,067
Dividends 24,266
Accrued expenses 142,236
------------
Total liabilities 797,569
------------
Net assets (equivalent to $1.00 per share
based on 165,185,058 outstanding
shares) $165,185,058
============
STATEMENT OF OPERATIONS
for the year ended August 31, 1996
Interest income: $8,421,331
Expenses:
Management fees (Note 3) $ 533,128
Administrative fees (Note 3) 217,045
Distribution fees (Note 3) 229,291
Transfer agent fees (Note 3) 478,500
Reports to shareholders 116,000
Registration and filing fees 51,900
Audit fees 9,600
Legal fees (Note 3) 14,000
Trustees' fees and expenses 15,030
----------
Total expenses 1,664,494
Less expenses reimbursed
(Note 3) (208,596)
----------
Total expenses less
reimbursement 1,455,898
----------
Net investment income 6,965,433
Net realized gain on investments 2,105
----------
Net increase in net assets
resulting from operations $6,967,538
==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
PAGE
TEMPLETON MONEY FUND
Financial Statements (cont.)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income $ 6,965,433 $ 9,494,808
Net realized gain (loss) on investment 2,105 (2,070)
------------ ------------
Net increase in net assets resulting from operations 6,967,538 9,492,738
Distributions to shareholders
from net investment income (6,967,538) (9,492,738)
Fund share transactions (Note 2) 27,939,650 (7,169,493)
------------ ------------
Net increase (decrease) in net assets 27,939,650 (7,169,493)
Net assets:
Beginning of year 137,245,408 144,414,901
------------ ------------
End of year $165,185,058 $137,245,408
============ ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
PAGE
TEMPLETON MONEY FUND
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
Templeton Money Fund (the Fund) is a separate series of Templeton Income Trust
(the Trust), a Massachusetts Business Trust, which is an open-end, diversified
management investment company registered under the Investment Company Act of
1940. The Fund seeks current income, stability of principal and liquidity by
investing in high quality money market instruments with maturities not exceeding
397 days, consisting primarily of short term U.S. Government securities, bank
certificates of deposit, time deposits, bankers' acceptances, commercial paper
and repurchase agreements. The following summarizes the Fund's significant
accounting policies.
A. SECURITIES VALUATIONS:
The Fund values securities utilizing the amortized cost valuation method, which
involves valuing a portfolio security at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium.
B. INCOME TAXES:
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
taxable income to its shareholders. Therefore, no provision has been made for
income taxes.
C. DIVIDENDS TO SHAREHOLDERS:
Dividends to shareholders are declared daily from investment income (including
realized capital gains and losses) and are paid monthly.
D. REPURCHASE AGREEMENTS:
The Fund, through its custodian, receives delivery of the underlying securities,
whose market is required to be at least 102% of the resale price at the time of
purchase. The Fund's investment manager, Templeton Investment Counsel, Inc., is
responsible for determining that the value of these underlying securities
remains at least equal to the resale price.
E. OTHER:
Investment transactions are accounted for on a trade date basis. Interest income
and estimated expenses are accrued daily.
F. 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. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
At August 31, 1996, there were an unlimited number of shares of beneficial
interest authorized ($.01 par value). Transactions in the Fund shares at net
asset value of $1.00 per share for the years ended August 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Shares sold 529,872,656 $ 529,872,656 508,966,058 $ 508,966,058
Shares issued on reinvestment of
distributions 6,342,705 6,342,705 8,706,019 8,706,019
Shares redeemed (508,275,711) (508,275,711) (524,841,570) (524,841,570)
------------ ------------- ------------ -------------
Net increase (decrease) 27,939,650 $ 27,939,650 (7,169,493) $ (7,169,493)
============ ============= ============ =============
</TABLE>
8
PAGE
TEMPLETON MONEY FUND
Notes to Financial Statements (cont.)
- --------------------------------------------------------------------------------
3. INVESTMENT MANAGEMENT FEES AND OTHER TRANSACTIONS WITH AFFILIATES
Certain officers of the Fund are also directors or officers of Templeton
Investment Counsel, Inc. (TICI), Templeton Global Investors, Inc. (TGII),
Franklin Templeton Distributors, Inc. (FTD), and Franklin Templeton Investor
Services, Inc. (FTIS), the Fund's investment manager, administrative manager,
principal underwriter and transfer agent, respectively.
The Fund pays monthly an investment management fee to TICI equal, on an annual
basis, to 0.35% per annum on the first $200 million of its average daily net
assets, 0.30% of the next $1.1 billion and 0.25% per annum of such average daily
net assets in excess of $1.3 billion. The Fund pays TGII monthly its allocated
share of an administrative fee of 0.15% per annum on the first $200 million of
the Trust's aggregate average daily net assets, 0.135% of the next $500 million,
0.10% of the next $500 million and 0.075% per annum of such average net assets
in excess of $1.2 billion. During the period ended August 31, 1996, TICI has
voluntarily agreed to temporarily reduce its investment management fees by
0.20%. The amount of the reimbursement for the period ended August 31, 1996 is
set forth in the Statement of Operations. For the year ended August 31, 1996,
FTIS received fees of $478,500.
Pursuant to a Distribution Plan, the Fund reimburses FTD monthly (subject to a
limit of 0.15% per annum of the Fund's average daily net assets) for FTD's costs
and expenses in connection with any activity which is primarily intended to
result in sales of Fund shares. Such distribution fees are set forth in the
Statement of Operations. Under the distribution plan, costs and expenses
exceeding the maximum may be reimbursed in subsequent periods. At August 31,
1996, unreimbursed expenses amounted to $8,955.
An officer of the Trust is a partner of Dechert Price & Rhoads, legal counsel
for the Fund, which firm received fees of $14,000 for the year ended August 31,
1996.
9
PAGE
TEMPLETON MONEY FUND
Independent Auditor's Report
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
Templeton Money Fund--Income Trust
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of Templeton Money Fund, a series of Templeton Income
Trust, as of August 31, 1996, and the related statement of operations for the
year then ended, the statement of changes in net assets for each of the two
years in the period then ended, and the financial highlights for the periods
indicated in the accompanying financial statements. 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
August 31, 1996 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
Templeton Money Fund as of August 31, 1996, the results of its operations, the
changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
[McGladrey & Pullen, LLP]
New York, New York
September 27, 1996
10
PAGE
NOTES
PAGE
LITERATURE REQUEST
- --------------------------------------------------------------------------------
For a free brochure and prospectus, which contain more complete information,
including charges and expenses, call Franklin Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236). Please read the prospectus carefully before you
invest or send money. To ensure the highest quality of service, telephone calls
to or from our service departments may be monitored, recorded and accessed.
These calls can be determined by the presence of a regular beeping tone.
FRANKLIN TEMPLETON GROUP
GLOBAL GROWTH INCOME
Franklin Global Health Franklin Adjustable Rate
Care Fund Securities Fund
Franklin Templeton Franklin Adjustable U.S.
Japan Fund Government Securities Fund
Templeton Developing Franklin's AGE High
Markets Trust Income Fund
Templeton Foreign Fund Franklin Investment Grade
Templeton Foreign Smaller Income Fund
Companies Fund Franklin Short-Intermediate U.S.
Templeton Global Government Securities Fund
Infrastructure Fund Franklin U.S. Government
Templeton Global Securities Fund
Opportunities Trust Franklin Money Fund
Templeton Global Franklin Federal Money Fund
Real Estate Fund
Templeton Global Smaller FOR NON-U.S. INVESTORS:
Companies Fund
Templeton Greater Franklin Tax-Advantaged
European Fund High Yield Securities Fund
Templeton Growth Fund Franklin Tax-Advantaged
Templeton Latin America International Bond Fund
Fund Franklin Tax-Advantaged U.S.
Templeton Pacific Government Securities Fund
Growth Fund
Templeton World Fund FOR CORPORATIONS:
GLOBAL GROWTH AND INCOME Franklin Corporate Qualified
Dividend Fund
Franklin Global Utilities Fund
Franklin Templeton German FRANKLIN FUNDS SEEKING
Government Bond Fund TAX-FREE INCOME
Franklin Templeton
Global Currency Fund Federal Intermediate-Term
Templeton Global Bond Fund Tax-Free Income Fund
Templeton Growth and Federal Tax-Free Income Fund
Income Fund High Yield Tax-Free
Income Fund
GLOBAL INCOME Insured Tax-Free Income Fund
Puerto Rico Tax-Free
Franklin Global Government Income Fund
Income Fund Tax-Exempt Money Fund
Franklin Templeton Hard
Currency Fund FRANKLIN STATE-SPECIFIC
Franklin Templeton High FUNDS SEEKING
Income Currency Fund TAX-FREE INCOME
Templeton Americas
Government Securities Fund Alabama
Arizona*
GROWTH Arkansas**
California*
Franklin Blue Chip Fund Colorado
Franklin California Growth Fund Connecticut
Franklin DynaTech Fund Florida*
Franklin Equity Fund Georgia
Franklin Gold Fund Hawaii**
Franklin Growth Fund Indiana
Franklin MidCap Growth Fund Kentucky
Franklin Small Cap Growth Fund Louisiana
Maryland
GROWTH AND INCOME Massachusetts***
Michigan*
Franklin Asset Allocation Fund Minnesota***
Franklin Balance Sheet Missouri
Investment Fund New Jersey
Franklin Convertible New York*
Securities Fund North Carolina
Franklin Equity Income Fund Ohio***
Franklin Income Fund Oregon
Franklin MicroCap Value Fund Pennsylvania
Franklin Natural Resources Fund Tennessee**
Franklin Real Estate Texas
Securities Fund Virginia
Franklin Rising Dividends Fund Washington**
Franklin Strategic Income Fund
Franklin Utilities Fund VARIABLE ANNUITIES
Franklin Value Fund
Templeton American Trust, Inc. Franklin Valuemark(SM)
Franklin Templeton
Valuemark Income Plus
(an immediate annuity)
*Two or more fund options available: long-term portfolio, intermediate-term
portfolio, a portfolio of insured municipal securities, and/or a high yield
portfolio (CA) and a money market portfolio (CA and NY).
**The fund may invest up to 100% of its assets in bonds that pay interest
subject to the federal alternative minimum tax.
***Portfolio of insured municipal securities. 10/96.1
PAGE
