Institutional
Fiduciary Trust
Prospectus
November 1, 1995
Money Market Portfolio
Franklin U.S. Government Securities
Money Market Portfolio
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of eight separate and distinct series. This
Prospectus relates only to the Money Market Portfolio (the "Money Fund") and the
Franklin U.S. Government Securities Money Market Portfolio (the "U.S. Securities
Fund") (also the "Fund" or "Funds"), two no load diversified series of the
Trust. The Funds are designed for institutional accounts, such as corporations,
banks, savings and loan associations, trust companies, and other institutional
entities, for investment of their own capital and of monies held in accounts for
which they act in a fiduciary, advisory, agency, custodial, or other similar
capacity. The U.S. Securities Fund is also designed for government authorities
and agencies. Shares of each Fund may not be purchased by individuals.
Shares of each Fund may be purchased at net asset value, with no sales charge,
with a minimum initial investment of $100,000, except that government entities,
including states, counties, cities, and their instrumentalities, departments,
agencies and authorities, may open an account in either Fund with a minimum
initial investment of $1,000.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Funds that a prospective investor should
know before investing. After reading the Prospectus, it should be retained for
future reference; it contains information about the purchase and sale of shares
and other items which a prospective investor will find useful to have.
SHARES OF THE FUNDS 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 THE FUNDS INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Trust in general
and the Funds, dated November 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus and other
matters which may be of interest to some investors. It has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Funds or the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc., ("Distributors"),
at the address or telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The investment objectives of the Money Fund are high current income consistent
with capital preservation and liquidity. The investment objectives of the U.S.
Securities Fund are capital preservation and liquidity while seeking high
current income consistent with capital preservation and liquidity. EACH FUND,
UNLIKE MOST FUNDS WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS
OBJECTIVES BY INVESTING ITS ASSETS IN THE SHARES OF ANOTHER INVESTMENT COMPANY
(A "MASTER FUND") WHOSE INVESTMENT OBJECTIVES ARE SUBSTANTIALLY SIMILAR TO THAT
OF THE FUND (A "FEEDER FUND"). THE MASTER FUND, IN TURN, INVESTS ITS ASSETS IN
THE SAME TYPE OF MONEY MARKET INSTRUMENTS IN WHICH THE FEEDER FUND IS AUTHORIZED
TO INVEST.
The Money Fund seeks to achieve its objectives by investing its assets in The
Money Market Portfolio (the "Money Portfolio"). The Money Portfolio, in turn,
invests in various types of money market instruments (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 U.S. Securities Fund seeks to achieve its objectives by investing its assets
in shares of The U.S. Government Securities Money Market Portfolio (the "U.S.
Securities Portfolio"). At the present time, it is the U.S. Securities
Portfolio's policy to limit its portfolio investments to U.S. Treasury bills,
notes and bonds and to repurchase agreements collateralized only by such
securities. This policy may only be changed upon 30 days' written notice to
shareholders and to the National Association of Insurance Commissioners.
AN INVESTMENT IN EITHER FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT EITHER FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
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.
Contents Page
Expense Table 4
Financial Highlights 5
About the Trust 6
Investment Objectives and
Policies of each Fund 6
Administration of the Funds 12
Distributions to Shareholders 14
Taxation of the Funds
and Their Shareholders 14
How to Buy Shares of the Funds 15
Valuation of Shares of the Funds 17
How to Sell Shares of the Funds 18
Exchange Privilege 20
Telephone Transactions 22
Special Services 23
How to Get Information Regarding
an Investment in a Fund 23
Performance 24
General Information 24
Important Notice Regarding
Taxpayer IRS Certifications 25
Expense Table
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Funds, including the expenses of the
Portfolio in which each Fund invests. These figures are based on aggregate
operating expenses of the Funds, before fee waivers and expense reductions, for
the fiscal year ended June 30, 1995, including those attributable to the
Portfolio in which each Fund invests its assets.
<TABLE>
<CAPTION>
Money U.S. Securities
Fund Fund
Shareholder Transaction Expenses
<S> <C> <C>
Exchange Fees $5.00* $5.00*
Annual Operating Expenses (as a percentage of
average net assets)
Management Fees and Administration Fees 0.20%** 0.20%**
12b-1 Fees 0.00%*** 0.00%***
Other Expenses of the Fund 0.03% 0.02%
Other Expenses of the Respective Portfolio 0.01% 0.01%
Total Operating Expenses 0.24%** 0.23%**
</TABLE>
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
**Represents the amount before fee waivers and expense reductions. Franklin
Advisers, Inc. ("Advisers"), the Fund's administrator and the Portfolio's
investment manager, agreed in advance to waive all of its administration fee and
a portion of its management fee, as well as to make certain payments to reduce
expenses of the Fund. With these fee waivers and expense reductions, total
operating expenses represented 0.40% of the average net assets of the Fund,
including the Fund's share of the Portfolio's management fee and total operating
expenses, including the management fee, of 0.14% and 0.15%, respectively.
***The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 for each Fund whereby each Fund
may pay Distributors or others for promotion and distribution expenses up to
0.15% annually of each Fund's average daily net assets. The Funds have not been
required to make payments for such expenses.
Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in a Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in each Fund over various time
periods assuming (1) a 5% annual rate of return, and (2) redemption at the end
of each time period.
Fund One year Three years Five years Ten years
Money Fund $2 $8 $14 $31
U.S. Securities Fund $2 $7 $13 $29
THIS EXAMPLE IS BASED ON THE AGGREGATE OPERATING EXPENSES OF EACH FUND AND
PORTFOLIO BEFORE FEE WAIVERS AND EXPENSE REDUCTIONS SHOWN ABOVE AND SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. The operating expenses are borne by a Fund and only
indirectly by shareholders as a result of their investment in such Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but a Fund's actual return may be more or less than 5%.
The preceding table summarizes the aggregate fees and expenses incurred by each
Fund and its respective Portfolio. The Board of Trustees of the Trust (the
"Board") considered the aggregate fees and expenses to be paid by both the Fund
and the Portfolio under each Fund's policy of investing its assets in shares of
a Portfolio, and such fees and expenses each Fund would have paid if it had
continued to invest directly in the various types of money market instruments.
Because this arrangement enables eligible institutional investors, including the
Funds and other investment companies, to pool their assets, which may be
expected to result in the achievement of a variety of operating economies, the
Board concluded that the combined expenses of each Fund and Portfolio were
expected to be lower than the expenses that would be incurred by each Fund if it
continued to invest directly in various types of money market instruments. Of
course, there is no guarantee or assurance that asset growth and lower expenses
will be recognized. Advisers has agreed in advance to waive administration and
management fees and to make certain other payments in order to reduce the
expenses of the Fund so that in no event will shareholders of the Funds incur
higher expenses than if the Funds continued to invest directly in various types
of money market instruments (see "Administration of the Funds").
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
each Fund from the effective date of the registration statement for each Fund as
indicated below through the fiscal years ended June 30, 1995. The information
for each of the five fiscal years in the period ended June 30, 1995, has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose audit report
thereon appears in the financial statements in the Trust's Annual Report to
Shareholders, dated June 30, 1995. The remaining figures, which are also
audited, are not covered by the auditor's current report.
<TABLE>
<CAPTION>
Per Share Operating Performance** Ratios/Supplemental Data
Net Asset Distributions Ratio of Ratio of
Period Values Net From Net Net Asset Net Assets Expenses Net Income
Ended at Beginning Investment Investment Values at Total at End of Year to Average to Average
June 30 of Year Income Income End of Year Return*** (in 000's) Net Assets4 Net Assets
Money Market Portfolio:
<S> <C> <C> <C> <C> <C> <C> <C>
19861 $1.00 $0.060 $(0.060) $1.00 5.23% $ 20,183 - 5.58%*
1987 1.00 0.061 (0.061) 1.00 6.30 45,141 - 6.21
1988 1.00 0.070 (0.070) 1.00 7.23 101,660 0.05% 7.00
1989 1.00 0.086 (0.086) 1.00 8.97 122,216 0.25 8.68
1990 1.00 0.083 (0.083) 1.00 8.65 236,199 0.25 8.27
1991 1.00 0.071 (0.071) 1.00 7.28 231,655 0.25 7.11
1992 1.00 0.046 (0.046) 1.00 4.72 188,846 0.25 4.69
1993 1.00 0.033 (0.033) 1.00 3.30 222,282 0.203 3.25
1994 1.00 0.033 (0.033) 1.00 3.35 218,254 0.153 3.24
1995 1.00 0.053 (0.053) 1.00 5.46 272,147 0.153 5.40
Franklin U.S. Government Securities Money Market Portfolio:
19882 1.00 0.024 (0.024) 1.00 5.40 22,080 - 6.32*
1989 1.00 0.080 (0.080) 1.00 8.28 54,003 - 8.37
1990 1.00 0.084 (0.084) 1.00 8.68 203,153 0.21 8.27
1991 1.00 0.070 (0.070) 1.00 7.13 373,371 0.25 6.79
1992 1.00 0.045 (0.045) 1.00 4.55 195,286 0.25 4.59
1993 1.00 0.031 (0.031) 1.00 3.18 310,382 0.193 3.12
1994 1.00 0.032 (0.032) 1.00 3.25 218,547 0.153 3.20
1995 1.00 0.052 (0.052) 1.00 5.32 334,830 0.153 5.26
</TABLE>
*Annualized.
**Selected data for a share of beneficial interest outstanding throughout the
year.
***Total return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends and capital gains at net asset
value.
1For the period June 17, 1985 (effective date) to June 30, 1986.
2For the period January 19, 1988 (effective date) to June 30, 1988.
3Includes the Funds' share of the Portfolios' allocated expenses.
4During the periods indicated, Advisors agreed in advance to waive a portion of
its administration and management fees and made payments of other expenses
incurred by the Funds. 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
Money Market Portfolio
1988 0.079%
1989 0.078
1990 0.074
1991 0.71
1992 0.74
1993 0.49
1994 0.25
1995 0.24
Ratio of Expenses
to Average Net Assets
Franklin U.S. Government Securities
Money Market Portfolio:
1988 0.57%*
1989 0.70
1990 0.62
1991 0.56
1992 0.59
1993 0.45
1994 0.25
1995 0.23
About the Trust
The Trust, organized as a Massachusetts business trust in January 1985, is an
open-end management investment company, or mutual fund, and has registered with
the SEC under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved.
Shares of a Fund may be acquired at the current net asset value (without a sales
charge). The minimum initial investment is $100,000, except that states,
counties, cities and their instrumentalities, departments, agencies and
authorities may open an account in a Fund by investing a minimum of $1,000.
There is no minimum on subsequent investments. (See "How to Buy Shares of the
Fund.")
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Funds - Rights of Accumulation/Letter of Intent
Regarding Other Funds," currently offer their shares in two classes, designated
"Class I" and "Class II." Classes of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes. Shares of the Funds may be considered Class I shares
for purposes of the programs and privileges discussed in this Prospectus.
Investment Objectives
and Policies of each Fund
The investment objectives of the Money Fund are high current income consistent
with capital preservation and liquidity. The Money Fund's ability to achieve
high current income is limited by the Money Portfolio's universe of investments,
which are high quality money market instruments, which consist of 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 investment objectives of the U.S. Securities Fund are capital
preservation and liquidity while seeking high current income consistent with
capital preservation and liquidity. Each Fund pursues its investment objectives
by investing its assets in a master fund which has substantially similar
investment objectives and policies as the Fund.
The U.S. Securities Portfolio and the Money Portfolio (the "Portfolio" or
"Portfolios") are the master funds and are separate diversified series of The
Money Market Portfolios, an open-end management investment company managed by
Advisers, whose shares are acquired by the feeder funds at net asset value, with
no sales charge. Accordingly, an investment in a Fund is an indirect investment
in its respective Portfolio.
Special Information Regarding the
Funds' Master/Feeder Fund Structure
The investment objectives of the Funds and the Portfolios are fundamental and
may not be changed without shareholder approval. The investment policies of the
Funds, fundamental and non-fundamental, are substantially similar to those
described herein with respect to the respective Portfolios, except that in all
cases, the Fund is permitted to pursue such policies by investing in an open-end
management investment company with substantially similar investment objectives,
policies and limitations. Any additional exceptions are noted below. Information
on administration and expenses is included under "Administration of the Funds;"
see the SAI for information regarding the Funds' and the Portfolios' investment
restrictions.
An investment in a Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in a Portfolio, the Fund'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 a Portfolio that have a greater pro rata
ownership interest in the Portfolio than that of the Fund could have effective
voting control over the operation of the Portfolio. Further, in the event that
the shareholders of a Fund do not approve a proposed future change in the Fund's
objectives or fundamental policies, which has been approved for the Portfolio in
which that Fund invests, the Fund may be forced to withdraw its investment from
the Portfolio and seek another investment company with the same objectives and
policies. If the Board considers that it is in the best interests of that Fund
to do so, 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 the assets of the Fund in another pooled investment entity having
the same investment objectives and policies as that Fund or the hiring of an
investment adviser to manage the Fund's investments. Either circumstance may
cause an increase in expenses for that Fund. Further, the Funds' structure is a
relatively new format, which often results in certain operational and other
complexities. The Franklin organization, however, was one of the first mutual
fund complexes in the country to implement such a structure and the trustees do
not believe that the additional complexities outweigh the benefits to be gained
by shareholders.
The Franklin Group of Funds(R) has three other funds which invest in the Money
Portfolio, one of which is designed for institutional investors only and one of
which is only available to holders of Class II shares in the Franklin Templeton
Funds, as defined under "How to Buy Shares of the Fund - Rights of
Accumulation/Letter of Intent Regarding Other Funds," and only pursuant to that
fund's exchange privilege. The Franklin Group of Funds has one other fund which
also invests in the U.S. Securities Portfolios. It is possible that in the
future other funds may be created which may likewise invest in the Portfolios or
existing funds may be restructured so that they may invest in the Portfolios.
The Funds or Distributors will forward any interested shareholder additional
information, including a prospectus and SAI, if requested, regarding such other
institutions through which they may make investments in the Portfolios.
The Portfolios are series of The Money Market Portfolios, a management
investment company registered under the 1940 Act. Money Market is a Delaware
business trust organized on June 16, 1992 and is authorized to issue an
unlimited number of shares of beneficial interest with a par value of $.01 per
share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. The Money Market Portfolios currently issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Money Market Portfolios, the assets and
liabilities of which will be separate and distinct from any other series.
Whenever a Fund, as an investor in a Portfolio, is asked to vote on a matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted.
General
As required by Rule 2a-7 under the 1940 Act, each Portfolio will limit its
investments to those U.S. dollar denominated instruments which the Board of
Trustees of The Money Market Portfolios 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 ("Eligible Securities"). Each
Portfolio will maintain a dollar weighted average maturity of the securities in
its portfolio of 90 days or less. As a matter of fundamental policy, each
Portfolio is required to invest 100% of its assets in securities which have
remaining maturities of 397 days or less. Neither Portfolio will invest more
than 5% of its total assets in Eligible Securities of a single issuer (the Money
Portfolio's fundamental policy in regard to diversification applies to 75% of
the Portfolio's total assets), other than U.S. government securities, rated in
the highest category by the requisite number of rating organizations, except
that a Portfolio may exceed that limit as permitted by Rule 2a-7 for a period of
up to three business days. Neither Portfolio will invest (a) the greater of 1%
of its total assets or $1 million in Eligible Securities issued by a single
issuer rated in the second highest category nor (b) more than 5% of its total
assets in Eligible Securities of all issuers rated in the second highest
category.
Each Fund's policies, fundamental and non-fundamental, with respect to Rule 2a-7
and otherwise, are substantially similar to those of its respective Portfolio,
except that each Fund may pursue its policies by investing in another open-end
investment company that has substantially similar policies, such as the
Portfolios.
Because each Portfolio will limit its investments to high quality securities,
there will be generally lower yields than if each Portfolio purchased securities
with a lower rating and correspondingly greater risk.
Description of Securities in
Which the Portfolios May Invest
The Money Portfolio
The Money Portfolio invests its assets in various types of money market
instruments, which consist of 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). An explanation of the various types of money market
instruments follows. Since all investments are inherently subject to market
risk, no assurances can be given that the Money Portfolio will achieve its
stated objective.
The U.S. Securities Portfolio
The U.S. Securities Portfolio may invest only in marketable securities issued or
guaranteed by the U.S. government, by various agencies of the U.S. government
and by various instrumentalities which have been established or sponsored by the
U.S. government. As a fundamental policy subject to change only by shareholder
approval, the U.S. Securities Portfolio will invest only in obligations,
including U.S. Treasury bills, notes, bonds and securities of the Government
National Mortgage Association and the Federal Housing Administration, which are
issued or guaranteed by the U.S. government or which carry a guarantee that is
supported by the full faith and credit of the U.S. Repurchase agreements with
respect to obligations issued or guaranteed by the U.S. government and supported
by the full faith and credit of the U.S. are included within this fundamental
policy. The U.S. Securities Fund's fundamental policy in this regard permits it
to invest in another open-end investment company which also has such a policy.
At the present time, it is the U.S. Securities Portfolio's policy to limit its
portfolio investments to U.S. Treasury bills, notes and bonds and to repurchase
agreements collateralized only by such securities. This policy may only be
changed upon 30 days' written notice to shareholders and to the National
Association of Insurance Commissioners.
These U.S. government securities and repurchase agreements, with respect to such
securities, are specifically permitted for investment through mutual funds by
California local agencies pursuant to California Government Code Sections 53601
and 53635.
U.S. Government Securities. The Money Portfolio may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the U.S.
government. 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 that are 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 that are supported by the credit of the
instrumentality, such as Federal National Mortgage Association ("FNMA") bonds.
Municipal Securities. The Money 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, which are considered by the Money Portfolio to
be Eligible Securities. 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.
Repurchase Agreements. Each Portfolio may engage in repurchase transactions, in
which it purchases 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 to the Portfolio 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 securities marked to market daily to maintain
coverage of at least 100%. A default by the seller might cause a Portfolio to
experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Portfolio might also incur disposition costs in
liquidating the collateral. The Portfolios, however, intend to enter into
repurchase agreements only with financial institutions such as broker-dealers
and banks which are deemed creditworthy by the Portfolios' investment manager. A
repurchase agreement is deemed to be a loan under the 1940 Act. The U.S.
government security subject to resale (the collateral) will be held on behalf of
a Portfolio by a custodian approved by the Portfolios' Board and will be held
pursuant to a written agreement.
Securities subject to repurchase agreements will be deemed to have a maturity
date coincident with the date upon which the Portfolio has agreed to resell such
securities. Securities subject to unconditional puts will be deemed to mature on
the exercise date of the put.
The U.S. Securities Portfolio may not enter into a repurchase agreement with
more than seven days to maturity if, as a result, more than 10% of the market
value of its total assets would be invested in repurchase agreements, together
with any other investments for which market quotations are not readily
available.
Bank Obligations. The Money Portfolio may invest in bank obligations or
instruments secured by bank obligations. Such 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 Money
Portfolio may invest only up to 25% of its assets in obligations of foreign
branches of U.S. or foreign banks. Investments in obligations of U.S. branches
of foreign banks, which 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. Accordingly, these branches are subject
to comparable regulation as U.S. banks. (See "Investment Risk Considerations"
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 Money Portfolio may not invest more than 10% of its assets in
time deposits with maturities in excess of seven calendar days.
Commercial Paper. The Money Portfolio may invest in commercial paper of domestic
or foreign issuers which is considered by the Money Portfolio to present minimal
credit risks and which is considered to be an Eligible Security. For a
description of commercial paper ratings, see the SAI.
Commercial paper obligations may include variable amount master demand notes
that are obligations which permit the investment of fluctuating amounts at
varying rates of interest pursuant to direct arrangements between the Money
Portfolio (or the Money Fund), as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Money Portfolio has the right to
increase the amount provided by the note agreement, or to 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 which 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 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 such 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 Money Portfolio's right to redeem is
dependent on the ability of the borrower to pay principal and interest on
demand. In connection with master demand note arrangements, the Money
Portfolio's investment manager will consider earning power, cash flow and other
liquidity ratios of the issuer. The Money Portfolio, which has no specific
limits on aggregate investments in master demand notes, will invest in notes of
only U.S. issuers.
Corporate Obligations. The corporate obligations which the Money Portfolio may
purchase are fixed, floating and variable rate bonds, debentures or notes which
are considered by the Money Portfolio to be Eligible Securities. Such
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.
Investment Risk Considerations
of the Money Portfolio
Any of the Money Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign issuers
will 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. In addition, there may be less publicly available information
about such foreign banks or foreign issuers of commercial paper.
The Money Portfolio may also purchase and sell securities on a "when-issued" and
"delayed delivery" basis. These transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. When the
Money Portfolio is the buyer in such a transaction, it will maintain, in a
segregated account with its custodian, cash or high-grade marketable securities
having an aggregate value equal to the amount of such purchase commitments until
payment is made. To the extent the Money 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. 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
purchased on a when-issued or delayed delivery basis do not generally earn
interest until their scheduled delivery date.
Other Policies
As fundamental policies, the Money Portfolio may only borrow from banks, not to
exceed 5% of its total assets, for temporary or emergency purposes and pledge up
to 5% of its assets for such borrowing. To generate additional income, the Money
Portfolio may also lend its portfolio securities to securities dealers or other
institutional investors if at least 100% cash collateral is pledged and
maintained by the borrower, although such loans shall not exceed at any time 25%
of the value of the Money Portfolio's total assets. The Money Portfolio may not
acquire securities subject to legal or contractual restrictions on resale,
securities which are not readily marketable, or enter into repurchase agreements
or master demand notes with more than seven days to maturity if, as a result,
more than 10% of the value of its total assets would be invested in such
repurchase agreements or securities.
The U.S. Securities Portfolio may borrow from banks, for temporary emergency
purposes only, and pledge its assets for such loans, up to 10% of its total net
assets. No new investments will be made while any outstanding loans exceed 5% of
its total net assets. The U.S. Securities Portfolio may also make loans of its
portfolio securities not in excess of 10% of the value of its total net assets.
The U.S. Securities Portfolio will engage in security loan arrangements with the
primary objective of increasing its income through investment of the cash
collateral in short-term interest bearing obligations, but will do so only to
the extent consistent with its tax status as a regulated investment company.
Whenever a Portfolio believes market conditions are such that yields could be
increased by actively trading its portfolio securities to take advantage of
short-term market variations, it may do so without restriction or limitation
(subject to the tax requirements for qualification as a regulated investment
company).
The Portfolios may purchase or sell securities without regard to the length of
time the security has been held. The yield on certain instruments held by the
Portfolios may decline if withdrawn prior to maturity. The Funds and the
Portfolios are subject to a number of additional investment restrictions, some
of which may be changed only with the approval of a majority of either the
Fund's or the Portfolio's shareholders. For a list of these restrictions and
more information concerning the various transactions mentioned above, please
refer to the SAI.
The Money 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 Money 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 secured by such 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 Internal Revenue Code.
Administration of the Funds
The Board has the primary responsibility for the overall management of the
Trust, including the Funds, and for electing the officers of the Trust who are
responsible for administering the day-to-day operations of all series of the
Trust. For information concerning the officers and trustees of the Trust and The
Money Market Portfolios, see "Trustees and Officers" in the SAI of the Funds.
The Board, with all of the disinterested trustees as well as interested trustees
voting in favor, has adopted written procedures designed to deal with potential
conflicts of interest which may arise from the fact of having the same persons
serving on each Trust's Board of Trustees. The procedures call for an annual
review of each Fund's relationship to its respective Portfolio, and, in the
event a conflict is deemed to exist, the Board may take action, up to and
including the establishment of a new Board. The Board has determined that there
are no conflicts of interest presented by this arrangement at the present time.
Further information is included in the SAI.
Franklin Advisers, Inc., serves as both Funds' administrator and as the
Portfolios' investment manager. 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. Resources is engaged in various aspects of the financial services
industry through its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 34 U.S. registered
investment companies (116 separate series) with aggregate assets of over $76
billion.
The Portfolios have separate management agreements with Advisers which provide
for the supervision and implementation of each Portfolio's investment activities
and provides certain administrative services and facilities which are necessary
to conduct a Portfolio's business.
During the fiscal year ended June 30, 1995, management and administration fees
and total expenses, before any advance fee waivers, totaled 0.20% and 0.24%,
respectively, of the Money Fund's average daily net assets, and 0.20% and 0.23%,
respectively, of the U.S. Securities Fund's average daily net assets. Advisers,
however, has agreed in advance to waive all of its administration fee and a
portion of the management fee, as well as to make certain other payments to
reduce expenses of the Fund. With these fee waivers and expense reductions,
total operating expenses represented 0.40% of the average daily net assets of
the Fund, including the Fund's share of the Portfolio management fee and total
operating expenses (including the management fee) of 0.14% and 0.15%,
respectively. This action may be terminated by Advisers upon notice to the
Board.
It is not anticipated that the Portfolios or the Funds will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded on a "net" basis, that is, in principal transactions which
involve the receipt by the broker of a spread between the bid and ask prices for
the securities, and not the receipt of commissions. To the extent that a
Portfolio does participate in transactions involving brokerage commissions, it
is Advisers' responsibility to select brokers through whom such transactions
will be effected. Advisers tries to obtain the best execution on all such
transactions. If it is felt that more than one broker or dealer is able to
provide the best execution, Advisers will consider the furnishing of quotations
and of other market services, research, statistical and other data for Advisers
and its affiliates, as well as the sale of shares of the Funds, as factors in
selecting a broker. Further information is included under "Execution of
Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Funds are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent") in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Plans of Distribution
Each Fund has adopted a Distribution Plan (the "Plans") pursuant to Rule 12b-1
under the 1940 Act. Under the Plans each Fund may reimburse Distributors or
others for expenses actually incurred by Distributors or others in the promotion
and distribution of the Funds' shares, including, but not limited to, the
printing of prospectuses and reports used for sales purposes, expenses of
preparing and distributing sales literature and distribution-related expenses,
advertisements, and other distribution-related expenses including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a service agreement with the
Funds, Distributors or its affiliates. The maximum amount which each Fund may
pay to Distributors or others for such distribution expenses is 0.15% per annum
of each Fund's average daily net assets, payable on a quarterly basis. All
expenses of distribution and marketing in excess of this limit will be borne by
Distributors or others incurring such expenses without reimbursement from the
Funds. The Plans also cover any payments to or by the Funds, Distributors, or
other parties on behalf of the Funds or Distributors, to the extent such
payments are deemed to be for the financing of any activity primarily intended
to result in the sale of shares issued by the Funds within the context of Rule
12b-1. There have been no payments made by the Funds under the Plans since
inception. For more information, please see the SAI.
Distributions to Shareholders
Each Fund 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 that
day. Daily allocations of dividends will commence on the day funds are wired in
accordance with procedures set forth in "How to Buy Shares of the Funds" or, if
an investor has sent a check, on the day the check is converted into federal
funds (which may take two or more days, depending upon the banks involved). 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 a Fund's net
investment income. Each Fund does not pay "interest" to its shareholders, nor is
any amount of dividends or return guaranteed in any way.
Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of a Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders (excluding
retirement plan participants) may request to have their dividends paid out
monthly in cash on the shareholder Account Application/Revision or by notifying
the Funds' transfer agent.
Since the net income of each Fund is declared as a dividend each time the net
income is determined, the net asset value per share of a Fund (i.e., the value
of the net assets of a Fund divided by the number of shares of such Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of such Fund in the
shareholder's account.
Each Fund's daily dividend consists of the income dividends paid by each Fund's
respective Portfolio. Each Portfolio's daily dividend includes accrued interest
and any original issue or market discount, less any premium amortization, 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 the estimated
expenses of each Portfolio. Net income is calculated immediately prior to the
determination of the net asset value per share of each Fund.
The SAI includes a further discussion of distributions.
Taxation of the Funds and Their Shareholders
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund intends to continue to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (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, each Fund will
not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from each 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 the shareholder has elected to receive them in cash or
in additional shares.
Since each Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon redemption or exchange of Fund shares.
Since each Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than qualifying dividend income, no portion of each
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
Each Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
Each Fund may be used for the investment of surplus funds of municipalities,
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. Section 115(1) of the Code provides, in part, that
gross income does not include income derived from the exercise of any essential
governmental function and accruing to a state, territory or political
subdivision thereof. To the extent that investments in a Fund are made in
connection with such functions, states and their political subdivisions will not
be subject to federal taxation on income or gains derived from an investment in
such Fund. Each Fund does not meet currently defined exceptions to the arbitrage
rebate requirements and a portion or all of the earnings distributed by a Fund
may be required to be paid over to the U.S. Treasury as rebatable arbitrage
earnings in accordance with the provisions of the Code.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in each
Fund and to distributions and redemption proceeds received from each Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.
How to Buy Shares of the Funds
The Funds are available for purchase by institutional accounts, such as
corporations, banks, savings and loan associations, trust companies, and other
institutional entities, for investment of their own capital and of monies held
in accounts for which they act in a fiduciary, advisory, agency, custodial, or
other similar capacity. The U.S. Securities Fund is also designed for government
authorities and agencies. Shares of either Fund may not be purchased by
individuals. Individuals who were investors in the U.S. Securities Fund prior to
August 1, 1991 may continue to purchase additional shares either through
reinvestment of dividends or through direct purchases. The shares of each Fund
are offered at their net asset value (with no sales charge) on a continuous
basis by each Fund. As each payment is received, full and fractional shares of a
Fund will be purchased at the net asset value next computed and proper entry
will be made on the books of the Funds. The minimum initial investment is
$100,000, except for states, counties, cities, and their instrumentalities,
departments, agencies and authorities, which may open an account in a Fund with
a minimum initial investment of $1,000. There is no minimum on subsequent
investments. The Funds and Distributors reserve the right to reject any order
for the purchase of shares or to waive the minimum investment requirements.
Investments may be made by any one of the following ways:
1. By Wire:
(a) First, call the Fund at 1-800/321-8563 or 1-415/312-3600 by 11:15 a.m.
Pacific time to advise of the intention to wire funds for investment.
Shareholders wishing to purchase shares in excess of $50,000 must first
complete an Institutional Telephone Privileges Agreement, as described
under "Telephone Transactions." If notification is received by 11:15 a.m.
Pacific time and funds are received in accordance with the following
paragraph (b), shares will be purchased that day and will be eligible to
receive that day's dividend, if any (same day credit). If a request to
begin the wire order process is not made by 11:15 a.m., the order will not
be in proper form for that day's purchase and will receive credit on the
next business day. The Fund will supply a wire control number for the
investment on that day. It is necessary to obtain a new wire control number
every time money is wired into an account in the Fund. Wire control numbers
are effective for one transaction only and may not be used more than once.
Wired money which is not properly identified with a currently effective
wire control number will be returned to the bank from which it was wired
and will not be credited to the shareholder's account.
(b) Next, wire funds to Bank of America, ABA routing number 121000358 for
credit to Institutional Fiduciary Trust - Money Market Portfolio or
Franklin U.S. Government Securities Money Market Portfolio, A/C 1493304779.
Be sure to include the wire control number, the Fund account number and
registration. Wired funds received by the bank and reported by the bank to
the Fund by the close of the Federal Reserve Wire System (currently 3:00
p.m. Pacific time) are normally available to purchase Fund shares on that
day, provided the Fund is timely notified as described in (a) above. Wires
received after 3:00 p.m. Pacific time are credited the following business
day. In order to maximize efficient Fund management, investors are urged to
place and wire their investments as early in the day as possible.
(c) If the purchase is not to an existing account, send a completed shareholder
Account Application/Revision to Institutional Fiduciary Trust - Money
Market Portfolio or Franklin U.S. Government Securities Money Market
Portfolio, at the address shown on the cover of this Prospectus, to assure
proper credit.
2. By Mail:
Many of the types of instruments in which the Portfolios invest must be paid for
in federal funds, which are monies held by its custodian bank on deposit at the
Federal Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid
by an investor for shares of a Fund generally cannot be invested by its
respective Portfolio until they are converted into and are available to that
Portfolio in federal funds, which may take up to two days. In such cases,
purchases by investors will generally not be considered in proper form and
effective until such conversion and availability. In the event a Portfolio is
able to make investments immediately (within one business day), a Fund may
accept a purchase order with payment other than in federal funds; in such event,
shares of a Fund will be purchased at the net asset value next computed after
receipt of the order and payments.
(a) For an initial investment, send a completed shareholder Account
Application/Revision.
(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Money Market Portfolio or Franklin U.S.
Government Securities Money Market Portfolio. Instruments drawn on other
investment companies will not be accepted.
(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Trust at the address shown on the cover of this Prospectus.
3. Through Securities Dealers
Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which executes
a dealer or similar agreement with Distributors, the Funds' principal
underwriter. The use of the term "securities dealers" shall include other
financial institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and accounts for the
group. Such reference, however, is for convenience only and does not indicate a
legal conclusion of capacity. The securities dealer may choose to wire or mail
the monies accompanying an investment in the Fund. Securities dealers who
process orders on behalf of their customers may charge a reasonable fee for
their services. Investments made directly, without the assistance of a
securities dealer, are without charge.
If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Funds, Distributors may make a payment,
out of its own resources, to such securities dealer. Please contact the Franklin
Templeton Institutional Services Department for additional information.
Rights of Accumulation/Letter of Intent
Regarding Other Funds
The cost or current value (whichever is higher) of the shares in a Fund will be
included in determining the sales charge discount to which an investor may be
entitled when purchasing shares in one or more of the funds in the Franklin
Group of Funds, and the Templeton Group of Funds which are sold with a sales
charge. Included for these purposes are (a) the mutual funds in the Franklin
Group except Franklin Valuemark Funds and Franklin Government Securities Trust
(the "Franklin Funds"), (b) other investment products underwritten by
Distributors or its affiliates (although certain investments may not have the
same schedule of sales charges and/or may not be subject to reduction), and (c)
the U.S. mutual funds in the Templeton Group of Funds except Templeton Capital
Accumulator Fund, Inc., Templeton Variable Annuity Fund, and Templeton Variable
Products Series Fund (the "Templeton Funds").(Franklin Funds and Templeton Funds
are collectively referred to as the "Franklin Templeton Funds.")
Purchases of Fund shares will also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Templeton Funds which
are sold with a sales charge.
For additional information regarding these programs, please contact Investor
Services or the Franklin Templeton Institutional Services Department by mail at
the address listed on the cover or by telephone at 1-800/321-8563.
Valuation of Shares of the Funds
The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by a Fund in proper form.
The net asset value of the shares of each Fund is computed at 12:30 p.m. Pacific
time each day that the New York Stock Exchange is open for trading and on which
there is sufficient degree of trading in the portfolio securities of the Fund
that the net asset value of that Fund's shares may be affected.
The net asset value per share for each Fund is calculated by adding the value of
the portfolio holdings (i.e., shares of the Portfolio in which the Fund invests)
and other assets, deducting that Fund's liabilities, and dividing the result by
the number of shares outstanding for that Fund.
The valuation of portfolio securities held by the Portfolios is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This 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.
How to Sell Shares of the Funds
1. By Telephone with Payment to a Preauthorized
Bank Account
A shareholder may redeem shares of a Fund, up to $50,000, by telephoning the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to redeem shares of a Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a shareholder Account Application/Revision, or
a signature guaranteed letter of instruction.
Telephone redemption orders may not be used to direct payments to another person
or to an account which was not previously designated by prior written
instructions. Written instructions will be required as set forth below.
A redemption payment may be transmitted by wire the same business day where a
request is received prior to 11:15 a.m. Pacific time that day. A shareholder
which anticipates requesting a same day wire redemption in excess of $5 million
should notify the Fund on the prior business day of the intention to request
such a redemption. In order to maximize efficient Fund management, investors
requesting same day wire redemptions of any size are urged to place redemption
orders as early in the day as possible. Payments will generally be transmitted
by wire on the business day following receipt of a request received after the
above deadline.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
2. By Mail:
A shareholder may redeem shares by sending a letter requesting redemption to the
Funds, at the address shown on the cover of this prospectus. Redemption proceeds
will be mailed to the registered address, or mailed or wired to a preauthorized
bank account as requested. Redemption proceeds may also be sent to another party
or account as requested; however, in such cases the signature(s) on the
redemption request must be guaranteed.
To be considered in proper form, the signature(s) of all registered owners or
previously designated signers must be guaranteed if the redemption request
involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to a party other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or
(4) the Funds or Investor Services believe that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of an account cannot
be confirmed, (b) a Fund has been notified of an adverse claim, (c) the
instructions received by a Fund are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of a Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership, trust, and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Consult court documents and the laws in the
state of the relevant court, since these accounts have varying requirements,
depending upon the applicable state.
For any information required about a proposed liquidation, a shareholder may
call the Franklin Templeton Institutional Services Department.
General
After requesting a liquidation from a Fund, a shareholder will receive the value
of the shares of that Fund in the shareholder's account based upon the net asset
value per share next computed on the day a request in proper form is received by
the Fund. Payment for written redemption requests will be sent within seven days
after receipt of a request in proper form, except that a Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase the shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with these checks will also be held pending clearance.
Shares purchased by federal funds wire are available for redemption on the
business day following their receipt. The right of redemption may be suspended
or the date of payment postponed if the New York Stock Exchange (the "Exchange")
is closed (other than customary closing) or upon the determination of the SEC
that trading on the Exchange is restricted or an emergency exists, or if the SEC
permits it by order, for the protection of shareholders. Of course, the amount
received on redemption may be more or less than the amount paid for the shares,
depending upon the fluctuations in the market value of the securities owned by a
Fund. Redemptions may be made in kind, under certain limited conditions as
discussed in the SAI.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Funds to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agents shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.
Contingent Deferred Sales Charge
The Funds do not impose either a front-end sales charge or a contingent deferred
sales charge. If, however, the shares redeemed are shares acquired by exchange
from another of the Franklin Templeton Funds which would have assessed a
contingent deferred sales charge upon redemption, such charge will be made by
the Funds, as described below. The 12-month contingency period will be tolled
(or stopped) for the period such shares are exchanged into and held in a Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month of such investments. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months. Shares subject
to a contingent deferred sales charge will then be redeemed on a "first in,
first out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
generally offered to the public with a sales charge (which may differ in timing
and/or amounts). If a shareholder's investment objective or outlook for the
securities markets changes, a Fund's shares may be exchanged for Class I shares
of other mutual funds in the Franklin Templeton Funds which are eligible for
sale in the shareholder's state of residence and in conformity with such fund's
stated eligibility requirements and investment minimums. Before making an
exchange, investors should review the prospectus of the fund they wish to
exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
minimum holding periods or applicable sales charges. By requesting an exchange,
a shareholder represents to the fund that the shareholder has done so.
Shares of a Fund acquired other than pursuant to the exchange privilege, or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of other Class I shares of the Franklin Templeton Funds. Such
offering price includes the applicable sales charge of the fund into which the
shares are being exchanged. The prospectuses for all investment companies in the
Franklin Templeton Funds which are normally sold with a sales charge allow
certain institutional investors to purchase Class I shares at net asset value
(without a sales charge). These institutional investors include government
entities, employee benefit plans, trust companies and bank trust departments.
Such exchanges will be effected as follows:
(a) From a Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is
received prior to 11:15 a.m. Pacific time, with payment for the purchased
shares processed on the following business day when the funds are made
available from the Fund.
(b) From a Fund into Class I shares of other Franklin Templeton Funds. The
exchange will be effected at the respective net asset values or offering
price of the funds involved next computed on the day on which the request
is received in proper form prior to 11:15 a.m. Pacific time. Requests
received after 11:15 a.m. will be effective at the price next computed on
the following business day.
(c) From another fund in the Franklin Templeton Funds into a Fund. In order to
avoid dilution of a Fund, such transactions will be handled as a
liquidation from the other fund at its net asset value next computed on the
day the exchange request is received in proper form prior to the time the
valuation of shares for that fund is effected (generally 3:00 p.m. Pacific
time for money market funds, excluding the money market funds in the Trust,
and 1:00 p.m. Pacific time for non-money market funds), and a purchase of
the Fund's shares on the following business day at the price computed on
such following business day when the funds for the purchase are available
and the purchase order is in all respects deemed to be in proper form.
The exchange privilege may be modified or discontinued by a Fund at any time
upon 60 days' written notice to shareholders.
Exchanges by Mail
Requests for an exchange of shares may be made
by mail. The exchange transaction will be effected upon receipt of written
instructions signed by all shareholders of record. Exchanges of shares of a Fund
for the Class I shares of other Franklin Templeton Funds will not involve
certificates because the Funds do not issue certificates.
Exchanges by Telephone
A shareholder may exchange shares of a Fund by telephone by calling the Franklin
Templeton Institutional Services Department at 1-800/321-8563. Shareholders
wishing to exchange shares of a Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement, as described under "Telephone
Transactions."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.
Timing Accounts
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
Restrictions on Exchanges
The Funds reserve the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of a Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of a Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of a Fund's net assets. Accounts under common ownership
or control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limit.
The Funds reserve the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in Advisers' judgment, a Fund would be
unable to invest effectively in accordance with its investment objectives and
policies, or would otherwise potentially be adversely affected. A shareholder's
purchase exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of a Fund's
assets. In particular, a pattern of exchanges that coincide with a "market
timing" strategy may be disruptive to a Fund and, therefore, may be refused.
A Fund and Distributors, also, as indicated under "How to Buy Shares of the
Funds," reserve the right to refuse any order for the purchase of shares.
Telephone Transactions
Shareholders of a Fund and their investment representatives of record, if any,
may be able to execute various transactions by calling the Franklin Templeton
Institutional Services Department at 1-800/321-8563.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (iii) transfer Fund shares in one account to another identically
registered account in a Fund, and (iv) purchase, redeem or exchange a Fund's
shares by telephone as described in this Prospectus. Shareholders who do not
wish these privileges extended to a particular account should notify a Fund or
the Franklin Templeton Institutional Services Department.
Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the telephone transaction
privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Agreement
included in the Fund's application or which may be obtained by calling the
number above.
Verification Procedures
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as a Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply or accept telephone
transaction privileges. In any instance where a Fund or Investor Services is not
reasonably satisfied that instructions received by telephone are genuine, the
requested transaction will not be executed, and neither a Fund nor Investor
Services will be liable for any losses which may occur because of a delay in
implementing a transaction.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
registered investment representative for assistance, or to send written
instructions to a Fund as detailed elsewhere in this Prospectus.
Neither the Funds nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
Special Services
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the Funds.
How to Get Information Regarding
an Investment in a Fund
Any questions or communications regarding a shareholder's account should be
directed to the Franklin Templeton Institutional Services Department at
1-800/321-8563, Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or other performance information specific to the Funds or any
Franklin Templeton Fund.
Fund information may be accessed by entering Code 40 for the Money Fund and Code
42 for the U.S. Securities Fund followed by the # sign. The system's automated
operator will prompt the caller with easy to follow step-by-step instructions
from the main menu. Other features may be added in the future.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
Performance
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance, including quotations of its current
and effective yield.
Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from a Fund during a seven-day period. It is computed 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. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.
In each case, performance figures are based upon past performance and will
reflect all recurring charges against a Fund's income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of a Fund, like all other investment
companies, will fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future or what a
Fund's performance may be in any future period.
General Information
Reports to Shareholders
The Trust's fiscal year ends June 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
Organization and Voting Rights
The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual shareholders
meetings. The Trust may, however, hold a special shareholders meeting for such
purposes as changing fundamental investment restrictions, approving a new
management agreement or any other matters which are required to be acted on by
shareholders under the 1940 Act. Whenever a Fund, as an investor in a Portfolio,
is asked to vote on a fundamental policy matter relating to that Portfolio, the
Trust, on behalf of the Fund, will hold a meeting of that Fund's shareholders
and will cast its votes in the same proportions as the Fund's shareholders have
voted. A meeting may also be called by the Board at their discretion or by
shareholders holding at least ten percent of the shares entitled to vote at the
meeting. Shareholders will receive assistance in communicating with other
shareholders in connection with the election or removal of trustees such as that
provided in Section 16(c) of the 1940 Act.
The Board may from time to time issue other series of the Trust, the assets and
liabilities of which will likewise be separate and distinct from any other
series of the Trust. Currently, the Trust consists of eight separate series,
including the Money Market Portfolio, the Franklin Late Day Money Market
Portfolio, the Franklin U.S. Government Securities Money Market Portfolio, the
Franklin U.S. Treasury Money Market Portfolio, the Franklin U.S. Government
Agency Money Market Fund, the Franklin Cash Reserves Fund, the Franklin
Institutional Adjustable U.S. Government Securities Fund and the Franklin
Institutional Adjustable Rate Securities Fund, each maintaining a totally
separate and distinct investment portfolio.
Other Information
Certain of the programs and privileges described in this Prospectus may not be
available directly from the Funds to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account.
Confirmations
Shares for an initial investment in a Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUNDS WILL NOT
BE ISSUED.
Redemption by the Funds
Each Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $20,000 ($500 for states,
counties, cities and their instrumentalities, departments, agencies and
authorities), but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares and has been inactive (except
for the reinvestment of distributions) for a period of at least six months,
provided advance notice is given to the shareholder. More information is
included in the SAI.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, each Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the shareholder Account
Application/Revision. A shareholder may also be subject to backup withholding if
the IRS or a securities dealer notifies a Fund that the TIN furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
Each Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
Institutional
Fiduciary Trust
Prospectus
November 1, 1995
Franklin Late Day
Money Market Portfolio
Franklin U.S. Treasury
Money Market Portfolio
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of eight separate and distinct diversified series.
This Prospectus relates only to the Franklin Late Day Money Market Portfolio
(the "Late Day Fund") (formerly Franklin Government Investors Money Market
Portfolio) and Franklin U.S. Treasury Money Market Portfolio (the U.S. Treasury
Fund) (also the "Fund" or "Funds"). The Funds are designed for institutional
accounts, such as corporations, banks, savings and loan associations, trust
companies and for government entities for investment of their own capital and of
monies held in accounts for which they act in a fiduciary, advisory, agency,
custodial, or other similar capacity, to the extent permitted by regulations
pertaining to permissible investments of such entities. Shares of the Funds may
not be purchased by individuals.
The investment objectives of the Late Day Fund are capital preservation and
liquidity while seeking high current income consistent with capital preservation
and liquidity. The investment objective of the U.S. Treasury Fund is to seek as
high a level of current income as is consistent with capital preservation and
liquidity.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Funds that a prospective investor should
know before investing. After reading the Prospectus, it should be retained for
future reference; it contains information about the purchase and sale of shares
and other items which a prospective investor will find useful to have.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A Statement of Additional Information ("SAI") concerning the Trust in general
and the Funds, dated November 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus and other
matters which may be of interest to some investors. It has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Funds or the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc., ("Distributors")
at the address or telephone number shown above.
SHARES OF THE FUNDS 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 THE FUNDS INVOLVE INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
Shares of the Late Day and the U.S. Treasury Funds may be purchased at net asset
value with no sales charge with a minimum initial investment of $100,000, except
for states, counties, cities, and their instrumentalities, departments, agencies
and authorities which may open an account in either Fund with a minimum initial
investment of $1,000. There is no minimum for subsequent investments in either
of the Funds.
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 representation
other than those contained in this Prospectus. Further information may be
obtained from the underwriter.
Contents Page
Expense Table 4
Financial Highlights 5
About the Trust 6
Investment Objectives and
Policies of the Funds 6
Management of the Funds 8
Distributions to Shareholders 10
Taxation of the Funds and
Their Shareholders 10
How to Buy Shares of the Funds 11
Valuation of Shares of the Funds 14
How to Sell Shares of the Funds 14
Exchange Privilege 17
Telephone Transactions 18
Special Services 20
How to Get Information Regarding
an Investment in a Fund 20
Performance 20
General Information 21
Important Notice Regarding
Taxpayer IRS Certifications 22
Expense Table
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Funds. These figures are based on aggregate
operating expenses of the Funds, before fee waivers and expense reductions, for
the fiscal year ended June 30, 1995.
Late Day U.S. Treasury
Fund Fund
Shareholder Transaction Expenses
Exchange Fee $5.00+ $5.00+
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees 0.63%* 0.25%*
12b-1 Fees 0.00%** 0.00%**
Other Expenses 0.12% 0.05%
Total Operating Expenses 0.75%* 0.30%*
+$5.00 fee is imposed only on Timing Accounts, as described under "Exchange
Privilege." All other exchanges are processed without a fee.
*Represent the management fees before any fee waivers by the investment manager.
The investment manager has agreed in advance, however, to waive a portion of its
management fees for each Fund. With these waivers, management fees represented
0.02% and 0.05% of the average daily net assets of the Late Day Fund and the
U.S. Treasury Fund, respectively, and total operating expenses represented 0.15%
of each Fund's average daily net assets.
**The Board of Trustees of the Trust has adopted a Plan of Distribution pursuant
to Rule 12b-1 under the Investment Company Act of 1940 for each Fund whereby
each may make payments to the investment manager for promotion and distribution
expenses up to 0.15% annually of the Late Day Fund and the U.S. Treasury Fund's
average daily net assets. The Late Day Fund and the U.S. Treasury Funds have not
been required to make payments for such expenses.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses
that apply to a $1,000 investment in each Fund over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the end of each
time period.
Fund 1 year 3 years 5 years 10 years
Late Day Fund $ 8 $24 $42 $93
Treasury Fund $ 3 $10 $17 $38
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF EACH FUND,
BEFORE FEE WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. The operating expenses are borne by a Fund and only
indirectly by shareholders as a result of their investment in such Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but a Fund's actual return may be more or less than 5%.
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
the Funds from the effective date of the registration statement for each fund as
indicated below through the fiscal year ended June 30, 1995. The information for
each of the five fiscal years in the period ended June 30, 1995, has been
audited by Coopers & Lybrand L.L.P., independent auditors, whose audit report
appears in the financial statements in the Funds' Annual Report to Shareholders
dated June 30, 1995. The remaining figures, which are also audited, are not
covered by the auditor's current report. See the discussion "Reports to
Shareholders" under "General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance** Ratios/Supplemental Data
Net Asset Distributions Ratio of Ratio of
Year Values Net From Net Net Asset Net Assets Expenses Net Income
Ended at Beginning Investment Investment Values at Total at End of Year to Average to Average
June 30 of Year Income Income End of Year Return*** (in 000's) Net Assets+++ Net Assets
Franklin Late Day Money Market Portfolio:
<S> <C> <C> <C> <C> <C> <C> <C>
1988+ $1.00 $.027 $(.027) $1.00 6.00% $ 36,838 -% 6.95%*
1989 1.00 .087 (.087) 1.00 9.10 108,365 0.05 9.14
1990 1.00 .083 (.083) 1.00 8.65 192,749 0.25 8.24
1991 1.00 .070 (.070) 1.00 7.19 167,704 0.25 7.01
1992 1.00 .045 (.045) 1.00 4.58 43,300 0.25 4.58
1993 1.00 .031 (.031) 1.00 3.15 23,130 0.15 3.12
1994 1.00 .032 (.032) 1.00 3.20 60,299 0.15 3.17
1995 1.00 .051 (.051) 1.00 5.26 24,809 0.15 5.05
Franklin U.S. Treasury Money Market Portfolio:
1992++ 1.00 .035 (.035) 1.00 3.59 194,223 0.02* 4.38*
1993 1.00 .031 (.031) 1.00 3.14 179,232 0.05 3.12
1994 1.00 .032 (.032) 1.00 3.23 195,135 0.05 3.17
1995 1.00 .051 (.051) 1.00 5.17 200,935 0.10 5.05
</TABLE>
*Annualized
**Selected data for a share of beneficial interest outstanding throughout the
year.
***Total return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends and capital gains at net asset
value.
+For the period January 19, 1988 (effective date) to June 30, 1988.
++For the period August 2, 1991 (effective date) to June 30, 1992.
+++During the periods indicated, the investment manager agreed in advance to
waive a portion of its management fees and made payments of other expenses
incurred by the Funds. 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
Franklin Late Day Money Market Portfolio
1988 0.63%*
1989 0.70
1990 0.63
1991 0.63
1992 0.67
1993 0.77
1994 0.81
1995 0.75
Ratio of Expenses
to Average
Net Assets
Franklin U.S. Treasury Money Market Portfolio
1992 0.31%*
1993 0.35
1994 0.30
1995 0.30
About the Trust
The Trust, organized as a Massachusetts business trust in January 1985, is an
open-end management investment company, or mutual fund, and has registered with
the SEC under the Investment Company Act of 1940 (the "1940 Act").
Each Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved.
Shares of each Fund may be purchased at net asset value (without a sales
charge). The minimum initial investment for the Late Day and the U.S. Treasury
Funds is $100,000, except that states, counties, cities and their
instrumentalities, departments, agencies and authorities may open an account by
investing $1,000 or more. There is no minimum for subsequent investments in
either of the Funds. Shares of the Funds may not be purchased by individuals.
(See "How to Buy Shares of the Funds.")
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Fund - Rights of Accumulation/Letter of Intent
Regarding Other Funds" currently offer their shares in two "classes," designated
"Class I" and "Class II." Classes of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes. Shares of the Funds may be considered Class I shares
for purposes of the programs and privileges discussed in this Prospectus.
Investment Objectives and
Policies of the Funds
General
The investment objectives of the Funds, as stated below, are fundamental
policies which cannot be changed without shareholder approval. Since all
investments are inherently subject to market risk, no assurances can be given
that the Funds will achieve their stated objectives.
The Late Day Fund's investment objectives are capital preservation and
liquidity, while seeking high current income consistent with capital
preservation and liquidity.
The U.S. Treasury Fund's investment objective is to seek as high a level of
current income as is consistent with capital preservation and liquidity.
The Funds must comply with adopted procedures pursuant to Rule 2a-7 under the
1940 Act. Each Fund will invest 100% of its assets in U.S. dollar denominated
securities with remaining maturities of 397 days or less, maintain the dollar
weighted average maturity of the securities in the Fund's portfolio at 90 days
or less, and limit its investments to those instruments which the Board of
Trustees of the Trust (the "Board") determines present minimal credit risks and
which are eligible investments under the rule. (As a matter of fundamental
policy, the Late Day Fund is required to invest at least 80% of the Fund's
assets in securities which have remaining maturities of 12 months or less.)
The U.S. Treasury Fund invests only in U.S. Treasury securities. By itself, the
Fund does not constitute a balanced investment plan. Investors should recognize
that many securities can provide a higher yield than direct U.S. government
obligations, although they will not provide the same high quality and security
of principal.
The Late Day Fund will limit its investments to marketable securities issued or
guaranteed by the U.S. government, by various agencies of the U.S. government
and by various instrumentalities which have been established or sponsored by the
U.S. government, and in repurchase agreements with respect to obligations issued
or guaranteed by the U.S. government and supported by the full faith and credit
of the U.S. government.
Because the Late Day Fund will limit its investments to high quality securities,
there will be generally lower yields than if the Fund purchased securities with
a lower rating and correspondingly greater risk.
U.S. Treasury Securities. These securities are supported by the full faith and
credit of the United States and differ only in their interest rates, maturities
and times of issuance. Treasury bills have initial maturities of one year or
less; Treasury notes have initial maturities of one to ten years; and Treasury
bonds generally have initial maturities of greater than ten years. Each Fund's
investments may bear fixed or variable rates of interest, and their share price
and yield are not guaranteed by the U.S. government. The U.S. Treasury Fund does
not invest in repurchase agreements, securities issued by agencies or
instrumentalities of the federal government or any other type of money market
instruments.
When-Issued and Delayed Delivery Transactions. The Funds may purchase short-term
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which a Fund purchases securities with payment and delivery
scheduled for a future time. Such transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. A Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Fund's investment objectives
and policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. Securities purchased on a when-issued or
delayed delivery basis do not generally earn interest until their scheduled
delivery date.
Repurchase Agreements. As noted above, the Late Day Fund may engage in
repurchase transactions, in which the Fund purchases 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 Fund 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 Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Fund might also incur disposition costs in liquidating
the collateral. The Fund intends to enter into repurchase agreements, however,
only with government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Fund to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement
and the Fund's custodian will take title to, or actual delivery of, the
security. The Fund does not engage in reverse repurchase transactions.
Securities subject to repurchase agreements will be deemed to have a maturity
date coincident with the date upon which the Fund has agreed to resell such
securities.
Other Considerations
As a fundamental policy, the Late Day Fund may only borrow from banks, not to
exceed 5% of its total assets, for temporary or emergency purposes and may
pledge up to 5% of its assets for such borrowing. The Fund may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements with more
than seven days to maturity if, as a result, more than 10% of the value of the
Fund's total assets would be invested in such repurchase agreements or
securities.
The U.S. Treasury Fund may borrow from banks, for temporary emergency purposes
only, and pledge its assets for such loans, up to 5% of the Fund's total net
assets. The Fund may also make loans of its portfolio securities not in excess
of 10% of the value of its total net assets. 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 securities fail financially.
Whenever the Funds believe market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Fund may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). Typically, such trading involves additional risks of loss
to the extent such securities differ in maturity, credit quality or other
aspects, and to the extent of the brokerage, if any, or other transaction costs
involved. Brokerage or other commissions are not normally charged on the
purchase or sale of money market instruments in which the Funds invest.
The Funds believe that their investment policies make the Funds a permissible
investment for federal credit unions, based on the Funds' understanding of the
laws and regulations governing credit union regulations as of September 30,
1995. CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL
INVESTMENTS FOR THEM. Please see "Investment Objectives and Policies - Credit
Union Investment Regulations" in the SAI for details.
Other Policies
The Funds are subject to a number of additional investment restrictions, some of
which may be changed only with the approval of a majority of the respective
Fund's shareholders. For a list of these restrictions and more information
concerning the various transactions mentioned above, please refer to the SAI.
Management of the Funds
The Board has the primary responsibility for the overall management of the
Trust, including the Funds, and for electing the officers of the Trust who are
responsible for administering the day to day operations of all series of the
Trust.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the investment
manager for each Fund. 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.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (116 separate series) with aggregate assets of over $76 billion.
The Manager supervises and implements each Fund's investment activities and
provides certain administrative services and facilities which are necessary to
conduct the Funds' business, pursuant to management agreements for each Fund.
During the fiscal year ended June 30, 1995, management fees, before any advance
waiver, totaled 0.63% of average net assets of the Late Day Fund and 0.25% of
the average net assets of the U.S. Treasury Fund. Total operating expenses,
including management fees, before any advance waiver, totaled 0.75% and 0.30%,
respectively, of the average net assets of the Funds. Since Advisers agreed in
advance to waive its fees, the Late Day Fund and the U.S. Treasury Fund paid
management fees totaling 0.02% and 0.06%, respectively, and paid operating
expenses totaling 0.15% and 0.10%, respectively, of the average net assets of
the Funds. This arrangement may be terminated by Advisers upon notice to the
Board.
It is not anticipated that the Funds will incur a significant amount of
brokerage expenses because short-term money market instruments are generally
traded in principal transactions which involve the receipt by the broker of a
spread between the bid and ask prices for the securities, and not the receipt of
commissions. To the extent that a Fund does participate in transactions
involving brokerage commissions, it is the Manager's responsibility to select
brokers through whom such transactions will be effected. The Manager tries to
obtain the best execution on all such transactions. If it is felt that more than
one broker is able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research, statistical and
other data for the Manager and its affiliates, as well as the sale of shares of
a Fund, as factors in selecting a broker. Further information is included under
"The Funds' Policies Regarding Brokers Used on Portfolio Transactions" in the
SAI.
Shareholder accounting and many of the clerical functions for the Funds are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Plans of Distribution
Each Fund has adopted a Distribution Plan
(the "Plans") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each
Fund may reimburse Distributors or others for all expenses incurred by
Distributors or others in the promotion and distribution of the Funds' shares.
Such expenses may include, but are not limited to, the printing of prospectuses
and reports used for sales purposes, expenses of preparing and distributing
sales literature and related expenses, advertisements, and other
distribution-related expenses, including a prorated portion of Distributors'
overhead expenses attributable to the distribution of Fund shares, as well as
any distribution or service fees paid to securities dealers or their firms or
others who have executed a servicing agreement with the Fund, Distributors or
its affiliates. The maximum amount which each Fund may pay to Distributors or
others for such distribution expenses is 0.15% per annum of each Fund's average
daily net assets, payable on a quarterly basis. All expenses of distribution and
marketing in excess of the maximum amounts will be borne by Distributors without
reimbursement from the Funds. The Plans also cover any payments to or by the
Funds, Advisers, Distributors or other parties on behalf of the Funds, Advisers,
or Distributors to the extent such payments are deemed to be for the financing
of any activity primarily intended to result in the sale of shares issued by the
Funds within the context of Rule 12b-1. For more information, please see the
SAI.
Distributions to Shareholders
Each Fund declares dividends on each day its net asset value is calculated,
payable to shareholders of record as of the close of business that day. Daily
allocation of dividends will commence on the day funds are wired in accordance
with procedures set forth in "How to Buy Shares of the Funds" or if an investor
has sent a check, on the day the check is converted into federal funds (which
may take two or more days depending upon the banks involved). The amount of the
dividend may fluctuate from day to day and dividends may be omitted on some
days, depending on changes in the factors that comprise a Fund's net income.
Each Fund does not pay "interest" to its shareholders, nor is any amount of
dividends or return guaranteed in any way.
Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders (excluding
retirement plan participants) may request to have their dividends paid out
monthly in cash on the shareholder Account Application/Revision or by notifying
the Funds' transfer agent.
Since the net income of each Fund is declared as a dividend each time the net
income is determined, the net asset value per share of a Fund (i.e., the value
of the net assets of a Fund divided by the number of shares of such Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in a Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of such Fund in the
shareholder's account.
The daily dividend includes accrued interest and any original issue or 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 the
amortization of any premium paid on the purchase of portfolio securities and the
estimated expenses of the Fund. Net income is calculated immediately prior to
the determination of the net asset value per share of each Fund.
The SAI includes a further discussion of distributions.
Taxation of the Funds and Their Shareholders
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (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, each Fund will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends which the shareholder
receives from each 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 the shareholder has elected to receive them in cash or
in additional shares.
Since the Funds seek to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon redemption or exchange of Fund shares.
Since each Fund's income is derived from interest and gain on the sale of
portfolio securities rather than qualifying dividend income, no portion of each
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
Each Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
Each Fund may be used for the investment of surplus funds of municipalities
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. Section 115(1) of the Code provides, in part, that
gross income does not include income derived from the exercise of any essential
governmental function and accruing to a state, territory or political
subdivision thereof. To the extent that investments in the Funds are made in
connection with such functions, states and their political subdivisions will not
be subject to federal taxation on income or gains derived from an investment in
the Funds. Each Fund does not meet currently defined exceptions to the arbitrage
rebate requirements and a portion or all of the earnings distributed by the
Funds may be required to be paid over to the U.S. Treasury as rebatable
arbitrage earnings in accordance with the provisions of the Code.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in each
Fund and to distributions and redemption proceeds received from each Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.
How to Buy Shares of the Funds
Shares of each Fund may be purchased by institutions, such as banks, savings and
loan associations, trust companies, corporations, and other institutional
entities and by government entities directly from the Fund. The Funds may not be
purchased by individuals. The shares of each Fund are offered at their net asset
value (with no sales charge) on a continuous basis by each Fund. As each payment
is received, full and fractional shares of the Funds will be purchased at the
net asset value next computed and proper entry will be made on the books of the
Funds. The minimum initial investment for the Late Day and the U.S. Treasury
Funds is $100,000, except for states, counties, cities, and their
instrumentalities, departments, agencies and authorities which may open an
account in each Fund with a minimum initial investment of $1,000. There is no
minimum for subsequent investments in either Fund. The Fund and Distributors
reserve the right to reject any order for the purchase of shares or to waive the
minimum investment requirements.
Investments may be made in any of the following ways:
1. By Wire :
(a) First, call the Fund at 1-800/321-8563 to advise of the intent to wire
funds for investment in a Fund. Shareholders wishing to purchase shares in
excess of $50,000 must first complete an Institutional Telephone Privileges
Agreement, as described under "Telephone Transactions." Requests to begin a
wire order process for the Late Day Fund must be made not later than 1:30
p.m. Pacific time and by 11:15 a.m. Pacific time for the U.S. Treasury
Fund. Trades placed by the above deadlines will receive same day credit so
long as funds are received in accordance with paragraph (b). In order to
maximize efficient fund management, investors requesting a same day
purchase of any size are urged to place orders as early in the day as
possible. Prior business day notification of such trade may be required.
Requests to begin a wire order after the cut off time for each Fund will
not be in proper form for that day's purchase and will receive credit on
the next business day. The Funds will supply a wire control number for each
investment at the time the telephone call is received. It is necessary to
obtain a new wire control number every time money is wired into an account
in a Fund. Wire control numbers are effective for one transaction only and
may not be used more than once. Wired money which is not properly
identified with a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited to the
shareholder's account.
(b) Next, wire funds to Bank of America, ABA routing No. 121000358, for credit
to Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio
or Franklin U.S. Treasury Money Market Portfolio, A/C 1493304779. Be sure
to include the wire control number, the investor's Fund account number and
account registration. Wired funds received by the Bank and reported by the
Bank to a Fund by the close of the Federal Reserve Wire System (currently
3:00 p.m. Pacific time) are normally available for credit on that day,
provided the Fund is timely notified as described in (a) above. Later wires
are credited the following business day. In order to maximize efficient
Fund management, investors are urged to place and wire their investments as
early in the day as possible.
(c) In order to receive proper credit, if the purchase is not to an existing
account, send a completed shareholder Account Application/Revision to
Franklin Late Day Money Market Portfolio or Franklin U.S. Treasury Money
Market Portfolio at the address shown on the cover of this Prospectus.
2. By Mail:
Many of the types of instruments in which the Funds invest must be paid for in
federal funds, which are monies held by its custodian on deposit at the Federal
Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid by an
investor for shares of a Fund generally cannot be invested by such Fund until
they are converted into and are available to the Fund in federal funds, which
may take up to two days. In such cases, purchases by investors will generally
not be considered in proper form and effective until such conversion and
availability. However, in the event a Fund is able to make investments
immediately (within one business day), it may accept a purchase order with
payment other than in federal funds; in such event, shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments converted to federal funds.
(a) For an initial investment, send a completed shareholder Account
Application/Revision.
(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio or
Franklin U.S. Treasury Money Market Portfolio. Instruments drawn on other
investment companies will not be accepted.
(c) Next, send the check, Federal Reserve draft or negotiable bank draft to
Institutional Fiduciary Trust - Franklin Late Day Money Market Portfolio or
Franklin U.S. Treasury Money Market Portfolio at the address shown on the
cover of this Prospectus.
3. Through Securities Dealers:
Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which executes
a dealer or similar agreement with Distributors, the Funds' principal
underwriter. The use of the term "securities dealers" includes other financial
institutions which pursuant to an agreement with Distributors (directly or
through affiliates) handle customer orders and accounts for the group. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The securities dealer may choose to wire or mail the
monies accompanying an investment in a Fund. Securities dealers who process
orders on behalf of their customers may charge a reasonable fee for their
services. Investments made directly, without the assistance of a securities
dealer, are without charge.
If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Franklin Templeton Funds (as the term
is defined in the following section), Distributors may make a payment, out of
its own resources, to such securities dealer. Please contact the Franklin
Templeton Institutional Services Department for additional information.
Rights of Accumulation/Letter of Intent
Regarding Other Funds
The cost or current value (whichever is higher) of the shares in each Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares in one or more of the funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds, which are sold with a sales
charge. Included for these aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.")
Purchases of Fund shares may also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Funds and the
Templeton Funds which are sold with a sales charge.
For additional information regarding these programs, please contact the Franklin
Templeton Institutional Services Department by mail at the address listed on the
cover of this Prospectus or by telephone at 1-800/321-8563.
General
Shares of a Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF A FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into a
Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations.
Valuation of Shares of the Funds
The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.
The net asset value of the shares is computed each day that the New York Stock
Exchange is open for trading. The computation is done at 12:30 p.m. Pacific time
for the U.S. Treasury Fund and 3:00 p.m. Pacific time for the Late Day Fund.
The net asset value per share is calculated by adding the value of all portfolio
holdings and other assets, deducting the Fund's liabilities, and dividing the
result by the number of shares outstanding for that Fund.
The valuation of portfolio securities is based upon their amortized cost value,
which does not take into account unrealized capital gain or loss. This 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.
How to Sell Shares of the Funds
1. By Telephone with Payment to a
Preauthorized Bank Account:
A shareholder may redeem shares of a Fund, up to $50,000, by telephoning the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to redeem shares of such Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number and security identification number and be called to the
Fund. Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a shareholder Account Application/Revision, or
a signature guaranteed letter of instruction.
A payment may be transmitted by wire the same business day where a request is
received as to the Late Day Fund prior to 1:30 p.m. Pacific time and as to the
U.S. Treasury Fund prior to 11:15 a.m. Pacific time that day. A shareholder
which anticipates requesting a same day wire redemption in excess of $5 million
should notify the Fund on the prior business day of the intention to request
such a redemption. In order to maximize efficient fund management, investors
requesting a same day wire redemption of any size are urged to place orders as
early in the day as possible. Prior business day notification of such trade may
be required. Otherwise, payments will be transmitted by wire on the business day
following receipt of a request received after the above deadlines.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required as set forth
below.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
2. By Mail:
A shareholder may redeem shares by sending a letter requesting redemption to a
Fund, at the address shown on the cover of this Prospectus. Redemption proceeds
will be mailed to the registered address, or mailed or wired to a preauthorized
bank account as requested. Proceeds of redemption may also be sent to some other
party or account as requested; however, in such cases the signature(s) on the
redemption request must be guaranteed.
To be considered in proper form, the signature(s) of all registered owners or
previously designated signers must be guaranteed if the redemption request
involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to a party other than the registered
owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account; or
(4) a Fund or its transfer agent believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more owners
cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to a Fund (c) a Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the actual registered owner, or (e) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of a Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership, trust, and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
For any information required about a proposed liquidation, a shareholder may
call the Franklin Templeton Institutional Services Department.
General
After requesting a liquidation from a Fund, a shareholder will receive the value
of the shares of that Fund in the shareholder's account based upon the net asset
value per share next computed on the day a request in proper form is received by
the Fund. Payment for written redemption requests will be sent within seven days
after receipt of a request in proper form, except that a Fund may delay the
mailing of the redemption check, or a portion thereof, until the clearance of
the check used to purchase the shares, which may take up to 15 days or more.
Although the use of a certified or cashier's check will generally reduce this
delay, shares purchased with these checks will also be held pending clearance.
Shares purchased by federal funds wire are available for redemption on the
business day following their receipt. Arrangements may also be made to have
redemption proceeds wired to the shareholder's designated bank account. The
right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it by order, for the protection of shareholders. Of course, the
amount received on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by a Fund. Redemptions also may be made in kind, under certain conditions
as discussed in the SAI.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Funds to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agents shall be
liable to any shareholder or other party for a redemption payment which meets
the requirements of the 1940 Act but which may not for any reason be processed
on an expedited basis as described in this section.
Contingent Deferred Sales Charge
The Funds do not impose either a front-end sales charge or a contingent deferred
sales charge. If, however, the shares redeemed are shares acquired by exchange
from another of the Franklin Templeton Funds which would have assessed a
contingent deferred sales charge upon redemption, such charge will be made by
the Fund, as described below. The 12-month contingency period will be tolled (or
stopped) for the period such shares are exchanged into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month of such investments. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months. Shares subject
to a contingent deferred sales charge will then be redeemed on a "first in,
first out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
generally offered to the public with a sales charge (which may differ in timing
and/or amount). If a shareholder's investment objective or outlook for the
securities markets changes, the Fund shares may be exchanged for Class I shares
of other Franklin Templeton Funds which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Before making an exchange,
investors should review the prospectus of the fund they wish to exchange from
and the fund they wish to exchange into for all specific requirements or
limitations on exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Shares of a Fund acquired other than pursuant to the exchange privilege, or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of other Class I shares of the Franklin Templeton Funds. Such
offering price includes the applicable sales charge of the fund into which the
shares are being exchanged. The prospectuses for all investment companies in the
Franklin Templeton Funds which are normally sold with a sales charge allow
certain institutional investors to purchase Class I shares at net asset value
(without a sales charge). These institutional investors include government
entities, employee benefit plans, trust companies and bank trust departments.
Such exchanges will be effected as follows:
(a) From a Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is
received prior to 11:15 a.m. Pacific time with respect to the Treasury Fund
and 1:30 p.m. Pacific time with respect to the Late Day Fund, with payment
for the purchased shares processed on the following business day when the
funds are made available from the Fund.
(b) From a Fund into Class I shares of other Franklin Templeton Funds. The
exchange will be effected at the respective net asset values or offering
price of the funds involved next computed on the day on which the request
is received in proper form prior to 11:15 a.m. Pacific time. Requests
received after 11:15 a.m. will be effective at the price next computed on
the following business day.
(c) From another fund in the Franklin Templeton Funds into a Fund. In order to
avoid dilution of the Funds, such transactions will be handled as a
liquidation from the other fund at its net asset value next computed on the
day the exchange request is received in proper form prior to the time the
valuation of shares for that fund is effected, generally 3:00 p.m. Pacific
time for money market funds (excluding the money market funds of the Trust)
and 1:00 p.m. Pacific time for non-money market funds, and a purchase of
the Fund's shares on the following business day at the price computed on
such following business day when the funds for the purchase are available
and the purchase order is in all respects deemed to be in proper form.
The exchange privilege may be modified or discontinued by the Funds at any time
upon 60 days' written notice to shareholders.
Exchanges by Mail
Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of a Fund for the Class I shares of other
Franklin Templeton Funds will not involve certificates because the Funds do not
issue certificates.
Exchanges by Telephone
A shareholder may exchange shares of a Fund by telephone by calling the Franklin
Templeton Institutional Services Department at 1-800/321-8563. Shareholders
wishing to exchange shares of a Fund in excess of $50,000 must complete an
Institutional Telephone Privileges Agreement, as described under "Telephone
Transactions."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.
Timing Accounts
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
Restrictions on Exchanges
The Funds reserve the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of a Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Funds reserve the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
Each Fund and Distributors also, as indicated under "How to Buy Shares of the
Funds," reserve the right to refuse any order for the purchase of shares.
Telephone Transactions
Shareholders of the Funds and their investment representative of record, if any,
may be able to execute various transactions by calling the Franklin Templeton
Institutional Services Department at 1-800/321-8563. All shareholders will be
able to: (i) effect a change in address, (ii) change a dividend option (see
"Restricted Accounts" below), (iii) transfer Fund shares in one account to
another identically registered account in the Fund, and (iv) purchase, redeem or
exchange Fund shares by telephone as described in this Prospectus. Shareholders
who do not wish these privileges extended to a particular account should notify
the Fund or the Franklin Templeton Institutional Services Department.
Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Agreement
included in the Funds' application or which may be obtained by calling the
number above.
Verification Procedures
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Funds and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
The Funds and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where a Fund or Investor
Services is not reasonably satisfied that the instructions received by telephone
are genuine, the requested transaction will not be executed, and neither the
Funds nor Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain restrictions may apply to
other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Funds as detailed elsewhere in this Prospectus.
Neither the Funds nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Funds
at any time upon 60 days' written notice to shareholders.
Special Services
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the Funds.
How to Get Information Regarding
an Investment in a Fund
Any questions or communications regarding a shareholder's account should be
directed to the Franklin Templeton Institutional Services Department at
1-800/321-8563, Monday through Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or other performance information specific to the Funds or any
Franklin Templeton Fund.
Fund information may be accessed by entering Fund Code 41 for the Late Day Fund
and Fund Code 43 for the U.S. Treasury Fund followed by the # sign. The system's
automated operator will prompt the caller with easy to follow step-by-step
instructions from the main menu. Other features may be added in the future.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
Performance
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance, including quotations of its current
and effective yield.
Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from a Fund during a seven-day period. It is computed 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. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.
In each case, performance figures are based upon past performance and will
reflect all recurring charges against a Fund's income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of a Fund, like all other investment
companies, will fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future or what a
Fund's performance may be in any future period.
General Information
General
Government Accounting Standards Board (GASB) Statement No. 3 pertaining to
Deposits with Financial Institutions provides, in paragraph 69, that investments
in mutual funds should be disclosed, but not categorized.
Reports to Shareholders
The Trust's fiscal year ends June 30. Annual Reports containing audited
financial statements of the Trust, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this Prospectus.
Organization and Voting Rights
The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a special shareholders'
meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may also be called by
the Board at their discretion or by shareholders holding at least ten percent of
the shares entitled to vote at the meeting. Shareholders may receive assistance
in communicating with other shareholders in connection with the election or
removal of trustees such as that provided in Section 16(c) of the 1940 Act.
The Board may from time to time issue other series of the Trust, the assets and
liabilities of which will likewise be separate and distinct from any other
series of the Trust. Currently the Trust consists of eight separate series:
Money Market Portfolio, Franklin Late Day Money Market Portfolio, Franklin U.S.
Government Securities Money Market Portfolio, Franklin U.S. Treasury Money
Market Portfolio, Franklin U.S. Government Agency Money Market Fund, Franklin
Institutional Adjustable U.S. Government Securities Fund, Franklin Institutional
Adjustable Rate Securities Fund, and Franklin Cash Reserves Fund, each
maintaining a totally separate and distinct investment portfolio.
Other Information
Certain of the programs and privileges described in this Prospectus may not be
available directly from a Fund to shareholders whose shares are held, of record,
by a financial institution or in a "street name" account.
Confirmations
Shares for an initial investment in a Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.
Redemptions By the Fund
Each Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of a predetermined amount but only where
the value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder. More information is included in the SAI.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, each Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the shareholder Account
Application/Revision. A shareholder may also be subject to backup withholding if
the IRS or a securities dealer notifies a Fund that the TIN furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
Each Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
Institutional
Fiduciary Trust
Prospectus
November 1, 1995
Franklin Institutional Adjustable
U.S. Government Securities Fund
Franklin Institutional Adjustable
Rate Securities Fund
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of eight separate and distinct series. This
Prospectus relates only to the Franklin Institutional Adjustable U.S. Government
Securities Fund (the "Adjustable U.S. Government Fund") and Franklin
Institutional Adjustable Rate Securities Fund (the "Adjustable Rate Securities
Fund") (also the "Fund" or "Funds"), two no-load diversified series of the
Trust.
The investment objective of each Fund is to seek a high level of current income,
consistent with lower volatility of principal. EACH FUND, UNLIKE MOST FUNDS
WHICH INVEST DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS OBJECTIVES BY
INVESTING ITS ASSETS IN THE SHARES OF ANOTHER INVESTMENT COMPANY (THE "MASTER
FUND") WHOSE INVESTMENT OBJECTIVE IS IDENTICAL TO THAT OF SUCH FUND (A "FEEDER
FUND"). THE MASTER FUND, IN TURN, INVESTS ALL OF ITS ASSETS IN THE SAME TYPE OF
SECURITIES IN WHICH THE FEEDER FUND IS AUTHORIZED TO INVEST.
SHARES OF THE FUND 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 THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
A Statement of Additional Information ("SAI") concerning the Funds, dated
November 1, 1995, as may be amended from time to time, provides a further
discussion of certain areas in this Prospectus and other matters which may be of
interest to some investors. It has been filed with the Securities and Exchange
Commission ("SEC") and is incorporated herein by reference. A copy is available
without charge from the Funds or the Funds' principal underwriter,
Franklin/Templeton Distributors, Inc. ("Distributors"), by mail at the above
address or by calling the telephone number shown above.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The Adjustable U.S. Government Fund seeks to achieve its objective by investing
all of its assets in the U.S. Government Adjustable Rate Mortgage Portfolio (the
"Mortgage Portfolio"), a separate series of the Adjustable Rate Securities
Portfolios, whose investment objective is identical to that of the Fund. The
Mortgage Portfolio in turn invests primarily in adjustable rate mortgage
securities ("ARMS") created from pools of adjustable rate mortgages which are
issued or guaranteed by the U.S. government, its agencies or instrumentalities.
The Adjustable Rate Securities Fund seeks to achieve its objective by investing
all of its assets in the Adjustable Rate Securities Portfolio (the "Securities
Portfolio"), a separate series of the Adjustable Rate Securities Portfolios,
whose investment objective is identical to that of the Fund. The Securities
Portfolio in turn invests primarily in adjustable rate securities, including
ARMS, which are issued or guaranteed by private institutions or by the U.S.
government, its agencies or instrumentalities, collateralized by or representing
an interest in mortgages created from pools of adjustable rate mortgages, and
other adjustable rate asset backed securities (collectively "ARS"). All
securities purchased by the Securities Portfolio will be rated at least AA by
Standard & Poor's Corporation ("S&P") or Aa by Moody's Investors Service
("Moody's"), two nationally recognized statistical rating organizations, or if
unrated, will be deemed to be of comparable quality by its investment manager.
The Funds are designed for institutional investors such as corporations, banks,
thrifts, credit unions, government authorities and agencies, and trust companies
for investment of their own capital and of monies held in accounts for which
they act in a fiduciary, advisory, agency, custodial, or other similar capacity
where such institution by law, regulation, charter or stated policy is
prohibited from investing in a fund with a Distribution Plan pursuant to Rule
12b-1 (a "12b-1 Plan") under the Investment Company Act of 1940, as amended (the
"1940 Act"). Shares of each Fund may be purchased at net asset value with no
sales charge by qualified investors who have, or will have, after purchase of
shares of the Funds, at least $5,000,000 invested in the Franklin Group of
Funds(R) or the Templeton Group ($1,000,000 for qualified bank trust departments
and trust companies). There can, of course, be no assurance that the Funds'
objectives will be achieved.
This Prospectus is intended to set forth in a clear and concise manner
information about the Funds that a prospective investor should know before
investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
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 the Funds at the address shown on the cover.
ContentsPage
Expense Table 4
Financial Highlights 5
About the Trust 6
Investment Objective and
Policies of each Fund 6
Administration of the Funds 20
Distributions to Shareholders 21
Taxation of the Funds
and Their Shareholders 22
How to Buy Shares of the Funds 23
Exchange Privilege 25
Telephone Transactions 27
How to Sell Shares of the Funds 28
Valuation of Shares of the Funds 30
How to Get Information Regarding
an Investment in the Funds 31
Performance 31
General Information 32
Important Notice Regarding
Taxpayer IRS Certifications 33
Portfolio Operations 33
Expense Table
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in each Fund. The figures are based on aggregate
annual operating expenses of each Fund, before fee waivers and expense
reductions, for fiscal year ended June 30, 1995, including those attributable to
the Portfolio in which each Fund invests its assets.
<TABLE>
<CAPTION>
Adjustable U.S. Adjustable Rate
Government Fund Securities Fund
Shareholder Transaction Expenses
<S> <C> <C>
Exchange Fee $5.00+ $5.00+
Annual Operating Expenses
(as a percentage of average net assets)
Management and Administration Fees 0.45%* 0.45%*
Other Expenses 0.09% 0.14%
Total Operating Expenses 0.54%* 0.59%*
</TABLE>
+$5.00 fee is imposed only on Timing Accounts, as described under "Exchange
Privilege." All other exchanges are processed without a fee.
*For fiscal year ended June 30, 1995, Franklin Advisers, Inc. ("Advisers"), the
Funds' administrator and the Portfolios' investment manager, agreed in advance
to waive all or a portion of the administration fees for each Fund, as well as
the management fees for each Portfolio and to make certain payments to reduce
expenses of the Adjustable Rate Securities Fund. With these waivers and expense
reductions, total expenses of each Fund were as follows:
Adjustable U.S. Adjustable Rate
Government Fund Securities Fund
Management and Administration Fees 0.14% 0.20%
Total Operating Expenses 0.23% 0.31%
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses
that apply to a $1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of each time
period.
1 year 3 years 5 years 10 years
Adjustable U.S. Government Fund $6 $17 $30 $68
Adjustable Rate Securities Fund $6 $19 $33 $74
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF EACH FUND,
BEFORE FEE WAIVERS AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES WHICH MAY BE MORE OR LESS
THAN THOSE SHOWN. The operating expenses are borne by each Fund and only
indirectly by shareholders as a result of their investment in a Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but each Fund's actual return may be more or less than 5%.
The above table summarizes the aggregate fees and expenses incurred by each Fund
and the Portfolio in which each invests. The Board of Trustees of the Trust (the
"Board") considered the aggregate fees and expenses to be paid by both the Fund
and the respective Portfolio under each Fund's policy of investing all of its
assets in shares of the respective Portfolio, and fees and expenses the Fund
would have paid if it invested directly in the various types of securities.
Because this arrangement enables eligible institutional investors, including the
Funds and other investment companies, to pool their assets, which may be
expected to result in the achievement of a variety of operating economies, the
Board concluded that the aggregate expenses of each Fund and the respective
Portfolio were expected to be lower than the expenses that would be incurred by
the Funds if each invested directly in the various types of securities, although
there is no guarantee or assurance that asset growth and lower expenses will be
recognized. Advisers has agreed to limit expenses so that in no event will
shareholders of the Funds incur higher expenses than if each invested directly
in the various types of securities. Further information regarding each Fund's
and the respective Portfolio's fees and expenses is included under
"Administration of the Funds."
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
each Fund from the effective date of its registration through the fiscal year
ended June 30, 1995. This information has been audited by Coopers & Lybrand,
L.L.P., independent auditors, whose audit report appears in the financial
statements in the Funds' Annual Report to Shareholders dated June 30, 1995. See
the discussion "Report to Shareholders" under "General Information" in this
Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
Net Asset Net Realized Distributions Net Asset Net Assets Ratio of Ratio of
Year Value at Net & Unrealized Total From From Net Value at at End of Expenses Net Income Portfolio
Ended Beginning Investment Gain (Loss) Investment Investment End of Total Year to Average to Average Turnover
June 30 of Year Income on Securities Operations Income Year Return+ (in 000's) Net Assets3,4 Net Assets Rate
Adjustable U.S. Government Fund:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 $.373 $(.010) $.363 $(.373) $9.99 3.70% $1,265,392 .35%* 6.24%* 62.79%
1993 9.99 .480 (.130) .350 (.480) 9.86 4.01 861,311 .35 4.89 66.55
1994 9.86 .360 (.467) (.107) (.353) 9.40 (1.11) 51,738 .07 3.49 29.47
1995 9.40 .551 (.155) .396 (.546) 9.25 4.41 25,020 .23 5.81 14.86
Adjustable Rate Securities Fund:
19922 10.00 .239 .040 .279 (.239) 10.04 2.82 - - 7.13* -
1993 10.04 .559 - .559 (.559) 10.04 5.72 44,734 - 5.56 74.77
1994 10.04 .437 (.270) .167 (.437) 9.77 1.65 31,198 .25 4.32 197.22
1995 9.77 .589 .010 .599 (.539) 9.78 6.35 8,596 .31 5.84 12.44
*Annualized
+Total return measures the change in value of an investment over th years
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at net asset value
1For the period November 1, 1991 (effective date of registration) to June 30,
1992
2For the period January 3, 1992 (effective date of registration) to June 30,
1992
3Includes the Funds' share of the Portfolio's allocated expenses
4During the years indicated, Advisers agreed in advance to waive a portion of
its administration and management fees and made payments of other operating
expenses of the Funds and the Portfolios. Without these waivers and expense
reductions, the Funds' ratios of expenses to average net assets would have been
as follows:
</TABLE>
Ratio of Expenses
to Average Net Assets
Adjustable U.S. Government Fund:
19921 .49%*
1993 .46
1994 .45
1995 .54
Adjustable Rate Securities Fund:
19922 .69*
1993 .60
1994 .50
1995 .59
About the Trust
The Trust, organized as a Massachusetts business trust on January 15, 1985, is
an open-end management investment company, or mutual fund, and has registered as
such under the 1940 Act. The Fund is a diversified series of the Trust.
Shares of each Fund may be purchased at net asset value (without a sales charge)
by qualified investors who have, or will have, after the purchase of shares of a
Fund, at least $5,000,000 invested in the Franklin Group of Funds(R) or the
Templeton Group ($1,000,000 for qualified bank trust departments and trust
companies.) (See "How to Buy Shares of the Funds.")
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Funds - Rights of Accumulation/Letter of Intent
Regarding Other Funds" currently offer their shares in two "classes," designated
"Class I" and "Class II." Classes of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes. Shares of the Funds may be considered Class I shares
for purposes of the programs and privileges discussed in this Prospectus.
Investment Objective
and Policies of each Fund
The investment objective of each Fund is to seek a high level of current income,
consistent with lower volatility of principal. The Adjustable U.S. Government
Securities Fund pursues its investment objective by investing all of its assets
in the Mortgage Portfolio which has the same investment objective and policies
as that of the Fund. The Adjustable Rate Securities Portfolio pursues its
investment objective by investing all of its assets in the Securities Portfolio
which has the same investment objective and policies as that of the Fund.
The Portfolios are separate diversified series of the Adjustable Rate Securities
Portfolios (an open-end management investment company managed by Advisers) whose
shares are acquired by the feeder funds at net asset value with no sales charge.
Accordingly, an investment in a Fund is an indirect investment in its respective
Portfolio.
Special Information Regarding the
Funds' Master/Feeder Fund Structure
The investment objectives of both the Funds and the Portfolios are fundamental
and may not be changed without shareholder approval. Each Fund has invested all
of its assets in the respective Portfolios since inception. The investment
policies described herein include those followed by the Portfolio in which each
Fund invests. Information on administration and expenses is included under
"Administration of the Funds." See the SAI for information regarding each Fund's
and Portfolio's investment restrictions.
An investment in a Fund may be subject to certain risks due to the Funds'
structure, such as the potential that upon redemption by other future
shareholders in the Portfolios, the Funds' expenses may increase or economies of
scale which have been achieved as a result of the structure may be diminished.
Institutional investors in the Portfolios that have a greater pro rata ownership
interest in the Portfolios than that of the Funds could have effective voting
control over the operation of the Portfolios. Further, in the event that the
shareholders of the Funds do not approve a proposed future change in a Fund's
objective or fundamental policies, which has been approved for the Portfolio in
which that Fund invests, the Fund may be forced to withdraw its investment from
the Portfolio and seek another investment company with the same objective and
policies. In addition, a Fund may withdraw its investment in the Portfolio at
any time, if the Board considers that it is in the best interests of that Fund
to do so. Upon any such withdrawal, the Board would consider what action to
take, including the investment of all of the assets of a Fund in another pooled
investment entity having the same investment objective and policies as that
Fund, or the hiring of an investment adviser to manage the Fund's investments.
Either circumstance may cause an increase in expenses for that Fund. Further,
the Funds' structure is a relatively new format, which often results in certain
operational and other complexities. However, the Franklin organization was one
of the first mutual fund complexes in the country to implement such a structure
and the trustees do not believe that the additional complexities outweigh the
benefits to be gained by shareholders.
Currently, Franklin Investors Securities Trust has two series which may invest
in the two separate series of the Adjustable Rate Securities Portfolios both of
which are offered at the public offering price (which includes a sales charge).
It is possible that in the future, other funds in the Franklin Group of Funds(R)
may be created which may likewise invest in one or more series of the Adjustable
Rate Securities Portfolios. The Funds or Distributors will forward to any
interested shareholder additional information, including a prospectus and SAI,
if requested, regarding such other investment companies through which they may
make investments in the Portfolios. Any such funds may be offered at net asset
value or with variable sales charges; thus, an investor in such fund may
experience a different return from an investor in another fund which invests
also exclusively in the Portfolio.
The Portfolios are series of the Adjustable Rate Securities Portfolios, a
management investment company which was organized as a Delaware business trust
on February 15, 1991. The Adjustable Rate Securities Portfolios is authorized to
issue an unlimited number of shares of beneficial interest, with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. The Adjustable Rate Securities Portfolios issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Adjustable Rate Securities Portfolios,
the assets and liabilities of which will be separate and distinct from any other
series.
Whenever a Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted.
The Advantages of Investing in the Funds
The Adjustable U.S. Government Fund enables its shareholders to invest easily,
without a sales charge or distribution plan expenses, in mortgage securities
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities. Any such guarantee will extend to the payment of interest and
principal due on the mortgage securities and will not provide any protection
from fluctuations in the market value of such mortgage securities. However, the
Fund believes that by investing in the Mortgage Portfolio, which in turn invests
primarily in mortgage securities providing for variable rates of interest, it
will achieve a more consistent and less volatile net asset value than is
characteristic of mutual funds that invest primarily in mortgage securities
paying a fixed rate of interest.
The Adjustable Rate Securities Fund enables its shareholders, in effect, to
invest easily without a sales charge or distribution plan expenses in ARS which
are rated at least AA by S&P or Aa by Moody's, or if unrated, deemed to be of
comparable quality by the Securities Portfolio's investment manager or, such ARS
which are issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Adjustable Rate Securities Fund believes that by investing in the Securities
Portfolio, which in turn invests primarily in ARS which provide for variable
rates of interest, it will achieve a more consistent and less volatile net asset
value than is characteristic of mutual funds that invest primarily in securities
paying a fixed rate of interest.
Principal payments received on each Portfolio's mortgage securities will be
reinvested by the Portfolio in other securities. Such securities may have a
higher or lower yield than the mortgage securities already held by the
Portfolio, depending upon market conditions.
An investment in a Fund provides liquidity for the investor, who may redeem any
portion of the shares at the current net asset value at any time in accordance
with procedures described under the caption "How to Sell Shares of the Funds."
An investment in a Fund may be a permissible investment for banks, credit
unions, and thrifts, as well as state and local government authorities and
agencies. HOWEVER, INVESTORS WHOSE INVESTMENT AUTHORITY IS RESTRICTED BY
APPLICABLE LAW OR REGULATION SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO
DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF A FUND CONSTITUTE LEGAL
INVESTMENTS FOR THEM. Municipal investors considering investment of proceeds of
bond offerings into a Fund should consult with expert counsel to determine the
effect, if any, of various payments made by the Fund or Advisers on arbitrage
rebate calculations.
Description of Securities
in Which the Portfolios May Invest
The Portfolios and the Funds have adopted substantially similar investment
policies; however, the Portfolios follow the policies through direct investments
and the Funds follow the policies indirectly by investing in the respective
Portfolios.
The Mortgage Portfolio pursues its objective by investing primarily (at least
65% of its total assets) in ARMS or other securities collateralized by or
representing an interest in mortgages (collectively, "mortgage securities"),
which have interest rates resetting at periodic intervals. All such mortgage
securities in which the Mortgage Portfolio invests will be issued or guaranteed
by the U.S. government, its agencies or instrumentalities. In addition to these
mortgage securities, the Mortgage Portfolio may invest up to 35% of its total
assets in (a) notes, bonds and discount notes of the following U.S. government
agencies or instrumentalities: Federal Home Loan Banks, Federal National
Mortgage Association, Government National Mortgage Association, Federal Home
Loan Mortgage Corporation, and Small Business Administration, (b) obligations of
or guaranteed by the full faith and credit of the U.S. government, and
repurchase agreements collateralized by such obligations, and (c) time and
savings deposits in commercial or savings banks or in institutions whose
accounts are insured by the FDIC. There is, of course, no assurance that the
investment objective will be achieved. As the value of the Portfolio's
securities holdings fluctuate, the Portfolio's net asset value per share will
also fluctuate.
The Securities Portfolio pursues its objective by investing primarily (at least
65% of its total assets) in ARS which are issued or guaranteed by private
institutions or by the U.S. government, its agencies or instrumentalities,
collateralized by or representing an interest in mortgages, and other adjustable
rate asset backed securities which have interest rates resetting at periodic
intervals. All securities in which the Securities Portfolio invests will be
rated at least AA or Aa by S&P or Moody's, respectively or, if unrated, will be
deemed to be of comparable quality by the Portfolio's investment manager.
Non-governmental issuers of the ARMS in which the Securities Portfolio may
invest include commercial banks, savings and loan institutions, insurance
companies, including private mortgage insurance companies, mortgage bankers,
mortgage conduits of investment banks, finance companies, real estate companies
and private corporations and others so long as they are consistent with the
Securities Portfolio's investment objective ("private mortgage securities").
Such private mortgage securities which are not issued or guaranteed by the U.S.
government are generally structured with one or more types of credit
enhancement. The Securities Portfolio may from time to time increase its
investments by borrowing from banks (see "Borrowing" for further information.)
In addition, the Securities Portfolio may invest up to 35% of its total assets
in the following fixed rate securities: (a) notes, bonds and discount notes of
the following U.S. government agencies or instrumentalities: Federal Home Loan
Banks, Federal National Mortgage Association, Government National Mortgage
Association, Federal Home Loan Mortgage Corporation, and Small Business
Administration, (b) obligations of or guaranteed by the full faith and credit of
the U.S. government and repurchase agreements collateralized by such
obligations, (c) asset-backed and mortgage-backed securities issued by private
and government entities, including fixed-rate asset-backed and mortgage-backed
securities, and (d) time and savings deposits in commercial or savings banks or
in institutions whose accounts are insured by the FDIC. Investments in savings
deposits are considered illiquid and are further restricted as noted under
"Other Permitted Investments." Investments in fixed rate securities generally
decline in value during periods of rising interest rates and conversely,
increase in value when interest rates fall. To the extent any Portfolio assets
are invested in such fixed rate securities, the Portfolio's values will be more
sensitive to interest rate changes than if it were fully invested in adjustable
rate securities. There is, of course, no assurance that the Portfolio's
investment objective will be achieved. As the value of the Portfolio's
securities holdings fluctuate, the Portfolio's net asset value per share will
also fluctuate.
The Characteristics of the Mortgage
Securities in Which the Portfolios May Invest
Adjustable Rate Mortgage Securities. ARMS, like traditional mortgage securities,
are interests in pools of mortgage loans. Most mortgage securities are
pass-through securities, which means that they provide investors with payments
consisting of both principal and interest as mortgages in the underlying
mortgage pool are paid off by the borrower. The dominant issuers or guarantors
of mortgage securities today are the Government National Mortgage Association
("GNMA"), the Federal National Mortgage Association ("FNMA"), and the Federal
Home Loan Mortgage Corporation ("FHLMC"). GNMA creates mortgage securities from
pools of government-guaranteed or insured (Federal Housing Authority or Veterans
Administration) mortgages originated by mortgage bankers, commercial banks, and
savings and loan associations. FNMA and FHLMC issue mortgage securities from
pools of conventional and federally insured and/or guaranteed residential
mortgages obtained from various entities, including savings and loan
associations, savings banks, commercial banks, credit unions, and mortgage
bankers. Non-governmental issuers of mortgage pools may be the originators of
the underlying mortgage loans as well as the guarantors of the private mortgage
securities. The Mortgage Portfolio will not invest in private mortgage
securities.
The adjustable interest rate feature of the mortgages underlying the mortgage
securities in which the Portfolios invest generally will act as a buffer to
reduce sharp changes in a Portfolio's net asset value in response to normal
interest rate fluctuations. As the interest rates on the mortgages underlying a
Portfolio's investments are reset periodically, yields of portfolio securities
will gradually align themselves to reflect changes in market rates so that the
market value of the securities held by the Portfolios will remain relatively
stable as compared to fixed-rate instruments and should cause the net asset
value of a Portfolio to fluctuate less significantly than it would if a
Portfolio invested in more traditional long-term, fixed-rate debt securities.
During periods of rising interest rates, however, changes in the coupon rate lag
behind changes in the market rate. This may result in possibly a lower net asset
value until the coupon resets to market rates. Thus, investors could suffer some
principal loss if they sold their shares of a Fund before the interest rates on
the underlying mortgages are adjusted to reflect current market rates. A portion
of the ARMS in which the Securities Portfolio may invest may not reset for up to
five years. During periods of extreme fluctuation in interest rates, a Fund's
net asset value will fluctuate as well. Since most mortgage securities held by
the Portfolios will generally have annual reset caps of 100 to 200 basis points,
short-term fluctuation in interest rates above these levels could cause such
mortgage securities to "cap out" and to behave more like long-term, fixed-rate
debt securities.
Unlike fixed-rate mortgages, which generally decline in value during periods of
rising interest rates, adjustable rate mortgage securities allow the Portfolios
to participate in increases in interest rates through periodic adjustments in
the coupons of the underlying mortgages, resulting in both higher current yields
and lower price fluctuations. Furthermore, if prepayments of principal are made
on the underlying mortgages during periods of rising interest rates, the
Portfolios generally will be able to reinvest such amounts in securities with a
higher current rate of return. The Portfolios, however, will not benefit from
increases in interest rates to the extent that interest rates rise to the point
where they cause the current coupon of adjustable rate mortgage securities held
as investments by the Portfolios to exceed the maximum allowable annual or
lifetime reset limits (or "cap rates") for a particular mortgage. Also, the
Portfolios' net asset value could vary to the extent that current yields on
mortgage-backed securities are different than market yields during interim
periods between coupon reset dates.
During periods of declining interest rates, of course, the coupon rates may
readjust downward, resulting in lower yields to the Portfolios. Further, because
of this feature, the value of ARMS is unlikely to rise during periods of
declining interest rates to the same extent as fixed-rate instruments. As with
other mortgage backed securities, interest rate declines may result in
accelerated prepayment of mortgages and the proceeds from such prepayments must
be reinvested at lower prevailing interest rates.
One additional difference between ARMS and fixed-rate mortgages is that for
certain types of ARMS, the rate of amortization of principal, as well as
interest payments, can and does change in accordance with movements in a
particular, pre-specified, published interest rate index. The amount of interest
due to an ARMS holder is calculated by adding a specified additional amount, the
"margin," to the index, subject to limitations or "caps" on the maximum and
minimum interest that is charged to the mortgagor during the life of the
mortgage or to maximum and minimum changes to that interest rate during a given
period. It is these special characteristics which are unique to adjustable rate
mortgages that the Funds believe make them attractive investments in seeking to
accomplish the Funds' objective.
Many mortgage securities which are issued or guaranteed by GNMA, FHLMC, or FNMA
("Certificates") are called pass-through Certificates because a pro-rata share
of both regular interest and principal payments (less GNMA's, FHLMC's, or FNMA's
fees and any applicable loan servicing fees), as well as unscheduled early
prepayments on the underlying mortgage pool, are passed through monthly to the
holder of the Certificate (i.e., a Portfolio). The principal and interest on
GNMA securities are guaranteed by GNMA which guarantee is backed by the full
faith and credit of the U.S. government. FNMA guarantees full and timely payment
of all interest and principal, while FHLMC guarantees timely payment of interest
and ultimate collection of principal. Mortgage securities issued or guaranteed
by FNMA and FHLMC are not backed by the full faith and credit of the U.S.
government; however, they are generally considered to offer minimal credit
risks. The yields provided by these mortgage securities have historically
exceeded the yields on other types of U.S. government securities with comparable
maturities in large measure due to the prepayment risk. (See "Risks of Mortgage
Securities.")
The Securities Portfolio may also invest in pass-through Certificates issued by
non-governmental issuers. Pools of conventional residential mortgage loans
created by such issuers generally offer a higher rate of interest than
government and government-related pools because there are no direct or indirect
government guarantees of payment. Timely payment of interest and principal of
these pools is, however, generally supported by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurance or
the mortgage poolers. Such insurance and guarantees and the creditworthiness of
the issuers thereof will be considered in determining whether a mortgage-related
security meets the Portfolio's quality standards. The Portfolio may buy
mortgage-related securities without insurance or guarantees if through an
examination of the loan experience and practices of the poolers, the investment
manager determines that the securities meet the Portfolio's quality standards.
The Securities Portfolio expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term, fixed rate mortgages. As new types
of mortgage-related securities are developed and offered to investors, the
investment manager will, consistent with the Portfolio's objective, policies and
quality standards, consider making investments in such new types of securities.
Adjustable Rate Securities. ARS are debt securities with interest rates which,
rather than being fixed, are adjusted periodically pursuant to a pre-set formula
and interval. As stated above, the Securities Portfolio will invest primarily in
ARS. The interest paid on ARS and, therefore, the current income earned by the
Portfolio by investing in such securities, will be a function primarily of the
indexes upon which adjustments are based and the applicable spread relating to
such securities. (See the discussion of "Resets" herein).
The interest rates paid on ARS are generally readjusted periodically to an
increment over the chosen interest rate index. Such readjustments occur at
intervals ranging from one to sixty months. The degree of volatility in the
market value of the securities held by the Portfolio and of the net asset value
of the Portfolio shares will be a function primarily of the length of the
adjustment period and the degree of volatility in the applicable indexes. It
will also be a function of the maximum increase or decrease of the interest rate
adjustment on any one adjustment date, in any one year and over the life of the
securities. These maximum increases and decreases are typically referred to as
"caps" and "floors," respectively. The Portfolio does not seek to maintain an
overall average cap or floor, although the Portfolio's investment manager will
consider caps or floors in selecting ARS for the Portfolio.
While the Portfolio does not attempt to maintain a constant net asset value per
share, during periods in which short-term interest rates move within the caps
and floors of the securities held by the Portfolio, the fluctuation in market
value of the ARS in the portfolios is expected to be relatively limited, since
the interest rate on the Portfolio's ARS will generally adjust to market rates
within a short period of time. In periods of substantial short-term volatility
in short-term interest rates, the value of the Portfolio's holdings may
fluctuate more substantially since the caps and floors of its ARS may not permit
the interest rate to adjust to the full extent of the movements in short-term
rates during any one adjustment period. In the event of dramatic increases in
interest rates, the lifetime caps on the ARS may prevent such securities from
adjusting to prevailing rates over the term of the loan. In this circumstance,
the market value of the ARS may be substantially reduced with a corresponding
decline in the Portfolio's net asset value.
See the "Asset-Backed Securities" herein for a discussion of the Portfolio's
investment in adjustable rate asset-backed securities.
Risks of Adjustable Rate Securities
ARS have several characteristics that should be considered before investing in
the Adjustable Rate Securities Fund. As indicated above, the interest rate reset
features of ARS held by the Securities Portfolio will reduce the effect on the
net asset value of the Portfolio shares caused by changes in market interest
rates. The market value of ARS and, therefore, the Portfolio's net asset value,
however, may vary to the extent that the current interest rate on such
securities differs from market interest rates during periods between the
interest reset dates. A portion of the ARS in which the Portfolio may invest may
not reset for up to five years. These variations in value occur inversely to
changes in the market interest rates. Thus, if market interest rates rise above
the current rates on the securities, the value of the securities will decrease;
conversely, if market interest rates fall below the current rate on the
securities, the value of the securities will rise. If investors in the Fund sold
their shares during periods of rising rates before an adjustment occurred, such
investors may suffer some loss. The longer the adjustment intervals on ARS held
by the Portfolio, the greater the potential for fluctuations in the Portfolio's
net asset value.
Investors in the Fund will receive increased income as a result of upward
adjustments of the interest rates on ARS held by the Portfolio in response to
market interest rates. The Fund and its shareholders, however, will not benefit
from increases in market interest rates once such rates rise to the point where
they cause the rates on such ARS to reach their maximum adjustment date, annual
or lifetime caps. In addition, because of their interest rate adjustment
feature, ARS are not an effective means of "locking-in" attractive interest
rates for periods in excess of the adjustment period.
The largest class of ARS in which the Fund will invest is ARMS which possesses
unique risks. For example, in the case of privately issued ARMS where the
underlying mortgage assets carry no agency or instrumentality guarantee, the
mortgagors on the loans underlying ARMS are often qualified for such loans on
the basis of the original payment amounts. The mortgagor's income may not be
sufficient to enable them to continue making their loan payments as such
payments increase, resulting in a greater likelihood of default. Conversely, any
benefits to the Fund and its shareholders from an increase in the Portfolio's
net asset value caused by falling market interest rates is reduced by the
potential for a decline in the interest rates paid on ARS held by the Portfolio.
In this regard, the Fund is not designed for investors seeking capital
appreciation.
Collateralized Mortgage Obligations ("CMOs"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-throughs. These are debt obligations
which are collateralized by mortgage loans or mortgage pass-through securities.
Such securities may be issued or guaranteed by U.S. government agencies or
issued by certain financial institutions and other mortgage lenders. The
Mortgage Portfolio will not invest in privately issued CMOs except to the extent
that it invests in the securities of entities that are instrumentalities of the
U.S. government. CMOs and REMICs are debt instruments issued by special purpose
entities which are secured by pools of mortgage loans or other mortgage-backed
securities. Multi-class pass-through securities are equity interests in a trust
composed of mortgage loans or other mortgage-backed securities. Payments of
principal and interest on underlying collateral provides the funds to pay debt
service on the CMO or REMIC or make scheduled distributions on the multi-class
pass-through securities. CMOs, REMICs and multi-class pass-through securities
(collectively CMO unless the context indicates otherwise) may be issued by
agencies or instrumentalities of the U.S. government or by private
organizations. CMOs purchased by the Mortgage Portfolio may be:
(1) collateralized by pools of mortgages in which each mortgage is guaranteed
as to payment of principal and interest by an agency or instrumentality of
the U.S. government;
(2) collateralized by pools of mortgages in which payment of principal and
interest are guaranteed by the issuer and the guarantee is collateralized
by U.S. government securities; or
(3) securities in which the proceeds of the issuance are invested in mortgage
securities and payment of the principal and interest are supported by the
credit of an agency or instrumentality of the U.S. government.
In a CMO, a series of bonds or certificates is issued in multiple classes. Each
class of CMOs, often referred to as a "tranche," is issued at a specified coupon
rate or adjustable rate tranche (which is discussed in the next paragraph) and
has a stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. Interest is paid or
accrues on all classes of a CMO on a monthly, quarterly or semi-annual basis.
The principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of a series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment of
principal will be made on any class of a CMO until all other classes having an
earlier stated maturity or final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates which reset periodically at
a specified increment over an index such as the London Interbank Offered Rate
("LIBOR"). These adjustable rate tranches, known as "floating rate CMOs," will
be deemed to be treated as ARMS by the Portfolio. Floating rate CMOs may be
backed by fixed rate or adjustable rate mortgages; to date, fixed rate mortgages
have been more commonly utilized for this purpose. Floating rate CMOs are
typically issued with lifetime "caps," on the coupon rate thereon. These caps,
similar to the caps on adjustable rate mortgages, represent a ceiling beyond
which the coupon rate on a floating rate CMO may not be increased regardless of
increases in the interest rate index to which the floating rate CMO is geared.
REMICs, which are authorized under the Tax Reform Act of 1986, are private
entities formed for the purpose of holding a fixed pool of mortgages secured by
an interest in real property. REMICs are similar to CMOs in that they issue
multiple classes of securities. As with CMOs, the mortgages which collateralize
the REMICs in which the Portfolio may invest include mortgages backed by GNMA
certificates or other mortgage pass-throughs issued or guaranteed by the U.S.
government, its agencies or instrumentalities or issued by private entities,
which are not guaranteed by any government agency.
The Portfolios' investment manager currently intends to limit investment in
fixed-rate CMOs and REMICS to planned amortization classes ("PACs") and
sequential pay classes. A PAC is retired according to a payment schedule in
order to have a stable average life and yield even if expected prepayment rates
change. Within a specified broad range of prepayment possibilities, the
retirement of all classes is adjusted so that the PAC bond amortization schedule
will be met. Thus PAC bonds offer more predictable amortization schedules at the
expense of less predictable cash flows for the other bonds in the structure.
Within a given structure, the Portfolio currently intends to buy the PAC bond
with the shortest remaining average life. A sequential pay CMO is structured so
that only one class of bonds will receive principal until it is paid off
completely. Then the next sequential pay CMO class will begin receiving
principal until it is paid off. The Portfolios currently intend to buy
sequential pay CMO securities in the class with the shortest remaining average
life.
Yields on privately-issued CMOs as described above have been historically higher
than the yields on CMOs issued or guaranteed by U.S. government agencies. The
risk of loss due to default on such instruments, however, is higher since they
are not guaranteed by the U.S. government. The trustees of the Adjustable Rate
Securities Portfolios believe that accepting the risk of loss by the Securities
Portfolio relating to privately issued CMOs that the Portfolio acquires is
justified by the higher yield the Portfolio will earn in light of the historic
loss experience on such instruments. The Portfolio will not invest in
subordinated privately issued CMOs.
To the extent any privately issued CMOs and REMICs in which the Securities
Portfolio invests are considered by the SEC to be investment companies, the
Portfolio will limit its investments in such securities in a manner consistent
with the provisions of the 1940 Act.
Resets. The interest rates paid on the ARS and CMOs generally are readjusted at
intervals of one year or less to an increment over some predetermined interest
rate index although some may have intervals as long as five years. There are
several main categories of indices: those based on U.S. Treasury securities;
those derived from a calculated measure such as a cost of funds index; those
based on LIBOR; and those based on a moving average of mortgage rates. Commonly
utilized indices include the one-, three- and five-year constant maturity
Treasury rates, the three-month Treasury bill rate, the six-month Treasury bill
rate, rates on longer-term Treasury securities, the 11th District Federal Home
Loan Bank Cost of Funds, the National Median Cost of Funds, the one-, three-,
six-month or one-year LIBOR, the prime rate of a specific bank, or commercial
paper rates. Some indices, such as the one-year constant maturity Treasury rate,
closely mirror changes in market interest rate levels. Others, such as the 11th
District Home Loan Bank Cost of Funds index, tend to lag behind changes in
market rate levels and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages which collateralize the ARMS and CMOs
will frequently have caps and floors which limit the maximum amount by which the
loan rate to the residential borrower may change up or down (1) per reset or
adjustment interval and (2) over the life of the loan. Some residential mortgage
loans restrict periodic adjustments by limiting changes in the borrower's
monthly principal and interest payments rather than limiting interest rate
changes. These payment caps may result in negative amortization.
Stripped Mortgage Securities. Stripped mortgage securities are derivative
multiclass mortgage securities. The stripped mortgage securities in which the
Portfolios may invest will only be issued or guaranteed by the U. S. government,
its agencies or instrumentalities. Stripped mortgage securities have greater
market volatility than other types of mortgage securities in which the
Portfolios invests.
Stripped mortgage securities are usually structured with two classes that
receive different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security will have
one class receiving some of the interest and most of the principal from the
mortgage assets, while the other class will receive most of the interest and the
remainder of the principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the other class will
receive all of the principal (the principal-only or "PO" class). The yield to
maturity on an IO class is extremely sensitive not only to changes in prevailing
interest rates but also to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the yield to maturity
of any such IOs held by a Portfolio. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, a Portfolio may
fail to fully recoup its initial investment in these securities even if the
securities are rated in the highest rating categories, AAA or Aaa, by S&P or
Moody's, respectively.
Stripped mortgage securities are purchased and sold by institutional investors,
such as the Funds, through several investment banking firms acting as brokers or
dealers. As these securities were only recently developed, traditional trading
markets have not yet been established for all such securities. Accordingly, some
of these securities may generally be illiquid. The staff of the SEC (the
"Staff") has indicated that only government-issued IO or PO securities which are
backed by fixed-rate mortgages may be deemed to be liquid, if procedures with
respect to determining liquidity are established by a fund's board. The Board
may, in the future, adopt procedures which would permit the Fund to acquire,
hold, and treat as liquid government-issued IO and PO securities. At the present
time, however, all such securities will continue to be treated as illiquid and
will, together with any other illiquid investments, not exceed 10% of the Fund's
net assets. Such position may be changed in the future, without notice to
shareholders, in response to the Staff's continued reassessment of this matter
as well as to changing market conditions.
Up to 5% of each Portfolio's assets may be invested in structured notes such as
inverse floaters and super floaters. See the SAI for further information.
Risks of Mortgage Securities
The mortgage securities in which the Portfolios invest differ from conventional
bonds in that principal is paid back over the life of the mortgage security
rather than at maturity. As a result, the holder of the mortgage securities
receives monthly scheduled payments of principal and interest, and may receive
unscheduled principal payments representing prepayments on the underlying
mortgages. When the holder reinvests the payments and any unscheduled
prepayments of principal it receives, it may receive a rate of interest which is
lower than the rate on the existing mortgage securities. For this reason,
mortgage securities may be less effective than other types of U.S. government
securities as a means of "locking in" long-term interest rates. The fixed-rate
mortgage securities in which the Portfolio may invest are generally more exposed
to this "prepayment risk" than adjustable rate mortgage securities. The
fixed-rate mortgage securities in which the Portfolio may invest are generally
more exposed to this "prepayment risk" than adjustable rate mortgage securities.
The market value of mortgage securities, like other U.S. government securities,
will generally vary inversely with changes in market interest rates, declining
when interest rates rise and rising when interest rates decline. Mortgage
securities, however, while having less risk of a decline during periods of
rapidly rising rates, may also have less potential for capital appreciation than
other investments of comparable maturities due to the likelihood of increased
prepayments of mortgages as interest rates decline. To the extent market
interest rates increase beyond the applicable cap or maximum rate on an
adjustable rate mortgage security or beyond the coupon rate of a fixed-rate
mortgage security, the market value of the mortgage security would likely
decline to the same extent as a conventional fixed-rate security.
In addition, to the extent mortgage securities are purchased at a premium,
mortgage foreclosures and unscheduled principal prepayments may result in some
loss of the holders' principal investment to the extent of the premium paid. On
the other hand, if mortgage securities are purchased at a discount, both a
scheduled payment of principal and an unscheduled prepayment of principal will
increase current and total returns and will accelerate the recognition of income
which, when distributed to shareholders, will be taxable as ordinary income.
With respect to pass-through mortgage pools issued by non-governmental issuers,
there can be no assurance that the private insurers associated with such
securities can meet their obligations under the policies. Although the market
for such non-governmentally issued or guaranteed mortgage securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The purchase of such securities is subject to the
Portfolio's limit with respect to investment in illiquid securities, as more
fully described under "Illiquid Securities."
Asset-Backed Securities
In addition to the above types of securities, the Securities Portfolio may
invest in asset-backed securities, including adjustable rate asset-backed
securities, which have interest rates that reset at periodic intervals.
Asset-backed securities are similar to mortgage-backed securities. The
underlying assets, however, include assets such as receivables on home equity
and credit card loans, and receivables regarding automobiles, mobile home and
recreational vehicle loans and leases. The assets are securitized either in a
pass-through structure (similar to a mortgage pass-through structure) or in a
pay-through structure (similar to the CMO structure). The Securities Portfolio
may invest in these and other types of asset-backed securities that may be
developed in the future. In general, the collateral supporting asset-backed
securities is of a shorter maturity than mortgage loans and historically has
been less likely to experience substantial prepayment.
Asset-backed securities entail certain risks not presented by mortgage-backed
securities. Asset-backed securities do not have the benefit of the same type of
security interests in the related collateral. Credit card receivables are
generally unsecured and a number of state and federal consumer credit laws give
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the outstanding balance. In the case of automobile receivables, there
is a risk that the holders may not have either a proper or first security
interest in all of the obligations backing such receivables due to the large
number of vehicles involved in a typical issuance, and technical requirements
under state laws. Therefore, recoveries on repossessed collateral may not always
be available to support payments on the securities. For further discussion
concerning the risks of investing in asset-backed securities, see the SAI.
Other Investment Policies
Repurchase Agreements. The Portfolios may engage in repurchase transactions, in
which a Portfolio purchases 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. A
Portfolio might also incur disposition costs in liquidating the collateral. The
Portfolios however, intend to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are deemed
creditworthy by the Portfolios' investment manager. A repurchase agreement is
deemed to be a loan by a 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 the Portfolio's Board of Trustees and will
be held pursuant to a written agreement.
When-Issued and Delayed Delivery Transactions. The Portfolios may purchase U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which a Portfolio purchases securities with
payment and delivery scheduled for a future time, generally within 30 to 60
days. Purchases of U.S. government securities on a when-issued or delayed
delivery basis are subject to market fluctuation and are subject to the risk
that the value or yields at delivery may be more or less than the purchase price
or the yields available when the transaction was effected. Although a Portfolio
will generally purchase U.S. government securities on a when-issued basis with
the intention of holding such securities, it may sell such securities before the
settlement date if it is deemed advisable. When a Portfolio is the buyer in such
a transaction, it will maintain, in a segregated account with its custodian,
cash or high-grade marketable securities having an aggregate value equal to the
amount of such purchase commitments until payment is made. To the extent a
Portfolio engages in when-issued and delayed delivery transactions, it will do
so only for the purpose of acquiring portfolio securities consistent with the
Portfolio's investment objective and policies, and not for the purpose of
investment leverage. In when-issued and delayed delivery transactions, the
Portfolios rely on the seller to complete the transaction. The other party's
failure to do so may cause a Portfolio to miss a price or yield considered
advantageous. Securities purchased on a when-issued or delayed delivery basis do
not generally earn interest until their scheduled delivery date. The Portfolios
are not subject to any percentage limit on the amount of their assets which may
be invested in when-issued purchase obligations.
Illiquid Securities. It is the policy of each Portfolio that illiquid securities
(a term which means securities that cannot be disposed of within seven days in
the normal course of business at approximately the amount at which the Portfolio
has valued the securities and includes, among other things, repurchase
agreements of more than seven days duration) may not constitute, at the time of
purchase or at any time, more than 10% of the value of the total net assets of
the Portfolio.
Borrowing. Neither Fund borrows money or mortgages or pledges any of the assets
of the Fund except that each may borrow from banks for temporary or emergency
purposes up to 20% of its total assets and pledge its assets in connection
therewith. The Adjustable U.S. Government Fund may not, however, purchase any
portfolio securities (additional shares of the Mortgage Portfolio) while
borrowings representing more than 5% of its total assets are outstanding.
The Securities Portfolio may from time to time increase its investments by
borrowing from banks. Borrowings may be secured or unsecured, and at fixed or
variable rates of interest. The Portfolio will borrow only to the extent that
the value of its assets, less its liabilities other than borrowings, is equal to
at least 300% of its borrowings. If the Portfolio does not meet the 300% test,
it will be required to reduce its debt within three business days to the extent
necessary to meet that test. This may require the Portfolio to sell a portion of
its investments at a disadvantageous time.
The Securities Portfolio will borrow when its investment manager believes it is
advantageous to do so. Borrowing for investment purposes is a speculative
investment technique known as leveraging. When the Portfolio leverages its
assets, the net asset value of the Portfolio may increase or decrease at a
greater rate than would be the case if the Portfolio were not leveraged. The
interest payable on the amount borrowed increases the Securities Portfolio's
expenses (and thus reduces the income to the Fund), and if the appreciation and
income produced by the investments purchased with the borrowings exceed the cost
of the borrowing, the investment performance of the Portfolio will be reduced by
leveraging.
Mortgage Dollar Rolls. The Portfolios may enter into mortgage "dollar rolls" in
which a Portfolio sells mortgage-backed securities for delivery in the current
month and simultaneously contracts to repurchase substantially similar (name,
type, coupon and maturity) securities on a specified future date. During the
roll period, the Portfolio forgoes principal and interest paid on the
mortgage-backed securities. The Portfolios are compensated by the difference
between the current sales price and the lower forward price for the future
purchase (often referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale. A "covered roll" is a specific type of
dollar roll for which there is an offsetting cash position or a cash equivalent
security position.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees of the Adjustable Rate Securities Portfolios and subject to the
following conditions, the Portfolios may lend their portfolio securities to
qualified securities dealers or other institutional investors, provided that
such loans do not exceed 10% of the value of the Portfolio's respective total
assets at the time of the most recent loan. The borrower must deposit with the
Portfolios' custodian 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 102%. Such
collateral shall consist of cash. The lending of securities is a common practice
in the securities industry. The Portfolios engage in security loan arrangements
with the primary objective of increasing the Portfolios' 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 Portfolios 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.
Other Permitted Investments. Other permitted investments include: obligations of
the U.S. government; notes, bonds, and discount notes of the following U.S.
government agencies or instrumentalities: Federal Home Loan Banks, Federal
National Mortgage Association, Government National Mortgage Association, Federal
Home Loan Mortgage Corporation, Small Business Administration; and time and
savings deposits (including fixed or adjustable rate certificates of deposit) in
commercial or savings banks or in institutions whose accounts are insured by the
FDIC and other securities which are consistent with the Portfolios' investment
objectives. Each Portfolio's investments in savings deposits are generally
deemed to be illiquid and will, together with any other illiquid investments,
not exceed 10% of each Portfolio's total net assets. Each Portfolio's
investments in time deposits will not exceed 10% of its total assets.
Derivatives. The Funds may use certain types of instruments, sometimes referred
to as "derivatives," to help it (a) manage risks relating to interest rates,
currency fluctuations and other market factors; (b) increase liquidity and/or
(c) invest in a particular stock or bond in a more efficient or less expensive
way. Derivatives are broadly defined as financial instruments whose performance
is derived, at least in part, from the performance of an underlying asset, such
as stock prices or indices of securities, interest rates, currency exchange
rates, or commodity prices. The Funds invest in the following instruments, some,
all or the component parts of which might be considered derivatives: CMOs,
REMICs, multi-class pass-throughs, stripped mortgage securities and other
asset-backed securities, uncovered mortgage dollar rolls, structured notes.
These instruments and their risks are discussed above; the Funds will not
necessarily use the instruments or investment strategies to the full extent
permitted unless the investment manager believes that doing so will help the
Funds reach their objectives, and not all instruments or strategies will be used
at all times.
Temporary Defensive Positions. When maintaining a temporary defensive position,
the Portfolios may invest their assets, without limit, in U.S. government
securities, certificates of deposit of banks having total assets in excess of $5
billion, and repurchase agreements.
Investment Restrictions
Each Portfolio is subject to a number of additional investment restrictions,
some of which, like each Portfolio's investment objective and investment
policies, have been adopted as fundamental policies of each Portfolio and may
only be changed with the approval of a majority of the outstanding voting
securities of that Portfolio. A list of these restrictions and more information
concerning the policies are discussed in the SAI .
How Shareholders Participate in the
Results of the Funds' Activities
The assets of each Fund are invested (through its respective Portfolio) in
portfolio securities. If the securities owned by that Fund increase in value,
the value of the shares of the Fund which the shareholder owns will increase. If
the securities owned by the Fund decrease in value, the value of the
shareholder's shares will also decline. In this way, shareholders participate in
any change in the value of the securities owned by the Funds.
In addition to the factors which affect the value of individual securities, as
described in the preceding sections, a shareholder may anticipate that the value
of a Fund's shares will fluctuate with movements in the broader equity and bond
markets, as well. In particular, changes in interest rates will affect the value
of each Fund's portfolio and thus its share price. Increased rates of interest
which frequently accompany inflation and/or a growing economy are likely to have
a negative effect on the value of each Fund's shares. History reflects both
increases and decreases in the prevailing rate of interest and these may reoccur
unpredictably in the future.
Administration of the Funds
The Board has the primary responsibility for the overall management of the
Trust, and the Funds, and for electing the officers of the Trust who are
responsible for administering the day to day operations of all series of the
Trust. The officers and trustees of the Trust are also officers and trustees of
the Adjustable Rate Securities Portfolios. For information concerning the
officers and trustees of the Trust and the Adjustable Rate Securities
Portfolios, see "Trustees and Officers" in the SAI. The Board, with all of the
disinterested trustees as well as interested trustees voting in favor, have
adopted written procedures designed to deal with potential conflicts of interest
which may arise from the fact of having the same persons serving on each trust's
Board of Trustees. The procedures call for an annual review of each Fund's
relationship with the respective Portfolio, and in the event a conflict is
deemed to exist, the Board may take action, up to and including the
establishment of a new Board. The Board has determined that there are no
conflicts of interest presented by this arrangement at the present time. Further
information is included in the SAI.
Advisers serves as the Funds' administrator and as the Portfolios' investment
manager. 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. Resources is
engaged in various aspects of the financial services industry through its
various subsidiaries (the "Franklin Templeton Group"). Advisers acts as
investment manager or administrator to 34 U.S. registered investment companies
(116 separate series) with aggregate assets of over $76 billion.
Pursuant to administration agreements for the Funds, Advisers provides various
administrative, statistical, and other services which are necessary in order to
conduct the Funds' business.
Each Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of each Portfolio's investment activities and
provides certain administrative services and facilities which are necessary to
conduct the Portfolios' business.
The following table includes the administration fees and total operating
expenses, including expenses attributable to the Funds' investment in the
Portfolios (expressed as a percentage of average daily net assets of each Fund)
before and after fee waivers and expense reductions, by each Fund for the fiscal
year ended June 30, 1995:
Adjustable U.S. Adjustable Rate
Government Fund Securities Fund
Management and Administration Fees
Before Fee Waivers 0.45% 0.45%
Management and Administration Fees
Paid by Each Fund 0.14% 0.20%
Other Expenses 0.09% 0.14%
Total Expenses 0.54% 0.59%
Total Expenses Paid After
Fee Waivers and Expense Reductions 0.23% 0.31%
The fee waivers and expense reductions arrangements may be terminated by
Advisers at any time upon notice to the Board of Trustees of the Trust and the
Portfolios.
It is not anticipated that the Portfolios or the Funds will incur a significant
amount of brokerage expenses because mortgage securities are generally traded in
principal transactions which involve the receipt by the broker of a spread
between the bid and ask prices for the securities, and not the receipt of
commissions. In the event that the Fund does participate in transactions
involving brokerage commissions, it is the Manager's responsibility to select
brokers through whom such transactions will be effected. The Manager would try
to obtain the best execution on all such transactions. If it is felt that more
than one broker would be able to provide the best execution, the Manager will
consider the furnishing of quotations and of other market services, research,
statistical and other data for the Manager and its affiliates, as well as the
sale of shares of the Fund, as factors in selecting a broker. Further
information is included under "Policies Regarding Brokers Used on Portfolio
Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Distributions to Shareholders
There are two types of distributions which the Fund may make to its
shareholders:
1. Income dividends. Each Fund receives income primarily in the form of income
dividends paid by the Portfolio in which it invests. This income, less the
expenses incurred in operations, is a Fund's net investment income from
which income dividends may be distributed. Each Fund ordinarily declares
dividends from this income on each day its net asset value is calculated.
Shares begin earning dividends on the date trade payment is received in
accordance with the procedures set forth in "How to Buy Shares of the
Funds" or, if an investor has sent a check, on the day the check is
converted into federal funds (which may take two or more days depending
upon the banks involved). The amount of the dividend may fluctuate from day
to day depending on changes in the factors that comprise each Fund's net
investment income. The Funds do not pay "interest" to their shareholders,
nor is any amount of dividends or return guaranteed in any way.
Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the respective Funds at the net asset value per share,
generally at the close of business on the last business day of the month.
Shareholders may request to have their dividends paid out monthly in cash by
notifying the Fund or its transfer agent. Shareholders redeeming all their
shares at any time during the month will receive all dividends to which they are
entitled together with the redemption check.
2. Capital gain distributions. Distributions by each Fund derived from net
short-term and net long-term capital gains (after taking into account any
net capital loss carryovers) may generally be made once a year in December
and will reflect the net short-term and net long-term capital gains
realized by each Fund as of October 31 of the current fiscal year and any
undistributed net capital gains from the prior fiscal year. Each Fund
reserves the right to make more than one distribution derived from net
short-term and net long-term capital gain in any year or to adjust the
timing of these distributions for operational or other reasons. Further
information on the taxation of distributions is included in the following
section.
Taxation of the Funds
and Their Shareholders
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.
Each Fund is treated as a separate entity for federal income tax purposes. Each
Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (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, a Fund will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends received from a 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 received
in cash or in additional shares. Distributions derived 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 the shareholder has owned Fund
shares and regardless of whether such distributions are received in cash or in
additional shares.
Pursuant to the Code, certain distributions which are declared in October,
November or 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 the shareholder on December 31 of the calendar
year in which they are declared.
Redemptions and exchanges of a Fund's shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on sale or exchange of
a 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
such shares.
Since each Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than dividend income, no portion of any of the
distributions paid by the Funds will generally be eligible for the corporate
dividends-received deduction. None of the distributions paid by the Funds for
the fiscal year ended June 30, 1995 qualified for this deduction and it is not
anticipated that any of the current year's dividends will so qualify.
Each Fund will inform its shareholders of the source of their dividends and
distributions at the time they are paid and will promptly, after the close of
each calendar year, advise them of the tax status for federal income tax
purposes of such dividends and distributions.
Shareholders should consult with their tax advisors with respect to the
applicability of state and local intangible property or income taxes to their
shares of a Fund and distributions and redemption proceeds received from a Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from a Fund
and the application of foreign tax laws to these distributions.
How to Buy Shares of the Funds
Shares of each Fund may be purchased by institutions, such as corporations,
banks, thrifts, credit unions, government authorities and agencies, and trust
companies, and other institutional entities where such institutions by law,
regulation, charter or stated policies are prohibited from investing in a fund
that charges a sales load or incurs distribution expenses pursuant to a 12b-1
Plan. In addition, in order to be eligible to invest in the Fund, an investor
must have, after purchase of shares of a Fund, at least $5,000,000 (valued at
the higher of cost or current value) invested in the Franklin Group of Funds(R)
or the Templeton Group ($1,000,000 for trust companies and bank trust
departments purchasing shares on behalf of accounts over which they exercise
exclusive investment discretion.) The shares can be purchased directly from a
Fund and are offered at their net asset value (with no sales charge) on a
continuous basis by each Fund. Shares begin earning dividends on the date trade
payment is received, provided that the Fund received notification of the trade
on the previous business day. (For a description of how each Fund's shares are
valued, see "Valuation of Fund Shares.") The Funds reserve the right to waive or
vary the required elements of investor qualification on a case by case basis.
Investments may be made in any one of the following ways:
1. By Wire:
(a) First, call the Fund at 1-800/321-8563 or 1-415/312-3600 to advise of the
intention to wire funds for investment. The call must be received prior to
1:00 p.m. Pacific time to receive that day's price. Shares purchased will
begin earning dividends the date trade payment is received. Each Fund will
supply a wire control number for the investment on the next day. It is
necessary to obtain a new wire control number every time money is wired
into an account in a Fund. Wire control numbers are effective for one
transaction only and may not be used more than once. Wired money which is
not properly identified with a currently effective wire control number will
be returned to the bank from which it was wired and will not be credited to
the shareholder's account.
(b) On the next business day, wire funds to Bank of America ABA Routing No.
121000358, for credit to either Franklin Institutional Adjustable U.S.
Government Securities Fund or Franklin Institutional Adjustable Rate
Securities Fund, A/C 1493304779. Be sure to include the wire control
number, the investor's Franklin account number and account registration.
Wired funds received by the bank and reported by the bank to the Fund by
the closing of the Federal Reserve Wire System (generally 3:00 p.m. Pacific
time) are available for credit on that day. Later wires are credited the
following business day. In order to maximize efficient Fund management,
investors are urged to place and wire their investments as early in the day
as possible.
(c) If the purchase is not to an existing account, send a completed Shareholder
Account Application/Revision to the Fund in which the investment is being
made, at the address listed on the cover of this Prospectus, for proper
credit.
2. By Mail:
(a) For an initial investment, send a completed Shareholder Account
Application/Revision which is included with this Prospectus.
(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
either Franklin Institutional Adjustable U.S. Government Securities Fund or
Franklin Institutional Adjustable Rate Securities Fund.
(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Fund in which the investment is being made, at the address listed on the
cover of this Prospectus. Investments in good order (which generally means
a completed application, for an initial order, along with a check which may
take up to two or more days from receipt) received by the Fund prior to
1:00 p.m. Pacific time on any business day will receive the price next
calculated on that day. Items received after 1:00 p.m. Pacific time will
receive the price calculated on the next business day.
3. Through Securities Dealers
Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which has
executed an agreement with Distributors, the Fund's principal underwriter. The
use of the term "securities dealers" includes other financial institutions which
pursuant to an agreement with Distributors (directly or through affiliates)
handle customer orders and accounts with the Fund. Such reference, however, is
for convenience only and does not indicate a legal conclusion of capacity. The
securities dealer may choose to wire or mail the monies accompanying an
investment in the Fund. Securities dealers who process orders on behalf of their
customers may charge a reasonable fee for their services. Investments made
directly, without the assistance of a securities dealer, are without charge.
If investments are made through a securities dealer as noted above, Distributors
may make a payment, out of its own resources, to such securities dealer. Please
contact the Franklin Templeton Institutional Services Department for additional
information.
Rights of Accumulation/Letter of Intent
Regarding Other Funds
The cost or current value (whichever is higher) of the shares in each Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares in one or more of the funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds, which are sold with a sales
charge. Included for these aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.")
Purchases of Fund shares may also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Templeton Funds which
are sold with a sales charge. Solely for purposes of determining whether an
investor will have the required amount invested in order to qualify, investments
in the following accounts may be combined:
(1) all accounts registered in the name of an institution, for its own account
or for accounts under exclusive investment discretion (such as trust or
custodial accounts)
(2) all accounts with substantially identical ownership; for example, accounts
of all 80% or more owned subsidiaries of a holding company.
The Funds must be advised in writing of all accounts which are to be linked
pursuant to the foregoing.
For additional information regarding these programs, please contact the Funds'
Shareholder Services Agent or the Franklin Templeton Institutional Services
Department, by mail at the address set forth on the cover of this Prospectus or
by telephone at 1-800/321-8563.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
generally offered to the public with a sales charge (which may differ in timing
and/or amount). If a shareholder's investment objective or outlook for the
securities markets changes, the Fund shares may be exchanged for Class I shares
of other Franklin Templeton Funds which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Before making an exchange,
investors should review the prospectus of the fund they wish to exchange from
and the fund they wish to exchange into for all specific requirements or
limitations on exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Shares of a Fund acquired other than pursuant to the exchange privilege, or the
reinvestment of dividends with respect to such shares, may be exchanged at the
offering price of other Class I shares of the Franklin Templeton Funds. Such
offering price includes the applicable sales charge of the fund into which the
shares are being exchanged. The prospectuses for all mutual funds in the
Franklin Templeton Funds which are normally sold with a sales charge allow
certain institutional investors to purchase Class I shares at net asset value
(without a sales charge). These institutional investors include government
entities, employee benefit plans, trust companies and bank trust departments.
Such exchanges will be effected as follows:
(a) From the Fund into a money market series of the Trust. In order to avoid
dilution of the fund into which the shareholder is exchanging, such
transactions will be handled as a liquidation from the Fund at its net
asset value next computed after the exchange request is received in proper
form prior to 1:00 p.m. Pacific time and a purchase of shares of the money
market series on the following business day when the funds for the purchase
are available and the purchase order is in all respects deemed to be in
proper form.
(b) From a money market series of the Trust (except Franklin Late Day Money
Market Portfolio for which the time is 1:30 p.m.) into the Fund. Shares of
the Fund will be purchased at the net asset value next computed after the
exchange request is received prior to 11:15 a.m. Pacific time, with payment
for the purchased shares processed on the following business day when the
funds are made available from the money market fund.
(c) From another fund in the Franklin Templeton Funds into the Fund. The
exchange will be executed at their respective net asset values next
computed on the day the exchange request is received in proper form prior
to 1:00 p.m. Pacific time.
Exchanges by Mail
Requests for an exchange of shares may be made
by mail. The exchange transaction will be effected upon receipt of written
instructions signed by all shareholders of record. Exchanges of shares of the
Fund for the Class I shares of other Franklin Templeton Funds will not involve
certificates because the Fund does not issue certificates.
Exchanges by Telephone
A shareholder may exchange shares of the Fund by telephone by calling the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to exchange shares of the Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions."
During periods of drastic economic or market changes, it is possible that the
Telephone Exchange Privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.
Retirement Plans
Retirement plan participants may be able to exercise exchange privileges in
accordance with the options available under, and the requirements of, their plan
and plan administrator. Retirement plan administrators may charge a fee in
connection with exchanges. See "General Information - Certain Requirements
Applicable to Retirement Plans."
Timing Accounts
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
Restrictions on Exchanges
The Funds reserve the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of a Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Funds reserve the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
Each Fund and Distributors also, as indicated under "How to Buy Shares of the
Funds," reserve the right to refuse any order for the purchase of shares.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Telephone Transactions
Shareholders of the Funds and their investment representative of record, if any,
may be able to execute various transactions, including the following, by calling
the Franklin Templeton Institutional Services Department at 1-800/321-8563: (i)
effect a change in address, (ii) change a dividend option (see "Restricted
Accounts" below), (iii) transfer shares of a Fund in one account to another
identically registered account in such Fund, and (iv) purchase, redeem or
exchange shares of a Fund by telephone as described in this Prospectus.
Shareholders who do not wish these privileges extended to a particular account
should notify the Funds or the Franklin Templeton Institutional Services
Department.
Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Agreement
included in the Funds' application or which may be obtained by calling the
number above. The Telephone Transaction options available to retirement plans
are limited to those that are provided under the plan. See "General Information
- - Certain Requirements Applicable to Retirement Plans."
Verification Procedures
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Funds and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
The Funds and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Funds or Investor
Services are not reasonably satisfied that instructions received by telephone
are genuine, the requested transaction will not be executed, and neither the
Funds nor Investor Services will be liable for any losses which may occur
because of a delay in implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to
Franklin/Templeton IRA and 403(b) retirement accounts, certain restrictions may
apply to other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, Franklin/Templeton retirement account shareholders
may call to speak to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
registered investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Funds nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
How to Sell Shares of the Funds
1. By Telephone
A shareholder may redeem shares of a Fund, up to $50,000, by telephoning the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to redeem shares of such Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a shareholder Account Application/Revision.
Telephone redemption orders may not be used to direct payments to another person
or to an account which was not previously designated by prior written
instructions. Written instructions will be required as set forth below.
Payment for a redemption request received by 1:00 p.m. Pacific time may be
transmitted by wire on the following business day. A shareholder which
anticipates requesting a wire in excess of $5 million should notify the Fund
promptly.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
2. By Mail
A shareholder may redeem shares by sending a letter requesting redemption to the
Funds at the address shown on the cover of this Prospectus. Redemption proceeds
will be mailed to the registered address, or mailed or wired to a preauthorized
bank account as requested. Redemption proceeds may also be sent to another party
or account as requested; however, in such cases, the signature(s) on the
redemption request must be guaranteed.
To be considered in proper form, the signature(s) of all registered owners or
previously designated signers must be guaranteed if the redemption request
involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to a party other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or
(4) the Funds or Investor Services believe that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of an account cannot
be confirmed, (b) the Funds have been notified of an adverse claim, (c) the
instructions received by the Funds are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Funds.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership and trust accounts require the
following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
For any information required about a proposed liquidation, a shareholder may
call the Franklin Templeton Institutional Services Department.
General
Payment for written redemption requests will be sent within seven days after
receipt of a request in proper form, except that the Funds may delay the mailing
of the redemption check, or a portion thereof, until the clearance of the check
used to purchase the shares, which may take up to 15 days or more. Although the
use of a certified or cashier's check will generally reduce this delay, shares
purchased with these checks will also be held pending clearance. Shares
purchased by federal funds wire are available for immediate redemption. The
right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it by order, for the protection of shareholders. Of course, the
amount received on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by such Fund. Redemptions may be made in kind, under certain limited
conditions as discussed in the SAI .
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Funds nor their agent shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.
Contingent Deferred Sales Charge
The Funds do not impose either a front-end sales charge or a contingent deferred
sales charge. If, however, the shares redeemed are shares acquired by exchange
from another of the Franklin Templeton Funds which would have assessed a
contingent deferred sales charge upon redemption, such charge will be made by
the Fund, as described below. The 12-month contingency period will be tolled (or
stopped) for the period such shares are exchanged into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month of such investments. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months. Shares subject
to a contingent deferred sales charge will then be redeemed on a "first in,
first out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Valuation of Shares of the Funds
The net asset value per share of each Fund is determined as of the scheduled
close of the Exchange (generally 1:00 p.m. Pacific time) each day that the
Exchange is open for trading and on which there is a sufficient degree of
trading in a Fund's portfolio securities that the net asset value of the Fund's
shares may be affected.
The net asset value per share for each Fund is calculated by adding the value of
the portfolio holdings (i.e., shares of the Portfolio in which the Fund invests)
and other assets, deducting that Fund's liabilities, and dividing the result by
the number of shares outstanding for that Fund.
For the purpose of determining the aggregate net assets of a Portfolio, cash and
receivables are valued at their realizable amounts. Interest is recorded as
accrued. Under procedures approved by the Board, the mortgage securities of the
Portfolios are valued at current market value provided by a pricing service,
bank or securities dealer when over-the-counter market quotations are readily
available. Securities and other assets for which market prices are not readily
available are valued at fair market value as determined following procedures
approved by the Board of Trustees of the Adjustable Securities Portfolios.
How to Get Information Regarding
an Investment in the Funds
Any questions or communications regarding a shareholder's account should be
directed to the Franklin Templeton Institutional Services Department at
1-800/321-8563, Monday through Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or other performance information specific to the Funds or any
Franklin Templeton Fund.
Fund information may be accessed by entering Fund Code 44 for the Adjustable
U.S. Government Fund and Fund Code 45 for the Adjustable Rate Securities Fund
followed by the # sign. The system's automated operator will prompt the caller
with easy to follow step-by-step instructions from the main menu. Other features
may be added in the future.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service department
may be accessed, recorded and monitored. These calls can be determined by the
presence of a regular beeping tone.
Performance
Advertisements, sales literature and communications to shareholders may contain
various measures of a Fund's performance including current yield, various
expressions of total return and current distribution rate. They may occasionally
cite statistics to reflect its volatility or risk.
Average annual total return figures as prescribed by the SEC represent the
average annual percentage change in value of $1,000 for one-, five- and ten-year
periods, or portion thereof, to the extent applicable, through the end of the
most recent calendar quarter, assuming reinvestment of all distributions. A Fund
may also furnish total return quotations for other periods, based on investments
at net asset value. For such purposes total return equals the total of all
income and capital gain paid to shareholders, assuming reinvestment of all
distributions, plus (or minus) the change in the value of the original
investment, expressed as a percentage of the purchase price.
Current yield reflects the income per share earned by a fund's portfolio
investments; it is calculated by dividing a fund's net investment income per
share during a recent 30-day period by the fund's net asset value on the last
day of that period and annualizing the result.
Yield which is calculated according to a formula prescribed by the SEC (see the
SAI ) is not indicative of the dividends or distributions which were or will be
paid to a Fund's shareholders. Dividends or distributions paid to shareholders
are reflected in the current distribution rate which may be quoted to a Fund's
shareholders.
In each case performance figures are based upon past performance and reflect all
recurring charges against fund income. The investment results of a Fund, like
all other investment companies, will fluctuate over time; thus, performance
figures should not be considered to represent what an investment may earn in the
future or what the Fund's yield, distribution rate or total return may be in any
future period.
General Information
Reports to Shareholders
The Trust's fiscal year ends June 30. Annual Reports containing audited
financial statements of the Funds, including the auditors' report, and
Semi-Annual Reports containing unaudited financial statements are automatically
sent to shareholders. Additional copies may be obtained, without charge, upon
request to the Trust at the telephone number or address set forth on the cover
page of this prospectus.
Additional information on Fund performance is included in the Fund's Annual
Report to Shareholders and the SAI.
Organization and Voting Rights
The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
Shares of each series of the Trust have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless otherwise
permitted by the 1940 Act. Voting rights are not cumulative, so that the holders
of more than 50% of the shares voting in any election of trustees, can, if they
choose to do so, elect all of the trustees. The Trust does not intend to hold
annual shareholders meetings. The Trust may, however, hold a special
shareholders meeting for such purposes as changing fundamental investment
restrictions, approving a new management agreement or any other matters which
are required to be acted on by shareholders under the 1940 Act. Whenever a Fund,
as an investor in a Portfolio, is asked to vote on a fundamental policy matter
relating to that Portfolio, the Trust, on behalf of the Fund, will hold a
meeting of that Fund's shareholders and will cast its votes in the same
proportions as the Fund's shareholders have voted. A meeting may also be called
by the Board at their discretion or by shareholders holding at least ten percent
of the shares entitled to vote at the meeting. Shareholders will receive
assistance in communicating with other shareholders in connection with the
election or removal of trustees such as that provided in Section 16(c) of the
1940 Act.
The Board may from time to time issue other series of the Trust, the assets and
liabilities of which will likewise be separate and distinct from any other
series of the Trust. Currently the Trust consists of eight separate series, the
Money Market Portfolio, the Franklin Late Day Money Market Portfolio, the
Franklin U.S. Government Securities Money Market Portfolio, the Franklin U.S.
Treasury Money Market Portfolio, the Franklin Institutional Adjustable U.S.
Government Securities Fund, the Franklin Institutional Adjustable Rate
Securities Fund and the Franklin Cash Reserves Fund, each maintaining a totally
separate and distinct investment portfolio.
Miscellaneous
Certain of the programs and privileges described in this Prospectus may not be
available directly from the Funds to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account.
Confirmations
Shares for an initial investment, as well as subsequent investments, including
the reinvestment of dividends and capital gains distributions, are credited to
an open share account (known as "plan balance") in the name of an investor on
the books of the Fund without the issuance of a share certificate. Shareholders
will receive confirmation statements quarterly to reflect dividends reinvested
during the period and after each other transaction which affects the account.
These statements will also show the total number of Fund shares owned by a
shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUNDS WILL NOT
BE ISSUED.
Redemptions by the Funds
Each Fund reserves the right to redeem shares of any shareholder whose account
has a value of less than $1,000,000 ($500,000 with respect to trust companies
and bank trust departments), but only where the value of such accounts has been
reduced by the shareholder's prior voluntary redemption of shares and has been
inactive (except for the reinvestment of distributions) for a period of at least
six months, provided advance notice is given to the shareholder. More
information is included in the SAI.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Funds may be required to
report to the IRS any taxable dividend, capital gain distribution, or other
reportable payment (including share redemption proceeds) and withhold 31% of any
such payments made to individuals and other non-exempt shareholders who have not
provided a correct taxpayer identification number ("TIN") and made certain
required certifications that appear in the Shareholder Account
Application/Revision. A shareholder may also be subject to backup withholding if
the IRS or a securities dealer notifies the Fund that the TIN furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
The Funds reserve the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Funds with a certified
TIN within 60 days after opening the account.
Portfolio Operations
The following persons are primarily responsible for the day to day portfolio
management of the respective Portfolios in which the Funds invest and have been
since inception of the Portfolios:
T. Anthony Coffey
Portfolio Manager
Franklin Advisers, Inc.
Mr. Coffey holds a bachelor of arts degree from Harvard University and a
master's degree in business administration from the University of California at
Los Angeles. He has been with Advisers since 1989. From 1985 to 1987 Mr. Coffey
was an associate with Analysis Group. He is a member of several securities
industry-related committees and associations.
Roger Bayston
Portfolio Manager
Franklin Advisers, Inc.
Mr. Bayston holds a bachelor of science degree from the University of Virginia
and a master's degree in business administration from the University of
California at Los Angeles. He joined Advisers in 1991, following completion of
his MBA program, and was an assistant treasurer for Bankers Trust Company from
1986 to 1989.
Jack Lemein
Vice President and
Portfolio Manager
Franklin Advisers, Inc.
Mr. Lemein holds a bachelor of science degree in finance from the University of
Illinois. He has been in the securities industry since 1967 and with Advisers
since 1984. He is a member of several securities industry-related committees and
associations.
Institutional
Fiduciary Trust
Prospectus
November 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
Franklin U.S. Government Agency
Money Market Fund
Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of eight separate and distinct diversified series.
This Prospectus relates only to the Franklin U.S. Government Agency Money Market
Fund (the "Fund"). The Fund is designed for institutional accounts, such as
corporations, banks, savings and loan associations, trust companies and for
government entities for investment of their own capital and of monies held in
accounts for which they act in a fiduciary, advisory, agency, custodial, or
other similar capacity, to the extent permitted by regulations pertaining to
permissible investments of such entities. Shares of the Fund may not be
purchased by individuals.
The investment objectives of the Fund are capital preservation and liquidity
while seeking high current income consistent with capital preservation and
liquidity.
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Fund that a prospective investor should know
before investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
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.
Shares of the Fund 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 the Fund involve investment risks including the possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
A Statement of Additional Information ("SAI") concerning the Trust in general
and the Fund, dated November 1, 1995, as may be amended from time to time,
provides a further discussion of certain areas in this Prospectus and other
matters which may be of interest to some investors. It has been filed with the
Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Fund or the Fund's
principal underwriter, Franklin/Templeton Distributors, Inc., ("Distributors")
at the address or telephone number shown above.
Shares of the Fund may be purchased at net asset value, with no sales charge,
with a minimum initial investment of $100,000, except for states, counties,
cities, and their instrumentalities, departments, agencies and authorities,
which may open an account in the Fund with no minimum initial investment. There
is no minimum for subsequent investments in the Fund.
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 representation
other than those contained in this Prospectus. Further information may be
obtained from the underwriter.
Contents Page
Expense Table 4
Financial Highlights 5
About the Fund 5
Investment Objectives and
Policies of the Fund 5
Management of the Fund 7
Distributions to Shareholders 9
Taxation of the Fund
and Its Shareholders 9
How to Buy Shares of the Fund 10
Valuation of Shares of the Fund 13
How to Sell Shares of the Fund 13
Exchange Privilege 16
Telephone Transactions 17
Special Services 19
How to Get Information Regarding
an Investment in the Fund 19
Performance 19
General Information 20
Important Notice Regarding
Taxpayer IRS Certifications 21
Expense Table
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund. These figures are based on aggregate
operating expenses of the Fund, before fee waiver and expense reductions, for
the fiscal year ended June 30, 1995.
Shareholder Transaction Expenses
Exchange Fee $5.00+
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees 0.15%*
12b-1 Fees 0.15%**
Other Expenses 0.17%
Total Operating Expenses 0.47%* +$5.00 fee is imposed only on Timing Accounts,
as described under "Exchange Privilege." All other exchanges are processed
without a fee.
*Represents the management fees before any fee waiver by the investment manager.
The investment manager has agreed in advance, however, to waive all of its
management fees and to make certain payments to reduce expenses of the Fund.
With this fee waiver and expense reduction, the Fund paid no management fees and
total operating expenses represented 0.30% of the average net assets of the
Fund.
**The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 for the Fund whereby the Fund may
make payments to the investment manager for promotion and distribution expenses
up to 0.30% annually of the Fund's average daily net assets. Consistent with
National Association of Securities Dealers, Inc.'s rules, it is possible that
Rule 12b-1 fees could cause long-term shareholders to pay more than the economic
equivalent of the maximum front-end sales charges permitted under those same
rules.
Investors should be aware that the above table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by SEC regulations, the following example illustrates the expenses
that apply to a $1,000 investment in the Fund over various time periods assuming
(1) a 5% annual rate of return and (2) redemption at the end of each time
period.
1 year 3 years 5 years 10 years
$5 $15 $26 $59
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF THE FUND,
BEFORE FEE WAIVER AND EXPENSE REDUCTIONS, SHOWN ABOVE AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE OR
LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund and only
indirectly by shareholders as a result of their investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
the Fund. The information for the period February 8, 1994 (effective date of
registration) through June 30, 1994 and the fiscal year ended June 30, 1995 has
been audited by Coopers & Lybrand L.L.P., independent auditors, whose audit
report appears in the financial statements in the Fund's Annual Report to
Shareholders dated June 30, 1995. See the discussion "Reports to Shareholders"
under "General Information" in this Prospectus.
<TABLE>
<CAPTION>
Per Share Operating Performance** Ratios/Supplemental Data
Net Asset Distributions Ratio of Ratio of
Year Value Net From Net Net Asset Net Assets Expenses Net Income
Ended at Beginning Investment Investment Value at Total at End of Year to Average to Average
June 30 of Year Income Income End of Year Return*** (in 000's) Net Assets++ Net Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1994+ $1.00 $.013 $(.013) $1.00 1.31% $ 5,065 0.40%* 3.32%*
1995 1.00 .051 (.051) 1.00 5.22 34,285 0.30 5.39
</TABLE>
*Annualized
**Selected data for a share of beneficial interest outstanding throughout the
year.
***Total return measures the change in value of an investment over the periods
indicated. It assumes reinvestment of dividends and capital gains at net asset
value.
+For the period February 8, 1994 (effective date) to June 30, 1994.
++During the periods ended June 30, 1994 and 1995, the investment manager agreed
in advance to waive its management fees and made payments of other expenses
incurred by the Fund. Had such action not been taken, the ratio of expenses to
average net assets would have been 1.43% (annualized) and 0.47%, respectively.
About the Fund
The Trust, organized as a Massachusetts business trust in January 1985, is an
open-end management investment company, or mutual fund, and has registered with
the SEC under the Investment Company Act of 1940 (the "1940 Act").
The Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved.
Shares of the Fund may be purchased at net asset value (without a sales charge).
The minimum initial investment for the Fund is $100,000, except that states,
counties, cities, and their instrumentalities, departments, agencies and
authorities may open an account in the Fund with no minimum initial investment.
There is no minimum for subsequent investments in the Fund. Shares of the Fund
may not be purchased by individuals. (See "How to Buy Shares of the Fund.")
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Fund - Rights of Accumulation/Letter of Intent
Regarding Other Funds" currently offer their shares in two "classes," designated
"Class I" and "Class II." Classes of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes. Shares of the Fund may be considered Class I shares
for purposes of the programs and privileges discussed in this Prospectus.
Investment Objectives and
Policies of the Fund
General
The investment objectives of the Fund, as stated below, are fundamental policies
which cannot be changed without shareholder approval. Since all investments are
inherently subject to market risk, no assurances can be given that the Fund will
achieve its stated objectives. The Fund's investment objectives are capital
preservation and liquidity, while seeking high current income consistent with
capital preservation and liquidity.
The Fund must comply with adopted procedures pursuant to Rule 2a-7 under the
1940 Act. The Fund will invest 100% of its assets in United States ("U.S.")
dollar denominated securities with remaining maturities of 397 days or less,
maintain the dollar weighted average maturity of the securities in the Fund's
portfolio at 90 days or less, and limit its investments to those instruments
which the Board of Trustees (the "Board") determines present minimal credit
risks and which are eligible investments under the rule.
The Fund invests only in U.S. government securities, which consist of marketable
fixed, floating and variable rate securities issued or guaranteed by the U.S.
government, its agencies or by various instrumentalities which have been
established or sponsored by the U.S. government. At least 65% of its net assets
will be invested in notes, bonds, discount notes and other short-term securities
issued by U.S. government agencies or instrumentalities, such as the Federal
Farm Credit System, Federal Home Loan Banks, Student Loan Marketing Association,
Tennessee Valley Authority, Federal Deposit Insurance Corporation, Federal
Intermediate Credit Bank and General Services Administration ("U.S. Government
Agency Securities"). Some U.S. Government Agency Securities are supported by the
right of the issuer to borrow from the U.S. Treasury. Others are supported only
by the credit of the instrumentality. In addition, the Fund may invest in direct
obligations of the U.S. Treasury, such as U.S. Treasury bills, notes and bonds.
The Fund does not invest in repurchase agreements or any other type of money
market instruments.
Because the Fund will limit its investments to high quality securities, there
will be generally lower yields than if the Fund purchased securities with a
lower rating and correspondingly greater risk.
U.S. Treasury Securities. These securities are supported by the full faith and
credit of the U.S. government and differ only in their interest rates,
maturities and times of issuance. Treasury bills have initial maturities of one
year or less; Treasury notes have initial maturities of one to ten years; and
Treasury bonds generally have initial maturities of greater than ten years. The
Fund's investments may bear fixed or variable rates of interest, and its share
price and yield are not guaranteed by the U.S.
government.
When-Issued and Delayed Delivery Transactions. The Fund may purchase short-term
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. Such transactions are subject to market fluctuation
and the value at delivery may be more or less than the purchase price. The Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the Fund's investment objectives
and policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous. Securities purchased on a when-issued or
delayed delivery basis do not generally earn interest until their scheduled
delivery date.
Other Considerations
The Fund may borrow from banks, under certain circumstances, and pledge up to 5%
of its net assets for such loans. The Fund may not acquire securities subject to
legal or contractual restrictions on resale or securities which are not readily
marketable if, as a result, more than 10% of the value of its total assets would
be invested in such securities.
Whenever the Fund 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 Fund may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). Typically, such trading involves additional risks of loss
to the extent such securities differ in maturity, credit quality or other
aspects, and to the extent of the brokerage, if any, or other transaction costs
involved. See the discussion on brokerage in "Management of the Fund."
The Fund believes that its investment policies make it a permissible investment
for federal credit unions, based on the Fund's understanding of the laws and
regulations governing credit union regulations as of September 30, 1995. CREDIT
UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISERS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS
FOR THEM. Please see "Investment Objectives and Policies - Credit Union
Investment Regulations" in the SAI for details.
Other Policies
The Fund is subject to a number of additional investment restrictions, some of
which may be changed only with the approval of a majority of the Fund's
shareholders. For a list of these restrictions and more information concerning
the various transactions mentioned above, please refer to the SAI.
Currently, in seeking to accomplish its objectives of capital preservation and
liquidity while seeking high current income consistent with capital preservation
and liquidity, the Fund invests directly in a portfolio of securities issued by
the U.S. government, its agencies or instrumentalities. Certain funds
administered by the investment manager participate as feeder funds in
master/feeder fund structures. Under a master/feeder structure one or more
feeder funds, such as the Fund, invests its assets in a master fund, which, in
turn, invests its assets directly in the securities. The Fund hereby reserves
the right to convert to a master/feeder fund structure at a future date. Various
state governments have adopted the North American Securities Administrators
Association guidelines for registration of master/feeder funds. If required by
those guidelines, as then in effect, the Fund will seek shareholder approval
prior to converting to a master/feeder structure, subject to there not being
adopted a superseding provision or ruling under federal law. If it is determined
by the requisite regulatory authorities that such approval is not required,
shareholders will be deemed to have consented to such conversion by their
purchase of Fund shares and no further shareholder approval will be sought or
needed. Shareholders will, however, be informed in writing in advance of the
conversion. The determination to convert the Fund to a master/feeder fund
structure is not expected to result in an increase in the fees or expenses paid
by the Fund or its shareholders. The investment objectives and other fundamental
policies of the Fund, which can be changed only with shareholder approval, are
structured so as to permit the Fund to invest directly in securities or
indirectly in securities through a master/feeder fund structure.
Management of the Fund
The Board has the primary responsibility for the overall management of the
Trust, including the Fund, and for electing the officers of the Trust who are
responsible for administering the day to day operations of all series of the
Trust.
Franklin Advisers, Inc. ("Advisers" or "Manager") serves as the investment
manager for the Fund. 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.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers acts
as investment manager or administrator to 34 U.S. registered investment
companies (116 separate series) with aggregate assets of over $76 billion.
The Manager supervises and implements the Fund's investment activities and
provides certain administrative services and facilities which are necessary to
conduct the Fund's business, pursuant to management agreements for the Fund.
During the fiscal year ended June 30, 1995, management fees, before any advance
waiver, totaled 0.15% of average daily net assets of the Fund. Total operating
expenses, including management fees, before any advance waiver, totaled 0.47% of
the average net assets of the Fund. Since Advisers agreed in advance to waive
its fees, the Fund paid no management fees and paid operating expenses totaling
0.30% of the average daily net assets of the Fund. This arrangement may be
terminated by Advisers at any time upon notice to the Board.
It is not anticipated that the Fund will incur a significant amount of brokerage
expenses because short-term money market instruments are generally traded in
principal transactions which involve the receipt by the broker of a spread
between the bid and ask prices for the securities, and not the receipt of
commissions. To the extent that the Fund does participate in transactions
involving brokerage commissions, it is the Manager's responsibility to select
brokers through whom such transactions will be effected. The Manager tries to
obtain the best execution on all such transactions. If it is felt that more than
one broker is able to provide the best execution, the Manager will consider the
furnishing of quotations and of other market services, research, statistical and
other data for the Manager and its affiliates, as well as the sale of shares of
the Fund, as factors in selecting a broker. Further information is included
under "The Funds' Policies Regarding Brokers Used on Portfolio Transactions" in
the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/ Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Plan of Distribution
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. Under the Plan, the Fund may reimburse Distributors or
others for all expenses incurred by Distributors or others in the promotion and
distribution of the Fund's shares. Such expenses may include, but are not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates. The maximum amount which the Fund may
pay to Distributors or others for such distribution expenses is 0.30% per annum
of the Fund's average daily net assets, payable on a quarterly basis. All
expenses of distribution and marketing in excess of the maximum amounts will be
borne by Distributors without reimbursement from the Fund. The Plan also covers
any payments to or by the Fund, Advisers, Distributors or other parties on
behalf of the Fund, Advisers, or Distributors to the extent such payments are
deemed to be for the financing of any activity primarily intended to result in
the sale of shares issued by the Fund within the context of Rule 12b-1. For more
information, please see the SAI.
Distributions to Shareholders
The Fund declares dividends on each day its net asset value is calculated,
payable to shareholders of record as of the close of business that day. Daily
allocation of dividends will commence on the day funds are wired in accordance
with procedures set forth in "How to Buy Shares of the Funds" or, if an investor
has sent a check, on the day the check is converted into federal funds (which
may take two or more days depending upon the banks involved). The amount of the
dividend 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 income.
The Fund does not pay "interest" to its shareholders, nor is any amount of
dividends or return guaranteed in any way.
Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders (excluding
retirement plan participants) may request to have their dividends paid out
monthly in cash on the shareholder Account Application/Revision or by notifying
the Fund's transfer agent.
Since the net income of the Fund is declared as a dividend each time the net
income is determined, the net asset value per share of the Fund (i.e., the value
of the net assets of the Fund divided by the number of shares of the Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in the
shareholder's account.
The daily dividend includes accrued interest and any original issue or 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 Fund. Net income is calculated immediately prior to
the determination of the net asset value per share of the Fund.
The SAI includes a further discussion of distributions.
Taxation of the Fund and Its Shareholders
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.
Each series in the Trust is treated as a separate entity for federal income tax
purposes. The Fund intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (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 the shareholder has elected to receive them in cash or
in additional shares.
Since the Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon redemption or exchange of Fund shares.
Since the Fund's income is derived from interest and gain on the sale of
portfolio securities rather than qualifying dividend income, no portion of the
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise them of the tax status for federal income tax purposes
of such dividends and distributions.
The Fund may be used for the investment of surplus funds of municipalities
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. Section 115(1) of the Code provides, in part, that
gross income does not include income derived from the exercise of any essential
governmental function and accruing to a state, territory or political
subdivision thereof. To the extent that investments in the Fund are made in
connection with such functions, states and their political subdivisions will not
be subject to federal taxation on income or gains derived from an investment in
the Fund. The Fund does not meet currently defined exceptions to the arbitrage
rebate requirements and a portion or all of the earnings distributed by the Fund
may be required to be paid over to the U.S. Treasury as rebatable arbitrage
earnings in accordance with the provisions of the Code.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares in the
Fund and to distributions and redemption proceeds received from the Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to these distributions.
How to Buy Shares of the Fund
Shares of the Fund may be purchased by institutions, such as banks, savings and
loan associations, trust companies, corporations, and other institutional
entities and by government entities directly from the Fund. The Fund may not be
purchased by individuals. The shares of the Fund are offered at its net asset
value (with no sales charge) on a continuous basis by the Fund. As each payment
is received, full and fractional shares of the Fund will be purchased at the net
asset value next computed and proper entry will be made on the books of the
Fund. The minimum initial investment for the Fund is $100,000, except that
states, counties, cities, and their instrumentalities, departments, agencies and
authorities may open an account in the Fund with no minimum initial investment.
There is no minimum for subsequent investments in the Fund. The Fund and
Distributors reserve the right to reject any order for the purchase of shares or
to waive the minimum investment requirements.
Investments may be made in any of the following ways:
1. By Wire:
(a) First, call the Fund at 1-800/321-8563 to advise of the intent to wire
funds for investment in the Fund. Shareholders wishing to purchase shares
in excess of $50,000 must first complete an Institutional Telephone
Privileges Agreement, as described under "Telephone Transactions." Requests
to begin a wire order process for the Fund must be made not later than
11:15 a.m. Pacific time. Trades placed by the above deadlines will receive
same day credit so long as funds are received in accordance with paragraph
(b). In order to maximize efficient fund management, investors requesting a
same day purchase of any size are urged to place orders as early in the day
as possible. Prior business day notification of such trade may be required.
Requests to begin a wire order after the cut off time for the Fund will not
be in proper form for that day's purchase and will receive credit on the
next business day. The Fund will supply a wire control number for each
investment at the time the telephone call is received. It is necessary to
obtain a new wire control number every time money is wired into an account
in the Fund. Wire control numbers are effective for one transaction only
and may not be used more than once. Wired money which is not properly
identified with a currently effective wire control number will be returned
to the bank from which it was wired and will not be credited to the
shareholder's account.
(b) Next, wire funds to Bank of America, ABA routing No. 121000358, for credit
to Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund, A/C 1493304779. Be sure to include the wire control number,
the investor's Fund account number and account registration. Wired funds
received by the Bank and reported by the Bank to the Fund by the close of
the Federal Reserve Wire System (currently 3:00 p.m. Pacific time) are
normally available for credit on that day, provided the Fund is timely
notified as described in (a) above. Later wires are credited the following
business day. In order to maximize efficient Fund management, investors are
urged to place and wire their investments as early in the day as possible.
(c) In order to receive proper credit, if the purchase is not to an existing
account, send a completed shareholder Account Application/Revision to
Franklin U.S. Government Agency Money Market Fund at the address shown on
the cover of this Prospectus.
2. By Mail:
Many of the types of instruments in which the Fund invests must be paid for in
federal funds, which are monies held by its custodian on deposit at the Federal
Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid by an
investor for shares of the Fund generally cannot be invested by the Fund until
they are converted into and are available to the Fund in federal funds, which
may take up to two days. In such cases, purchases by investors will generally
not be considered in proper form and effective until such conversion and
availability. However, in the event the Fund is able to make investments
immediately (within one business day), it may accept a purchase order with
payment other than in federal funds; in such event, shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments converted to federal funds.
(a) For an initial investment, send a completed shareholder Account
Application/Revision.
(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund. Instruments drawn on other investment companies will not be
accepted.
(c) Next, send the check, Federal Reserve draft or negotiable bank draft to
Institutional Fiduciary Trust - Franklin U.S. Government Agency Money
Market Fund at the address shown on the cover of this Prospectus.
3. Through Securities Dealers:
Although the Fund's shares are sold without a sales charge, a shareholder may
invest in the Fund by purchasing shares through a securities dealer which
executes a dealer or similar agreement with Distributors, the Fund's principal
underwriter. The use of the term "securities dealers" includes other financial
institutions which pursuant to an agreement with Distributors (directly or
through affiliates) handle customer orders and accounts for the group. Such
reference, however, is for convenience only and does not indicate a legal
conclusion of capacity. The securities dealer may choose to wire or mail the
monies accompanying an investment in the Fund. Securities dealers who process
orders on behalf of their customers may charge a reasonable fee for their
services. Investments made directly, without the assistance of a securities
dealer, are without charge.
If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Franklin Templeton Funds (as the term
is defined in the following section), Distributors may make a payment, out of
its own resources, to such securities dealer. Please contact the Franklin
Templeton Institutional Services Department for additional information.
Rights of Accumulation/Letter of Intent
Regarding Other Funds
The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares in one or more of the funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds, which are sold with a sales
charge. Included for these aggregation purposes are (a) the mutual funds in the
Franklin Group of Funds except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction) and (c) the U.S. mutual funds in the Templeton Group of Funds except
Templeton Capital Accumulator Fund, Inc., Templeton Variable Annuity Fund, and
Templeton Variable Products Series Fund (the "Templeton Funds"). (Franklin Funds
and Templeton Funds are collectively referred to as the "Franklin Templeton
Funds.")
Purchases of Fund shares may also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Templeton Funds which
are sold with a sales charge.
For additional information regarding these programs, please contact the Franklin
Templeton Institutional Services Department by mail at the address listed on the
cover of this Prospectus or by telephone at 1-800/321-8563.
General
Shares of the Fund may or may not constitute a legal investment for investors
whose investment authority is restricted by applicable law or regulation. SUCH
INVESTORS SHOULD CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO
WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM.
Municipal investors considering investment of proceeds of bond offerings into
the Fund should consult with expert counsel to determine the effect, if any, of
various payments made by the Fund or its investment manager on arbitrage rebate
calculations.
Valuation of Shares of the Fund
The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.
The net asset value of the shares is computed each day that the New York Stock
Exchange is open for trading. The computation is done at 12:30 p.m. Pacific
time.
The net asset value per share is calculated by adding the value of all portfolio
holdings and other assets, deducting the Fund's liabilities, and dividing the
result by the number of shares outstanding for that Fund.
The valuation of portfolio securities is based upon their amortized cost value,
which does not take into account unrealized capital gain or loss. This 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.
How to Sell Shares of the Fund
1. By Telephone with Payment to a
Preauthorized Bank Account:
A shareholder may redeem shares of the Fund, up to $50,000, by telephoning the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to redeem shares of the Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number and security identification number and be called to the
Fund. Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a shareholder Account Application/Revision, or
a signature guaranteed letter of instruction.
A payment may be transmitted by wire the same business day where a request is
received prior to 11:15 a.m. Pacific time that day. A shareholder which
anticipates requesting a same day wire redemption in excess of $5 million should
notify the Fund on the prior business day of the intention to request such a
redemption. In order to maximize efficient fund management, investors requesting
a same day wire redemption of any size are urged to place orders as early in the
day as possible. Prior business day notification of such trade may be required.
Otherwise, payments will be transmitted by wire on the business day following
receipt of a request received after the above deadlines.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required as set forth
below.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
2. By Mail:
A shareholder may redeem shares by sending a letter requesting redemption to the
Fund, at the address shown on the cover of this Prospectus. Redemption proceeds
will be mailed to the registered address, or mailed or wired to a preauthorized
bank account as requested. Proceeds of redemption may also be sent to some other
party or account as requested, however, in such cases the signature(s) on the
redemption request must be guaranteed.
To be considered in proper form, the signature(s) of all registered owners or
previously designated signers must be guaranteed if the redemption request
involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to a party other than the registered
owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to any address other than the
shareholder's address of record, preauthorized bank account or brokerage
firm account; or
(4) the Fund or its transfer agent believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of one or more owners
cannot be confirmed, (b) multiple owners have a dispute or give
inconsistent instructions to the Fund (c) the Fund has been notified of an
adverse claim, (d) the instructions received by the Fund are given by an
agent, not the actual registered owner, or (e) the authority of a
representative of a corporation, partnership, association, or other entity
has not been established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership, trust, and custodianship
accounts, and accounts under court jurisdiction, require the following
documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
Custodial (other than a retirement account) - Signature guaranteed letter of
instruction from the custodian.
Accounts under court jurisdiction - Check court documents and the applicable
state law since these accounts have varying requirements, depending upon the
state of residence.
For any information required about a proposed liquidation, a shareholder may
call the Franklin Templeton Institutional Services Department.
General
After requesting a liquidation from the Fund, a shareholder will receive the
value of the shares of the Fund in the shareholder's account based upon the net
asset value per share next computed on the day a request in proper form is
received by the Fund. Payment for written redemption requests will be sent
within seven days after receipt of a request in proper form, except that the
Fund may delay the mailing of the redemption check, or a portion thereof, until
the clearance of the check used to purchase the shares, which may take up to 15
days or more. Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also be held pending
clearance. Shares purchased by federal funds wire are available for redemption
on the business day following their receipt. Arrangements may also be made to
have redemption proceeds wired to the shareholder's designated bank account. The
right of redemption may be suspended or the date of payment postponed if the
Exchange is closed (other than customary closing) or upon the determination of
the SEC that trading on the Exchange is restricted or an emergency exists, or if
the SEC permits it by order, for the protection of shareholders. Of course, the
amount received on redemption may be more or less than the amount paid for the
shares, depending upon the fluctuations in the market value of the securities
owned by the Fund. Redemptions also may be made in kind, under certain
conditions as discussed in the SAI.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agents shall be
liable to any shareholder or other party for a redemption payment which meets
the requirements of the 1940 Act but which may not for any reason be processed
on an expedited basis as described in this section.
Contingent Deferred Sales Charge
The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired by
exchange from another of the Franklin Templeton Funds which would have assessed
a contingent deferred sales charge upon redemption, such charge will be made by
the Fund, as described below. The 12-month contingency period will be tolled (or
stopped) for the period such shares are exchanged into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month of such investments. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) Shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months. Shares subject
to a contingent deferred sales charge will then be redeemed on a "first in,
first out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
generally offered to the public with a sales charge (which may differ in timing
and/or amount). If a shareholder's investment objective or outlook for the
securities markets changes, the Fund shares may be exchanged for Class I shares
of other Franklin Templeton Funds which are eligible for sale in the
shareholder's state of residence and in conformity with such fund's stated
eligibility requirements and investment minimums. Before making an exchange,
investors should review the prospectus of the fund they wish to exchange from
and the fund they wish to exchange into for all specific requirements or
limitations on exercising the exchange privilege, for example, minimum holding
periods or applicable sales charges.
Shares of the Fund acquired other than pursuant to the exchange privilege, or
the reinvestment of dividends with respect to such shares, may be exchanged at
the offering price of other Class I shares of the Franklin Templeton Funds. Such
offering price includes the applicable sales charge of the fund into which the
shares are being exchanged. The prospectuses for all investment companies in the
Franklin Templeton Funds which are normally sold with a sales charge allow
certain institutional investors to purchase Class I shares at net asset value
(without a sales charge). These institutional investors include government
entities, employee benefit plans, trust companies and bank trust departments.
Such exchanges will be effected as follows:
(a) From the Fund into any other series of the Trust. The exchange will be
effected at net asset value next computed after the exchange request is
received prior to 11:15 a.m. Pacific time, with payment for the purchased
shares processed on the following business day when the funds are made
available from the Fund.
(b) From the Fund into Class I shares of other Franklin Templeton Funds. The
exchange will be effected at the respective net asset values or offering
price of the funds involved next computed on the day on which the request
is received in proper form prior to 11:15 a.m. Pacific time. Requests
received after 11:15 a.m. will be effective at the price next computed on
the following business day.
(c) From another fund in the Franklin Templeton Funds into the Fund. In order
to avoid dilution of the Fund, such transactions will be handled as a
liquidation from the other fund at its net asset value next computed on the
day the exchange request is received in proper form prior to the time the
valuation of shares for that fund is effected, generally 3:00 p.m. Pacific
time for money market funds (excluding the money market funds of the Trust)
and 1:00 p.m. Pacific time for non-money market funds, and a purchase of
the Fund's shares on the following business day at the price computed on
such following business day when the funds for the purchase are available
and the purchase order is in all respects deemed to be in proper form.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Exchanges by Mail
Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of the Fund for the Class I shares of other
Franklin Templeton Funds will not involve certificates because the Fund does not
issue certificates.
Exchanges by Telephone
A shareholder may exchange shares of the Fund by telephone by calling the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to exchange shares of the Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.
Timing Accounts
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
Restrictions on Exchanges
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) makes an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) makes more than two exchanges out of the Fund per
calendar quarter, or (iii) exchanges shares equal in value to at least $5
million, or more than 1% of the Fund's net assets. Accounts under common
ownership or control, including accounts administered so as to redeem or
purchase shares based upon certain predetermined market indicators, will be
aggregated for purposes of the exchange limits.
The Fund reserves the right to refuse the purchase side of exchange requests by
any Timing Account, person, or group if, in the Manager's judgment, the Fund
would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and therefore may be
refused.
The Fund and Distributors also, as indicated under "How to Buy Shares of the
Fund," reserve the right to refuse any order for the purchase of shares.
Telephone Transactions
Shareholders of the Fund and their investment representative of record, if any,
may be able to execute various transactions by calling the Franklin Templeton
Institutional Services Department at
1-800/321-8563.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, and (iv)
purchase, redeem or exchange Fund shares by telephone as described in this
Prospectus. Shareholders who do not wish these privileges extended to a
particular account should notify the Fund or the Franklin Templeton
Institutional Services Department. Requirements for telephone transactions
extend to transactions transmitted by facsimile or computer, as well as those
communicated directly to a customer representative. Shareholders who elect to
use the Telephone Transaction Privilege for purchases, exchanges or redemptions
for trades in excess of $50,000 must first execute the Institutional Telephone
Privileges Agreement included in the Funds' application or which may be obtained
by calling the number above.
Verification Procedures
The Funds and Investor Services will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that the instructions received by telephone
are genuine, the requested transaction will not be executed, and neither the
Fund nor Investor Services will be liable for any losses which may occur because
of a delay in implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton retirement accounts. To assure compliance with all applicable
regulations, special forms are required for any distribution, redemption, or
dividend payment. While the telephone exchange privilege is extended to Franklin
Templeton IRA and 403(b) retirement accounts, certain restrictions may apply to
other types of retirement plans.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
investment representative for assistance, or to send written instructions to the
Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
Special Services
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the Fund.
How to Get Information Regarding
an Investment in the Fund
Any questions or communications regarding a shareholder's account should be
directed to the Franklin Templeton Institutional Services Department at
1-800/321-8563, Monday through Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
From a touch-tone phone, Franklin and Templeton shareholders may access an
automated system (day or night) which offers the following features:
By calling the Franklin TeleFACTS(R) system at 1-800/247-1753, shareholders may
obtain Class I and Class II account information, current price and, if
available, yield or other performance information specific to the Fund or any
Franklin Templeton Fund.
Fund information may be accessed by entering Fund Code 46 followed by the #
sign. The system's automated operator will prompt the caller with easy to follow
step-by-step instructions from the main menu. Other features may be added in the
future.
In order to ensure that the highest quality of service is being provided,
telephone calls placed to or by representatives in Franklin's service
departments may be accessed, recorded and monitored. These calls can be
determined by the presence of a regular beeping tone.
Performance
Advertisements, sales literature and communications to shareholders may contain
various measures of the Fund's performance, including quotations of its current
and effective yield.
Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed 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. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.
In each case, performance figures are based upon past performance and will
reflect all recurring charges against the Fund's income. Such quotations will
reflect the value of any additional shares purchased with dividends from the
original share and any dividends declared on both the original share and such
additional shares. The investment results of the Fund, like all other investment
companies, will fluctuate over time; thus, performance figures should not be
considered to represent what an investment may earn in the future or what the
Fund's performance may be in any future period.
General Information
General
Government Accounting Standards Board (GASB) Statement No. 3 pertaining to
Deposits with Financial Institutions provides, in paragraph 69, that investments
in mutual funds should be disclosed, but not categorized.
Reports to Shareholders
The Fund's fiscal year ends June 30. Annual Reports containing audited financial
statements of the Trust, including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically sent to
shareholders. Additional copies may be obtained, without charge, upon request to
the Trust at the telephone number or address set forth on the cover page of this
Prospectus.
Organization and Voting Rights
The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust, unless otherwise permitted by the
1940 Act. Voting rights are not cumulative, so that the holders of more than 50%
of the shares voting in any election of trustees, can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a special shareholders'
meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. A meeting may also be called by
the Trustees at their discretion or by shareholders holding at least ten percent
of the shares entitled to vote at the meeting. Shareholders may receive
assistance in communicating with other shareholders in connection with the
election or removal of trustees such as that provided in Section 16(c) of the
1940 Act.
The Board may from time to time issue other series of the Trust, the assets and
liabilities of which will likewise be separate and distinct from any other
series of the Trust. Currently the Trust consists of eight separate series:
Money Market Portfolio, Franklin Late Day Money Market Portfolio, Franklin U.S.
Government Securities Money Market Portfolio, Franklin U.S. Treasury Money
Market Portfolio, Franklin U.S. Government Agency Money Market Fund, Franklin
Institutional Adjustable U.S. Government Securities Fund, Franklin Institutional
Adjustable Rate Securities Fund, and Franklin Cash Reserves Fund, each
maintaining a totally separate and distinct investment portfolio.
Other Information
Certain of the programs and privileges described in this Prospectus may not be
available directly from the Fund to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account.
Confirmations
Shares for an initial investment in the Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.
Redemptions By the Fund
The Fund reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of a predetermined amount but only where
the value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder. More information is included in the SAI.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the shareholder Account
Application/Revision. A shareholder may also be subject to backup withholding if
the IRS or a securities dealer notifies the Fund that the TIN furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
Franklin
Cash Reserves Fund
Institutional Fiduciary Trust
PROSPECTUS November 1, 1995
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/321-8563
Franklin's Institutional Fiduciary Trust (the "Trust") is an open-end management
investment company consisting of eight separate and distinct series. This
Prospectus relates only to the Franklin Cash Reserves Fund (the "Fund"), a
no-load diversified series.
The Fund is offered exclusively to retirement plan participants and other
institutional investors, including corporations, banks, savings and loan
associations and government entities. The Fund may not otherwise be purchased by
individuals.
Shares of the Fund may be purchased at net asset value, with no sales charge,
and, in the case of retirement plans, no required minimum initial investment
amount. Shares of the Fund purchased by retirement plans must be at the omnibus
level. Shares of the Fund may also be purchased by certain institutional
investors, such as corporations, banks, and savings and loan associations,
subject to a minimum initial investment of $100,000, except that government
entities, including states, counties, cities, and their instrumentalities,
departments, agencies and authorities may open an account in the Fund with a
minimum initial investment of $1,000. Subsequent purchases are not subject to a
minimum purchase requirement (see "How to Buy Shares of the Fund").
The investment objectives of the Fund are high current income consistent with
capital preservation and liquidity. THE FUND, UNLIKE MOST FUNDS WHICH INVEST
DIRECTLY IN SECURITIES, SEEKS TO ACHIEVE ITS OBJECTIVES BY INVESTING ALL OF ITS
ASSETS IN THE MONEY MARKET PORTFOLIO (THE "PORTFOLIO"), A SEPARATE SERIES OF THE
MONEY MARKET PORTFOLIOS, WHOSE INVESTMENT OBJECTIVES ARE IDENTICAL TO THOSE OF
THE FUND. The Portfolio, in turn, invests in various types of money market
instruments (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, and
repurchase agreements secured by U.S. government securities).
This Prospectus is intended to set forth in a clear and concise manner
information about the Trust and the Fund that a prospective investor should know
before investing. After reading the Prospectus, it should be retained for future
reference; it contains information about the purchase and sale of shares and
other items which a prospective investor will find useful to have.
SHARES OF THE FUND 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 THE FUND INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF
PRINCIPAL.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
A Statement of Additional Information (the "SAI") concerning the Trust in
general and the Fund, dated November 1, 1995, as may be amended from time to
time, provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to some investors. It has been filed with
the Securities and Exchange Commission ("SEC") and is incorporated herein by
reference. A copy is available without charge from the Fund or the Fund's
principal underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"),
at the address or telephone number shown above.
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 or the SAI.
Contents Page
Expense Table........................... 2
Financial Highlights.................... 4
About the Fund.......................... 4
Investment Objectives
and Policies of the Fund............... 4
Administration of the Fund.............. 10
Distributions to Shareholders........... 11
Taxation of the Fund
and Its Shareholders................... 12
How to Buy Shares of the Fund........... 13
How to Sell Shares of the Fund.......... 15
Exchange Privilege...................... 18
Telephone Transactions.................. 20
Valuation of Fund Shares................ 21
Special Services........................ 21
How to Get Information
Regarding an Investment in the Fund.... 21
Performance............................. 22
General Information..................... 22
Important Notice Regarding
Taxpayer IRS Certifications............ 23
Expense Table
The purpose of this table is to assist an investor in understanding the various
costs and expenses that a shareholder will bear directly or indirectly in
connection with an investment in the Fund and the Portfolio. These figures are
based on aggregate annual operating expenses before fee waivers and expense
reductions, for the fiscal year ended June 30, 1995 including those attributable
to the Portfolio in which the Fund invests its assets.
<TABLE>
<CAPTION>
Shareholder Transaction Expenses
<S> <C>
Exchange Fee..................................................................... $5.00*
*$5.00 fee imposed only on Timing Accounts as described under "Exchange
Privilege." All other exchanges are processed without a fee.
Estimated and Contractual Annual Operating Expenses
(as a percentage of average net assets)
Management and Administration Fees.............................................. 0.40%**
12b-1 Fees...................................................................... 0.20%***
Other Expenses of the Fund.................................................... 0.18%
---------
Other Expenses of the Portfolio............................................... 0.01%
Total Operating Expenses........................................................ 0.79%**
---------
---------
</TABLE>
**Represents the amount before fee waivers and expense reductions. Franklin
Advisers, Inc. ("Advisers"), the Fund's administrator and the Portfolio's
investment manager, agreed in advance to waive all of its administration fee and
a portion of its management fee, as well as to make certain payments to reduce
expenses of the Fund. With these fee waivers and expense reductions, total
operating expenses represented 0.40% of the average net assets of the Fund,
including the Fund's share of the Portfolio's management fee and total operating
expenses (including the management fee) of 0.14% and 0.15%, respectively.
***The Board of Trustees has adopted a Plan of Distribution pursuant to Rule
12b-1 under the Investment Company Act of 1940 whereby the Fund may reimburse
Distributors or others for promotion and distribution expenses up to 0.25%
annually of the Fund's average daily net assets.
Investors should be aware that the preceding table is not intended to reflect in
precise detail the fees and expenses associated with a shareholder's own
investment in the Fund. Rather, the table has been provided only to assist
investors in gaining a more complete understanding of fees, charges and
expenses. For a more detailed discussion of these matters, investors should
refer to the appropriate sections of this Prospectus.
Example
As required by regulations of the SEC, the following example illustrates the
expenses that apply to a $1,000 investment in the Fund over various time periods
assuming (1) a 5% annual rate of return and (2) redemption at the end of each
time period.
One year Three years Five years Ten years
$8 $25 $44 $98
THIS EXAMPLE IS BASED ON THE AGGREGATE ANNUAL OPERATING EXPENSES OF THE FUND AND
THE PORTFOLIO BEFORE FEE WAIVERS AND EXPENSE REDUCTIONS SHOWN ABOVE AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES, WHICH MAY BE MORE
OR LESS THAN THOSE SHOWN. The operating expenses are borne by the Fund and only
indirectly by shareholders as a result of their investment in the Fund. In
addition, federal securities regulations require the example to assume an annual
return of 5%, but the Fund's actual return may be more or less than 5%.
The preceding table summarizes the estimated aggregate fees and expenses
incurred by both the Fund and the Portfolio. The Board of Trustees of the Trust
(the "Board") considered the aggregate fees and expenses to be paid by both the
Fund and the Portfolio under the Fund's policy of investing all of its assets in
shares of the Portfolio, and such fees and expenses the Fund would pay if it
invested directly in the various types of money market instruments. This
arrangement, whereby the Fund invests all of its assets in shares of the
Portfolio, enables eligible institutional investors, including the Fund and
other investment companies, to pool their assets, which may be expected to
result in the achievement of a variety of operating economies. Accordingly, the
Board concluded that the aggregate expenses of the Fund and the Portfolio were
expected to be lower than the expenses that would be incurred by the Fund if it
invested directly in various types of money market instruments. Of course there
is no guarantee or assurance that asset growth and lower expenses will be
recognized. Advisers has agreed in advance to limit expenses so that in no event
will shareholders of the Funds incur higher expenses than if the Funds continued
to invest directly in various types of money market instruments (see
"Administration of the Funds"). Further information regarding the Fund's and the
Portfolio's fees and expenses is included under "Administration of the Fund."
Financial Highlights
Set forth below is a table containing the financial highlights for a share of
the Fund for the period July 2, 1994 (effective date of registration) through
June 30, 1995. The information has been audited by Coopers and Lybrand L.L.P.,
independent auditors, whose audit report thereon appears in the Trust's Annual
Report to shareholders dated June 30, 1995.
<TABLE>
<CAPTION>
Per Share Operating Performance Ratios/Supplemental Data
--------------------------------- ----------------------------------------------
Ratio of Expenses to
Net Asset Distributions Net Asset Net Assets Ratio of Average Net Assets (Exclud- Ratio of Net
Period Value at Net From Net Value at at End of Expenses ing Advisers' Waiver and Investment Income
Ended Beginning Investment Investment End of Total Year to Average Payment of Fund and to Average
June 30 of Year Income Income Year Return* (in 000's) Net Assets 1,2 Portfolio's Expenses) Net Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1.00 $0.052 $(0.052) $1.00 5.34% $14,545 0.40%* 0.79%* 5.69%*
</TABLE>
*Total return measures the change in value of an investment over the period
indicated. It assumes reinvestment of dividends and capital gains, if any, at
net asset value and it is not annualized.
1Includes the Fund's share of the Portfolio's allocated expenses.
2During the period indicated, Advisers agreed to waive in advance a portion of
the Fund's administration fees and Portfolio's management fees and made payments
of other expenses of the Fund.
About the Fund
The Trust, organized as a Massachusetts business trust in January 1985, is an
open-end management investment company, or mutual fund, and has registered with
the SEC under the Investment Company Act of 1940, as amended (the "1940 Act").
The Fund attempts to maintain a stable net asset value of $1.00 per share
although there is no assurance that this will be achieved.
Shares of the Fund may be acquired at the current net asset value (without a
sales charge). The Fund is offered exclusively to retirement plan participants
and other institutional investors, including corporations, banks, savings and
loan associations and government entities. The Fund may not otherwise be
purchased by individuals. (See "How to Buy Shares of the Fund.")
Certain funds in the Franklin Templeton Funds, as that term is defined under
"How to Buy Shares of the Fund - Rights of Accumulation/Letter of Intent
Regarding Other Funds," currently offer their shares in two classes, designated
"Class I" and "Class II." Classes of shares represent proportionate interests in
the same portfolio of investment securities but with different rights,
privileges and attributes. Shares of the Fund may be considered Class I shares
for purposes of the programs and privileges discussed in this Prospectus.
Investment Objectives
and Policies of the Fund
The Fund's investment objectives are high current income consistent with capital
preservation and liquidity. The Fund pursues its investment objectives by
investing all of its assets in the Portfolio, which has the same investment
objectives and policies as the Fund. The Portfolio is a separate diversified
series of The Money Market Portfolios, an open-end management investment company
managed by Advisers, whose shares are acquired by the Fund at net asset value,
with no sales charge. Accordingly, an investment in the Fund is an indirect
investment in the Portfolio. The Fund's ability to achieve high current income
is limited by the Portfolio's universe of investments, which are high quality
money market instruments (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, and repurchase agreements secured by U.S. government securities).
Since all investments are inherently subject to market risk, no assurances can
be given that the Fund will achieve its stated objectives.
Special Information Regarding
the Fund's Master/Feeder Fund Structure
The investment objectives of both the Fund and the Portfolio are fundamental and
may not be changed without shareholder approval. The investment policies of the
Fund, fundamental and non-fundamental, are substantially similar to those
described herein with respect to the Portfolio, except that in all cases, the
Fund is permitted to pursue such policies by investing in an open-end management
investment company with identical investment objectives, policies and
limitations. Any additional exceptions are noted below. Information on
administration and expenses is included under "Administration of the Fund;" see
the SAI for information regarding the Fund's and the Portfolio's investment
restrictions.
An investment in the Fund may be subject to certain risks due to the Fund's
structure, such as the potential that upon redemption by other future
shareholders in the Portfolio, the Fund'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 the Fund could have effective
voting control over the operation of the Portfolio. Further, in the event that
the shareholders of the Fund do not approve a proposed future change in the
Fund's objectives 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 objectives and policies. If
the Board considers that it is in the best interests of the Fund to do so, 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 having the same
investment objectives and policies as the Fund, or the hiring of an investment
adviser to manage the Fund's investments. Either circumstance may cause an
increase in Fund expenses. Further, the Fund's structure is a relatively new
format which often results in certain operational and other complexities. The
Franklin organization, however, was one of the first mutual fund complexes in
the country to implement such a structure and the trustees do not believe that
the additional complexities outweigh the potential benefits to be gained by
shareholders.
The Franklin Group of Funds(R) has three other funds which invest in the
Portfolio, one of which is designed for institutional investors only and one of
which is only available to holders of Class II shares in the Franklin Templeton
Funds, as defined under "How to Buy Shares of the Fund - Rights of
Accumulation/Letter of Intent Regarding Other Funds," and only pursuant to that
fund's exchange privilege. In the future, other funds may be created which may
invest in the Portfolio or existing funds may be restructured so that they may
invest in the Portfolio. Any such fund may be offered at the same or a different
public offering price; thus, an investor in one fund may experience a different
return from an investor in another fund which also invests exclusively in the
Portfolio. The Fund or Advisers will forward any interested shareholder
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.
The Portfolio is a series of The Money Market Portfolios, a management
investment company registered under the 1940 Act. The Money Market Portfolios is
a Delaware business trust, organized on June 16, 1992, and is authorized to
issue an unlimited number of shares of beneficial interest, with a par value of
$.01 per share. All shares have one vote and, when issued, are fully paid,
non-assessable, and redeemable. The Money Market Portfolios currently issues
shares in two separate series; however, additional series may be added in the
future by the Board of Trustees of The Money Market Portfolios, the assets and
liabilities of which will be separate and distinct from any other series.
Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Trust, on behalf of the Fund, will hold a meeting
of the Fund's shareholders and will cast its votes in the same proportions as
the Fund's shareholders have voted.
General
As required by Rule 2a-7 under the 1940 Act, the Portfolio will limit its
investments to those U.S. dollar denominated instruments which its Board of
Trustees determines present minimal credit risks. Such investments must also be
rated in one of the two highest rating categories as determined by nationally
recognized statistical rating agencies, or if unrated, must be of comparable
quality, with remaining maturities of 397 calendar days or less ("Eligible
Securities").
The Portfolio will maintain a dollar weighted average maturity of the securities
in its portfolio of 90 days or less. As a matter of fundamental policy, the
Portfolio is required to invest 100% of its assets in securities which have
remaining maturities of 397 days or less. The Portfolio will not invest more
than 5% of its total assets in Eligible Securities of a single issuer, other
than U.S. government securities, rated in the highest category by the requisite
number of rating agencies. The Portfolio, however, may exceed that limit as
permitted by Rule 2a-7 for a period of up to three business days. The Portfolio
will not invest (a) the greater of 1% of the Portfolio's total assets or $1
million in Eligible Securities issued by a single issuer rated in the second
highest category, and (b) more than 5% of the Portfolio's total assets in
Eligible Securities of all issuers rated in the second highest category.
Because the Portfolio will limit its investments to high quality securities,
there will generally be lower yields than if the Portfolio purchased securities
with a lower rating and correspondingly greater risk.
Description of Securities in
Which the Portfolio May Invest
U.S. Government Securities. The Portfolio may invest in U.S. government
securities, which consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which 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 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 that
are supported by the right of the issuer to borrow from the Treasury, such as
obligations of the Federal Home Loan Bank, and securities that are supported by
the credit of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds.
Bank Obligations. The Portfolio may also invest in bank obligations or
instruments secured by bank obligations. Such 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 up to 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, which are considered domestic banks, may only be made if such
branches have a federal or state charter to do business in the United States and
are subject to U.S. regulatory authorities. Accordingly, these branches are
subject to comparable regulation as U.S. banks. See the section "Investment Risk
Considerations" 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 invest only 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 which is considered by the Portfolio to be an Eligible
Security. For a description of commercial paper ratings, see "Appendix A" in the
SAI.
Commercial paper obligations may include variable amount master demand notes
that are obligations which permit the investment of fluctuating amounts 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 has the right to increase the amount provided by the
note agreement, or to decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. The borrower is typically a large
industrial or finance company which 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 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 such 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 is dependent on the ability of the
borrower to pay principal and interest on demand and a default by the borrower
might cause the Portfolio to experience a loss. In connection with master demand
note arrangements, the Portfolio's investment manager will consider earning
power, cash flow and other liquidity ratios of the issuer. The Portfolio, which
has no specific limits on aggregate investments in master demand notes except as
otherwise noted under "Investment Risk Considerations," will invest in notes of
only U.S. issuers.
Corporate Obligations. The corporate obligations which the Portfolio may
purchase are fixed, floating and variable rate bonds, debentures and notes which
are Eligible Securities.
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, which are considered by the Portfolio to present
minimal credit risks and which 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 to
instruments that are Eligible Securities pursuant to procedures approved by The
Money Market Portfolios' Board of Trustees. 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.
Repurchase Agreements. The Portfolio may engage in repurchase transactions, in
which it purchases 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 securities 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 government securities dealers recognized by the Federal Reserve Board
or with member banks of the Federal Reserve System. Under the 1940 Act, a
repurchase agreement is deemed to be the loan of money by the Portfolio to the
seller, collateralized by the underlying security. The U.S. government security
subject to resale (the collateral) will be held pursuant to a written agreement
and the Portfolio's custodian will take title to, or actual delivery of, the
security.
Other Securities. The Portfolio may also purchase and sell securities on a
"when-issued" and "delayed delivery" basis. These transactions are subject to
market fluctuation and the value at delivery may be more or less than the
purchase price. When the Portfolio is the buyer in such a transaction, it will
maintain, in a segregated account with its custodian, cash or high-grade
marketable securities having an aggregate value equal to the amount of such
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
objectives and policies and not for the purpose of investment leverage. 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 purchased on a when-issued or delayed delivery basis do
not generally earn interest until their scheduled delivery.
Maturities
As a matter of fundamental policy (which 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, (i) 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 (pursuant to the Portfolio's procedures adopted in
accordance with Rule 2a-7 under the 1940 Act, the 5% limitation applies to the
Portfolio's total assets), or (ii) more than 10% of the outstanding voting
securities of any one issuer would be owned by the Portfolio. In addition, 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 secured by such 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 Internal Revenue Code. These policies are
inapplicable to the Fund to the extent that it invests all or substantially all
of its assets in another registered investment company having the same
investment objectives and policies as the Fund.
Investment Risk Considerations
Any of the Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign issuers
will 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 held. In
addition, there may be less publicly available information about such foreign
banks or foreign issuers of commercial paper.
The Portfolio may purchase or sell securities without regard to the length of
time the security has been held. The Fund and the Portfolio are subject to a
number of additional investment restrictions, some of which may be changed only
with the approval of a majority of either the Fund's or the Portfolio's
shareholders. Policies and restrictions of the Fund and the Portfolio which are
not fundamental or changeable only with the consent of shareholders, may be
changed without the approval of shareholders. For a list of these restrictions
and more information concerning the various transactions mentioned above, please
refer to the SAI.
As fundamental policies, the Portfolio may only borrow from banks, not to exceed
5% of its total assets, for temporary or emergency purposes and pledge up to 5%
of its assets for such borrowing. To generate additional income, the Portfolio
may also lend its portfolio securities to securities dealers or other
institutional investors if at least 100% cash collateral is pledged and
maintained by the borrower, although such loans shall not exceed, at any time,
25% of the value of the Portfolio's total assets. The Portfolio may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements or master
demand notes with more than seven days to maturity or which are otherwise
illiquid if, as a result, more than 10% of the value of its total assets would
be invested in such repurchase agreements or securities.
Administration of the Fund
The Board has the primary responsibility for the overall management of the
Trust, including the Fund, and for electing the officers of the Trust who are
responsible for administering the day-to-day operations of all series of the
Trust. For information concerning the trustees and officers of the Trust and of
The Money Market Portfolios, see "Trustees and Officers" in the SAI. The Board
has unanimously adopted written procedures designed to deal with potential
conflicts of interest which may arise from the fact of having the same persons
serving on each Trust's Board of Trustees. The procedures call for an annual
review of the Fund's relationship with the Portfolio, and in the event a
conflict is deemed to exist, the Board may take action, up to and including the
establishment of a new Board. The Board has determined that there are no
conflicts of interest presented by this arrangement at the present time.
Advisers serves as the Fund's administrator and as the Portfolio's investment
manager. 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 through its various subsidiaries (the "Franklin Templeton Group").
Advisers acts as investment manager or administrator to 34 U.S. registered
investment companies (116 separate series) with aggregate assets of over $76
billion.
The Portfolio has a management agreement with Advisers which provides for the
supervision and implementation of the Portfolio's investment activities and
certain administrative services and facilities which are necessary to conduct
the Portfolio's business.
Advisers, however, has agreed in advance to waive all of its administration fee
and a portion of the management fee, as well as to make certain other payments
to reduce expenses of the Fund. With these fee waivers and expense reductions,
total operationg expenses represented 0.40% of the average daily net assets of
the Fund, including the Fund's share of the Portfolio management fee and total
operating expenses (including the management fee) of 0.14% and 0.15%,
respectively. This action may be terminated by Advisers upon notice to the
Board.
It is not anticipated that the Portfolio or the Fund will incur a significant
amount of brokerage expenses because short-term money market instruments are
generally traded, in principal transactions which involve the receipt by the
broker of a spread between the bid and ask prices for the securities, and not
the receipt of commissions. To the extent that the Portfolio does participate in
transactions involving brokerage commissions, it is Advisers' responsibility to
select brokers through whom such transactions will be effected. Advisers tries
to obtain the best execution on all such transactions. If it is felt that more
than one broker or dealer is able to provide the best execution, Advisers will
consider the furnishing of quotations and of other market services, research,
statistical and other data for Advisers and its affiliates, as well as the sale
of shares of the Fund, as factors in selecting a broker. Further information is
included under "Execution of Portfolio Transactions" in the SAI.
Shareholder accounting and many of the clerical functions for the Fund are
performed by Franklin/Templeton Investor Services, Inc. ("Investor Services" or
"Shareholder Services Agent"), in its capacity as transfer agent and
dividend-paying agent. Investor Services is a wholly-owned subsidiary of
Resources.
Plan of Distribution
The Fund has adopted a plan of distribution pursuant to Rule 12b-1 under the
1940 Act (the "Plan"), whereby it may reimburse Distributors or others for
expenses actually incurred in the promotion and distribution of the Fund's
shares, including but not limited to, the printing of prospectuses and reports
used for sales purposes, preparing and distributing sales literature and related
expenses, advertisements, and other distribution-related expenses, including a
prorated portion of Distributors' overhead expenses attributable to the
distribution of Fund shares, as well as any distribution or service fees paid to
securities dealers or their firms or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates.
The maximum amount which the Fund may pay Distributors or others for such
distribution expenses is 0.25% per annum of the Fund's average daily net assets,
payable on a quarterly basis. All expenses of distribution and marketing in
excess of 0.25% per annum will be borne by Distributors without reimbursement
from the Fund. The Plan also covers any payments made to or by the Fund,
Advisers, Distributors, or other parties on behalf of the Fund, Advisers, or
Distributors, to the extent such payments are deemed to be for the financing of
any activity primarily intended to result in the sale of shares issued by the
Fund within the context of Rule 12b-1. For more information, please see the SAI.
Distributions to Shareholders
The Fund 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 that
day. Daily allocations of dividends will commence on the day funds are wired in
accordance with procedures set forth in "How to Buy Shares of the Fund" or, if
an investor has sent a check, on the day the check is converted into federal
funds (which may take two or more days, depending upon the banks involved). The
amount of dividends will 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.
Dividends are declared daily and automatically reinvested monthly in the form of
additional shares of the Fund at the net asset value per share at the close of
business on the last business day of the month. Shareholders (excluding
retirement plan participants) may request to have their dividends paid out
monthly in cash on the shareholder Account Application/Revision or by notifying
the Fund's transfer agent. Shareholders redeeming all their shares at any time
during the month will receive all dividends to which they are entitled together
with the redemption check. Dividend options are available to retirement plan
participants as set forth in their plans. See "General Information - Certain
Requirements Applicable to Retirement Plans."
Since the net income of the Fund is declared as a dividend each time the net
income is determined, the net asset value per share of the Fund (i.e., the value
of the net assets of the Fund divided by the number of shares of the Fund
outstanding) is expected to remain at $1.00 per share immediately after each
such determination and dividend declaration. Any increase in the value of a
shareholder's investment in the Fund, representing the reinvestment of dividend
income, is reflected by an increase in the number of shares of the Fund in the
shareholder's account.
The Fund's daily dividend consists of the income dividends paid by the
Portfolio. The Portfolio's daily dividend includes accrued interest and any
original issue or market discount, less any premium amortization, 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 the estimated expenses of the
Portfolio. Net income is calculated immediately prior to the determination of
the net asset value per share of the Fund.
The SAI includes a further discussion of distributions.
Taxation of the Fund and Its Shareholders
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. Additional information regarding taxation
is included in the SAI.
The Fund is treated as a separate entity for federal income tax purposes. The
Fund intends to continue to qualify for treatment as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (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 the shareholder has elected to receive them in cash or
in additional shares.
Dividends received by a qualified retirement plan ordinarily will not be subject
to taxation until the proceeds are distributed from the retirement plan account.
Generally, distributions from the account will be taxable as ordinary income
and, if made prior to the time the participant reaches age 591/2 or becomes
permanently disabled, will be subject to an additional tax equal to 10% of the
amount distributed. If the distributions from a retirement plan (other than a
governmental or church plan) for any taxable year following the year in which
the participant reaches age 701/2 are less than the "minimum required
distribution" for that taxable year, an excise tax equal to 50% of the
deficiency may be imposed on the payee. Moreover, certain contributions to a
retirement plan in excess of the amounts permitted by law may be subject to an
excise tax.
Since the Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, shareholders are not expected to realize a capital
gain or loss upon redemption or exchange of fund shares.
Since the Fund's income is derived from interest income and gain on the sale of
portfolio securities rather than qualifying dividend income, no portion of each
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
The Fund will inform shareholders of the source of their dividends and
distributions at the time they are paid and will, promptly after the close of
each calendar year, advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions.
The Fund may be used for the investment of surplus funds of municipalities,
including funds which are subject to the arbitrage rebate requirements of
Section 148 of the Code. Section 115(1) of the Code provides, in part, that
gross income does not include income derived from the exercise of any essential
governmental function and accruing to a state, territory or political
subdivision thereof. To the extent that investments in the Fund are made in
connection with such functions, states and their political subdivisions will not
be subject to federal taxation on income or gains derived from an investment in
the Fund. The Fund does not meet currently defined exceptions to the arbitrage
rebate requirements and a portion or all of the earnings distributed by the Fund
may be required to be paid over to the U.S. Treasury as rebatable arbitrage
earnings in accordance with the provisions of the Code.
Shareholders should consult their tax advisors with respect to the applicability
of state and local intangible property or income taxes to their shares of the
Fund and distributions and redemption proceeds received from the Fund.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions received by them from the
Fund and the application of foreign tax laws to such distributions.
How to Buy Shares of the Fund
The Fund is offered exclusively to retirement plan participants and other
institutional investors, including corporations, banks, savings and loan
associations and government entities. The Fund may not otherwise be purchased by
individuals. Shares of the Fund may be purchased at net asset value, with no
sales charge. In the case of retirement plans, there is no required minimum
initial investment amount and shares of the Fund purchased must be registered at
the omnibus level. Although the amount that may be contributed to the various
investment options under a retirement plan in any one year is subject to certain
limitations, assets already held by a retirement plan may be invested in the
Fund without regard to such limitations. Shares of the Fund may also be
purchased by certain institutional investors, such as corporations, banks, and
savings and loan associations, subject to a minimum initial investment of
$100,000. Government entities, however, including states, counties, cities, and
their instrumentalities, departments, agencies and authorities may open an
account in the Fund with a minimum initial investment of $1,000. Subsequent
purchases are not subject to a minimum purchase requirement. The Fund and
Distributors reserve the right to reject any order for the purchase of shares.
Investments may be made in any one of the following ways:
1. By Wire
(a) First, call the Fund at 1-800/321-8563 or 1-415/312-3600 by 11:15 a.m.
Pacific time to advise of the intention to wire funds for investment.
Shareholders wishing to purchase shares in excess of $50,000 must first
complete an Institutional Telephone Privileges Agreement, as described
under "Telephone Transactions." If notification is received by 11:15 a.m.
Pacific time and funds are received in accordance with the following
paragraph (b), shares will be purchased that day and will be eligible to
receive that day's dividend, if any (same day credit). If a request to
begin the wire order process is not made by 11:15 a.m., the order will not
be in proper form for that day's purchase and will receive credit on the
next business day. The Fund will supply a wire control number for the
investment on that day. It is necessary to obtain a new wire control number
every time money is wired into an account in the Fund. Wire control numbers
are effective for one transaction only and may not be used more than once.
Wired money which is not properly identified with a currently effective
wire control number will be returned to the bank from which it was wired
and will not be credited to the shareholder's account.
(b) Next, wire funds to Bank of America, ABA routing number 121000358, for
credit to Institutional Fiduciary Trust - Franklin Cash Reserves Fund, A/C
1493304779. Be sure to include the wire control number, the Fund account
number and registration. Wired funds received by the bank and reported by
the bank to the Fund by the close of the Federal Reserve Wire System
(currently 3:00 p.m. Pacific time) are normally available to purchase Fund
shares on that day, provided the Fund is timely notified as described in
(a) above. Wires received after 3:00 p.m. Pacific time are credited the
following business day. In order to maximize efficient Fund management,
investors are urged to place and wire their investments as early in the day
as possible.
(c) If the purchase is not to an existing account, send a completed shareholder
Account Application/Revision to Institutional Fiduciary Trust, Franklin
Cash Reserves Fund, at the address shown on the cover of this Prospectus,
to assure proper credit.
2. By Mail
Many of the types of instruments in which the Fund (through the Portfolio)
invests must be paid for in federal funds, which are monies held by the Fund's
custodian bank on deposit at a Federal Reserve Bank. Therefore, a check or draft
received from an investor to purchase shares of the Fund generally cannot be
invested by the Fund until it is converted into and is available to the Fund in
federal funds, which may take up to two days. In such case, purchase orders by
an investor will generally not be considered in proper form and effective until
such conversion and availability. In the event the Fund is able to make
investments immediately (within one business day), it may accept a purchase
order with payment other than in federal funds and shares of the Fund will be
purchased at the net asset value next computed after receipt of the order and
payments.
(a) For an initial investment, send a completed shareholder Account
Application/Revision.
(b) Make the check, Federal Reserve draft or negotiable bank draft payable to
Institutional Fiduciary Trust - Franklin Cash Reserves Fund. Instruments
drawn on other investment companies may not be accepted.
(c) Next, send the check, Federal Reserve draft or negotiable bank draft to the
Trust at the address shown on the cover of this Prospectus.
(d) Shares of the Fund will be purchased at the net asset value next computed
after receipt of the order and payments, as described above.
3. Through Securities Dealers
Although each Fund's shares are sold without a sales charge, a shareholder may
invest in a Fund by purchasing shares through a securities dealer which executes
a dealer or similar agreement with Distributors, the Funds' principal
underwriter. The use of the term "securities dealers" shall include other
financial institutions which, pursuant to an agreement with Distributors
(directly or through affiliates), handle customer orders and accounts for the
group. Such reference, however, is for convenience only and does not indicate a
legal conclusion of capacity. The securities dealer may choose to wire or mail
the monies accompanying an investment in the Fund. Securities dealers who
process orders on behalf of their customers may charge a reasonable fee for
their services. Investments made directly, without the assistance of a
securities dealer, are without charge.
If investments are made through a securities dealer which has executed a dealer
or similar agreement with respect to the Funds, Distributors may make a payment,
out of its own resources, to such securities dealer. Please contact the Franklin
Templeton Institutional Services Department for additional information.
Rights of Accumulation/
Letter of Intent Regarding Other Funds
The cost or current value (whichever is higher) of the shares in the Fund will
be included in determining the sales charge discount to which an investor may be
entitled when purchasing shares of one of the many funds in the Franklin Group
of Funds(R) and in the Templeton Group of Funds which are sold with a sales
charge. Included for these aggregation purposes are (a) the mutual funds in the
Franklin Group except Franklin Valuemark Funds and Franklin Government
Securities Trust (the "Franklin Funds"), (b) other investment products
underwritten by Distributors or its affiliates (although certain investments may
not have the same schedule of sales charges and/or may not be subject to
reduction), and (c) the U.S. registered investment companies in the Templeton
Group of Funds except Templeton Capital Accumulator Fund, Inc., Templeton
Variable Annuity Fund, and Templeton Variable Products Series Fund (the
"Templeton Funds"). (Franklin Funds and Templeton Funds are collectively
referred to as the "Franklin Templeton Funds.")
Purchases of Fund shares may also be included toward the completion of a Letter
of Intent with respect to any of the funds in the Franklin Templeton Funds which
are sold with a sales charge.
For additional information regarding these programs, please contact the Franklin
Templeton Institutional Services Department by mail at the address listed on the
cover of this Prospectus or by telephone at 1-800/321-8563.
How to Sell Shares of the Fund
1. By Telephone with Payment to a
Preauthorized Bank Account
A shareholder may redeem shares of the Fund, up to $50,000, by telephoning the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to redeem shares of the Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions." Redemption instructions must include the shareholder's
name, account number, and security identification number. The requirements for
telephone transactions extend to transactions transmitted by facsimile or
computer, as well as those communicated directly to a customer representative.
Payment may be made by wire directly to any commercial bank previously
designated by the shareholder in a shareholder Account Application/Revision, or
a signature guaranteed letter of instruction.
Telephone redemption orders may not be used to direct payments to another person
or to an account which was not previously designated by prior written
instructions. Written instructions will be required as set forth below.
A redemption payment may be transmitted by wire the same business day where a
request is received prior to 11:15 a.m. Pacific time that day. A shareholder
which anticipates requesting a same day wire redemption in excess of $5 million
should notify the Fund on the prior business day of the intention to request
such a redemption. In order to maximize efficient Fund management, investors
requesting same day wire redemptions of any size are urged to place redemption
orders as early in the day as possible. Payments will generally be transmitted
by wire on the business day following receipt of a request received after the
above deadline.
During periods of drastic economic or market changes, it is possible that the
telephone redemption privilege may be difficult to implement. In this event,
shareholders should follow the other redemption procedures discussed in this
section.
2. By Mail
A shareholder may redeem shares by sending a letter requesting redemption to the
Fund at the address shown on the cover of this Prospectus. Redemption proceeds
will be mailed to the registered address, or mailed or wired to a preauthorized
bank account as requested. Redemption proceeds may also be sent to another party
or account as requested; however; in such cases, the signature(s) on the
redemption request must be guaranteed.
To be considered in proper form, the signature(s) of all registered owners or
previously designated signers must be guaranteed if the redemption request
involves any of the following:
(1) the proceeds of the redemption are over $50,000;
(2) the proceeds (in any amount) are to be paid to a party other than the
registered owner(s) of the account;
(3) the proceeds (in any amount) are to be sent to other than the address of
record, preauthorized bank account or brokerage firm account; or
(4) the Fund or Investor Services believes that a signature guarantee would
protect against potential claims based on the transfer instructions,
including, for example, when (a) the current address of an account cannot
be confirmed, (b) the Fund has been notified of an adverse claim, (c) the
instructions received by the Fund are given by an agent, not the actual
registered owner, or (d) the authority of a representative of a
corporation, partnership, association, or other entity has not been
established to the satisfaction of the Fund.
Signature(s) must be guaranteed by an "eligible guarantor institution" as
defined under Rule 17Ad-15 under the Securities Exchange Act of 1934. Generally,
eligible guarantor institutions include (1) national or state banks, savings
associations, savings and loan associations, trust companies, savings banks,
industrial loan companies and credit unions; (2) national securities exchanges,
registered securities associations and clearing agencies; (3) securities dealers
which are members of a national securities exchange or a clearing agency or
which have minimum net capital of $100,000; or (4) institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program. A notarized signature will not be
sufficient for the request to be in proper form.
Liquidation requests of corporate, partnership and trust accounts require the
following documentation to be in proper form:
Corporation - (1) Signature guaranteed letter of instruction from the authorized
officer(s) of the corporation, and (2) a corporate resolution.
Partnership - (1) Signature guaranteed letter of instruction from a general
partner and (2) pertinent pages from the partnership agreement identifying the
general partners or a certification for a partnership agreement.
Trust - (1) Signature guaranteed letter of instruction from the trustee(s), and
(2) a copy of the pertinent pages of the trust document listing the trustee(s)
or a Certification for Trust if the trustee(s) are not listed on the account
registration.
For any information required about a proposed liquidation, a shareholder may
call the Franklin Templeton Institutional Services Department.
General
After requesting a liquidation from the Fund, a shareholder will receive the
value of the shares of the Fund in the shareholder's account based upon the net
asset value per share next computed on the day a request in proper form is
received by the Fund. Payment for written redemption requests will be sent
within seven days after receipt of a request in proper form, except that the
Fund may delay the mailing of the redemption check, or a portion thereof, until
the clearance of the check used to purchase the shares, which may take up to 15
days or more. Although the use of a certified or cashier's check will generally
reduce this delay, shares purchased with these checks will also be held pending
clearance. Shares purchased by federal funds wire are available for redemption
on the business day following their receipt. The right of redemption may be
suspended or the date of payment postponed if the Exchange is closed (other than
customary closing) or upon the determination of the SEC that trading on the
Exchange is restricted or an emergency exists, or if the SEC permits it by
order, for the protection of shareholders. Of course, the amount received on
redemption may be more or less than the amount paid for the shares, depending
upon the fluctuations in the market value of the securities owned by the Fund.
Redemptions may be made in kind, under certain limited conditions as discussed
in the SAI.
Wiring of redemption proceeds is a special service made available to
shareholders whenever possible. The offer of this service, however, does not
bind the Fund to meet any redemption request by wire or in less than the
seven-day period prescribed by law. Neither the Fund nor its agent shall be
liable to any shareholder or other person for a redemption payment which for any
reason may not be processed in the expedited manner described in this section.
Contingent Deferred Sales Charge
The Fund does not impose either a front-end sales charge or a contingent
deferred sales charge. If, however, the shares redeemed were shares acquired by
exchange from another of the Franklin Templeton Funds which would have assessed
a contingent deferred sales charge upon redemption, such charge will be made by
the Fund, as described below. The 12-month contingency period will be tolled (or
stopped) for the period such shares are exchanged into and held in the Fund.
In certain Franklin Templeton Funds, in order to recover commissions paid to
securities dealers on investments of $1 million or more, a contingent deferred
sales charge of 1% applies to certain redemptions made by those investors within
12 months of the calendar month of such investments. The charge is 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares, and is
retained by Distributors. In determining if a charge applies, shares not subject
to a contingent deferred sales charge are deemed to be redeemed first, in the
following order: (i) shares representing amounts attributable to capital
appreciation; (ii) shares purchased with reinvested dividends and capital gain
distributions; and (iii) other shares held longer than 12 months. Shares subject
to a contingent deferred sales charge will then be redeemed on a "first in,
first out" basis. For tax purposes, a contingent deferred sales charge is
treated as either a reduction in redemption proceeds or an adjustment to the
cost basis of the shares redeemed.
Requests for redemptions for a specified dollar amount, unless otherwise
specified, will result in additional shares being redeemed to cover any
applicable contingent deferred sales charge while requests for redemption of a
specific number of shares will result in the applicable contingent deferred
sales charge being deducted from the total dollar amount redeemed.
Exchange Privilege
The Franklin Templeton Funds consist of a number of mutual funds with various
investment objectives and policies. The shares of most of these mutual funds are
offered to the public with a sales charge (which may differ in timing and/or
amount). If a shareholder's investment objective or outlook for the securities
markets changes, Fund shares may be exchanged for Class I shares of any of the
other investment companies in the Franklin Templeton Funds, which are eligible
for sale in the shareholder's state of residence and in conformity with such
fund's stated eligibility requirements and investment minimums. Before making an
exchange, investors should review the prospectus of the fund they wish to
exchange from and the fund they wish to exchange into for all specific
requirements or limitations on exercising the exchange privilege, for example,
minimum holding periods or applicable sales charges. By requesting an exchange,
a shareholder represents to the fund that the shareholder has done so.
Shares of the Fund (other than those acquired pursuant to the exchange privilege
from a fund on which a sales charge was assessed or the reinvestment of
dividends with respect to such shares) may be exchanged at the offering price of
one of the other funds in the Franklin Templeton Funds. Such offering price
includes the applicable sales charge of the fund into which the shares are being
exchanged. The prospectuses for all investment companies in the Franklin
Templeton Funds which are normally sold with a sales charge allow certain
institutional investors to purchase Class I shares at net asset value (without a
sales charge). These institutional investors include government entities,
employee benefit plans, trust companies and bank trust departments. Such
exchanges will be effected as follows:
(a) From the Fund into any other series of the Trust. Exchange requests received
prior to 11:15 a.m. Pacific time will be effected at the next computed net asset
value, with payment for the purchased shares processed on the following business
day when the funds are made available from the Fund.
(b) From the Fund into Class I shares of other Franklin Templeton Funds.
Exchange requests received in proper form prior to 11:15 a.m. Pacific time will
be effected at the next computed respective net asset values or offering price
of the funds involved. Requests received after 11:15 a.m. will be effective at
the price next computed on the following business day.
(c) From another fund in the Franklin Templeton Funds into the Fund. In order to
avoid dilution of the Fund, such transactions will be handled as a liquidation
from the other fund at its net asset value next computed on the day the exchange
request is received in proper form prior to the time the valuation of shares for
that fund is effected (generally 3:00 p.m. Pacific time for money market funds,
excluding the money market funds in the Trust, and 1:00 p.m. Pacific time for
non-money market funds), and a purchase of the Fund's shares on the following
business day when the funds for the purchase are available and the purchase
order is in all respects deemed to be in proper form.
Exchanges by Mail
Requests for an exchange of shares may be made by mail. The exchange transaction
will be effected upon receipt of written instructions signed by all shareholders
of record. Exchanges of shares of the Fund for the shares of any other fund in
the Franklin Templeton Funds will not involve certificates because the Fund does
not issue certificates.
Exchanges by Telephone
A shareholder may exchange shares of the Fund by telephone by calling the
Franklin Templeton Institutional Services Department at 1-800/321-8563.
Shareholders wishing to exchange shares of the Fund in excess of $50,000 must
complete an Institutional Telephone Privileges Agreement, as described under
"Telephone Transactions."
During periods of drastic economic or market changes, it is possible that the
telephone exchange privilege may be difficult to implement. In this event,
shareholders should follow the other exchange procedures discussed in this
section.
Retirement Plans
Retirement plan participants may be able to exercise exchange privileges in
accordance with the options available under, and the requirements of, their plan
and plan administrator. Retirement plan administrators may charge a fee in
connection with exchanges. See "General Information - Certain Requirements
Applicable to Retirement Plans."
Limited Class II Exchanges
In situations where assets from retirement plan accounts are temporarily
invested in the Fund while awaiting final allocation or investment instructions,
and where such final allocation or investment instructions involve Class II
shares, Fund shares may be exchanged for Class II shares of the Franklin
Templeton Funds. The time period during which the assets were invested in the
Fund will not, however, count toward the contingency period for purpose of the
contingent deferred sales charge associated with Class II shares. Assets
previously subject to a commission by the Franklin Templeton Funds will be
precluded from using this limited exchange privilege.
Timing Accounts
Accounts which are administered by allocation or market timing services to
purchase or redeem shares based on predetermined market indicators ("Timing
Accounts") will be charged a $5.00 administrative service fee per each such
exchange. All other exchanges are without charge.
Restrictions on Exchanges
The Fund reserves the right to temporarily or permanently terminate the exchange
privilege or reject any specific purchase order for any Timing Account or any
person whose transactions seem to follow a timing pattern who: (i) make an
exchange request out of the Fund within two weeks of an earlier exchange request
out of the Fund, or (ii) make more than two exchanges out of the Fund per
calendar quarter, or (iii) exchange shares equal in value to at least $5
million, or more than 1% of the Fund's assets. Accounts under common ownership
or control, including accounts administered so as to redeem or purchase shares
based upon certain predetermined market indicators, will be aggregated for
purposes of the exchange limit.
In addition, the Fund reserves the right to refuse the purchase side of exchange
requests by any Timing Account, person, or group if, in Advisers' judgment, the
Fund would be unable to invest effectively in accordance with its investment
objectives and policies, or would otherwise potentially be adversely affected. A
shareholder's purchase exchanges may be restricted or refused if the Fund
receives or anticipates simultaneous orders affecting significant portions of
the Fund's assets. In particular, a pattern of exchanges that coincide with a
"market timing" strategy may be disruptive to the Fund and, therefore, may be
refused.
Finally, as indicated under "How to Buy Shares of the Fund," the Fund or
Distributors reserve the right to refuse any order for the purchase of shares.
The exchange privilege may be modified or discontinued by the Fund at any time
upon 60 days' written notice to shareholders.
Telephone Transactions
Shareholders of the Fund may be able to execute various transactions by calling
the Franklin Templeton Institutional Services Department at
1-800/321-8563.
All shareholders will be able to: (i) effect a change in address, (ii) change a
dividend option (see "Restricted Accounts" below), (iii) transfer Fund shares in
one account to another identically registered account in the Fund, and (iv)
purchase, redeem or exchange Fund shares by telephone as described in this
Prospectus. Shareholders who do not wish these privileges extended to a
particular account should notify the Fund or the Franklin Templeton
Institutional Services Department.
Requirements for telephone transactions extend to transactions transmitted by
facsimile or computer, as well as those communicated directly to a customer
representative. Shareholders who elect to use the Telephone Transaction
Privilege for purchases, exchanges or redemptions for trades in excess of
$50,000 must first execute the Institutional Telephone Privileges Agreement
included in the Fund's application or which may be obtained by calling the
number above. The Telephone Transaction options available to retirement plans
are limited to those that are provided under the plan. See "General Information
- - Certain Requirements Applicable to Retirement Plans."
Verification Procedures
The Fund and Investor Services will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These will include:
recording all telephone calls requesting account activity by telephone,
requiring that the caller provide certain personal, corporate and/or account
information requested by the telephone service agent at the time of the call for
the purpose of establishing the caller's identification, and sending a
confirmation statement on redemptions to the address of record each time account
activity is initiated by telephone. So long as the Fund and Investor Services
follow instructions communicated by telephone which were reasonably believed to
be genuine at the time of their receipt, neither they nor their affiliates will
be liable for any loss to the shareholder caused by an unauthorized transaction.
The Fund and Investor Services may be liable for any losses due to unauthorized
or fraudulent instructions only if such reasonable procedures are not followed.
Shareholders are, of course, under no obligation to apply for or accept,
telephone transaction privileges. In any instance where the Fund or Investor
Services is not reasonably satisfied that instructions received by telephone are
genuine, the requested transaction will not be executed, and neither the Fund
nor Investor Services will be liable for any losses which may occur because of a
delay in implementing a transaction.
Restricted Accounts
Telephone redemptions and dividend option changes may not be accepted on
Franklin Templeton Trust Company retirement accounts. To assure compliance with
all applicable regulations, special forms are required for any distribution,
redemption, or dividend payment. Although the telephone exchange privilege is
extended to these retirement accounts, a Franklin Templeton Transfer
Authorization Form must be on file in order to transfer retirement plan assets
between a Franklin fund and a Templeton fund within the same plan type.
To obtain further information regarding distribution or transfer procedures,
including any required forms, retirement account shareholders may call to speak
to a Retirement Plan Specialist at 1-800/527-2020.
General
During periods of drastic economic or market changes, it is possible that the
telephone transaction privileges will be difficult to execute because of heavy
telephone volume. In such situations, shareholders may wish to contact their
registered investment representative for assistance, or to send written
instructions to the Fund as detailed elsewhere in this Prospectus.
Neither the Fund nor Investor Services will be liable for any losses resulting
from the inability of a shareholder to execute a telephone transaction.
The telephone transaction privilege may be modified or discontinued by the Fund
at any time upon 60 days' written notice to shareholders.
Valuation of Fund Shares
The offering price is the net asset value (without a sales charge) next computed
following receipt of an order by the Fund in proper form.
The net asset value of shares of the Fund is computed at 3:00 p.m. Pacific time
each day that the Exchange is open for trading.
The net asset value per share is calculated by adding the value of all of the
Fund's portfolio holdings (i.e., shares of the Portfolio) and other assets,
deducting the Fund's liabilities, and dividing the result by the number of Fund
shares outstanding.
The valuation of portfolio securities held by the Portfolio is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This 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.
Special Services
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires,
or other special handling which a shareholder may request. Such special services
to certain shareholders will not increase the expenses borne by the Fund.
How to Get Information
Regarding an Investment in the Fund
Any questions or communications regarding a shareholder's account should be
directed to the Franklin Templeton Institutional Services Department at
1-800/321-8563, Monday through Friday, from 6:00 a.m to 5:00 p.m. Pacific time.
ValuSelect plan participants may obtain current price, yield, and performance
information regarding the funds in the Franklin Group of Funds included in their
plan by calling KeyFACTSSM at 1-800/Key-2110.
Performance
Advertisements, sales literature and communications to shareholders may contain
information regarding the Fund's performance, including quotations of its
current and effective yield.
Current yield, as prescribed by the SEC, is an annualized percentage rate which
reflects the change in value of a hypothetical account based on the income
received from the Fund during a seven-day period. It is computed 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. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. Effective yield is
computed in the same manner except that the annualization of the return for the
seven-day period reflects the results of compounding.
In each case, performance figures are based upon past performance and will
reflect all recurring charges against Fund income. Such quotations will reflect
the value of any additional shares purchased with dividends from the original
share and any dividends declared on both the original share and such additional
shares. The investment results of the Fund, like all other investment companies,
will fluctuate over time; thus, performance figures should not be considered to
represent what an investment may earn in the future or what the Fund's
performance may be in any future period.
General Information
Reports to Shareholders
The Fund's fiscal year ends June 30. Annual Reports containing audited financial
statements of the Fund, including the auditors' report, and Semi-Annual Reports
containing unaudited financial statements are automatically sent to
shareholders. Additional copies may be obtained, without charge, upon request to
the Fund at the telephone number or address set forth on the cover page of this
Prospectus.
Additional information on Fund performance is included in the Trust's Annual
Report to Shareholders and the SAI.
Organization and Voting Rights
The Trust was organized as a Massachusetts business trust on January 15, 1985.
The Agreement and Declaration of Trust permits the trustees to issue an
unlimited number of full and fractional shares of beneficial interest without
par value, which may be issued in any number of series. Shares issued will be
fully paid and non-assessable and will have no preemptive, conversion, or
sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act. Voting rights are not cumulative, so that the holders of more than 50% of
the shares voting in any election of trustees can, if they choose to do so,
elect all of the trustees. The Trust does not intend to hold annual
shareholders' meetings. The Trust may, however, hold a special shareholders'
meeting for such purposes as changing fundamental investment restrictions,
approving a new management agreement or any other matters which are required to
be acted on by shareholders under the 1940 Act. Whenever the Fund, as an
investor in the Portfolio, is asked to vote on a fundamental policy matter
relating to the Portfolio, the Trust, on behalf of the Fund, will hold a meeting
of the Fund's shareholders and will cast its votes in the same proportions as
the Fund's shareholders have voted. A meeting may also be called by the trustees
at their discretion or by shareholders holding at least ten percent of the
shares entitled to vote at the meeting. Shareholders will receive assistance in
communicating with other shareholders in connection with the election or removal
of trustees such as that provided in Section 16(c) of the 1940 Act.
The Board may from time to time issue other series of the Trust, the assets and
liabilities of which will likewise be separate and distinct from any other
series of the Trust. The Trust currently consists of eight separate series,
including the Fund, the Franklin U.S. Government Agency Money Market Fund, the
Money Market Portfolio, the Franklin Late Day Money Market Portfolio, the
Franklin U.S. Government Securities Money Market Portfolio, the Franklin U.S.
Treasury Money Market Portfolio, the Franklin Institutional Adjustable U.S.
Government Securities Fund and the Franklin Institutional Adjustable Rate
Securities Fund, each of which maintains a totally separate and distinct
investment portfolio.
Certain Requirements
Applicable to Retirement Plans
Certain of the programs and privileges described in this Prospectus may not be
available directly from the Fund to shareholders whose shares are held, of
record, by a financial institution or in a "street name" account, or to
participants in retirement plans which have invested in the Fund. In particular,
retirement plans that use the services of Franklin's ValuSelect or another
administrative service should follow their standard procedures. Otherwise,
retirement plans will be provided with detailed instructions on how to access or
make use of the various options offered by the Fund in connection with
purchases, redemptions, exchanges or other account transactions.
Confirmations
Shares for an initial investment in the Fund, as well as subsequent investments,
including the reinvestment of dividends, are credited to an open share account
(known as "plan balance") in the name of an investor on the books of the Fund
without the issuance of a share certificate. Shareholders will receive
confirmation statements each time there is a transaction which affects an
account, including information on dividends reinvested or paid. These statements
will also show the total number of Fund shares owned by a shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE FUND WILL NOT
BE ISSUED.
Important Notice Regarding
Taxpayer IRS Certifications
Pursuant to the Code and U.S. Treasury regulations, the Fund may be required to
report to the IRS any taxable dividend or other reportable payment and withhold
31% of any such payments made to individuals and other non-exempt shareholders
who have not provided a correct taxpayer identification number ("TIN") and made
certain required certifications that appear in the shareholder Account
Application/Revision. A shareholder may also be subject to backup withholding if
the IRS or a securities dealer notifies the Fund that the TIN furnished by the
shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
The Fund reserves the right to (1) refuse to open an account for any person
failing to provide a TIN along with the required certifications and (2) close an
account by redeeming its shares in full at the then-current net asset value upon
receipt of notice from the IRS that the TIN certified as correct by the
shareholder is in fact incorrect or upon the failure of a shareholder who has
completed an "awaiting TIN" certification to provide the Fund with a certified
TIN within 60 days after opening the account.
INSTITUTIONAL
FIDUCIARY TRUST
Money Market Portfolio and
Franklin U.S. Government Securities
Money Market Portfolio
STATEMENT OF ADDITIONAL INFORMATION
777 Mariners Island Blvd.,
P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
NOVEMBER 1, 1995
Contents Page
Investment Objectives and Policies
(See also the Prospectus
"Investment Objectives and
Policies of the Fund")........................... 2
Trustees and Officers............................. 5
Administrative and Other Services................. 8
Policies Regarding Brokers
Used on Portfolio Transactions................... 10
Distribution Plans................................ 10
Determination of Net Asset Value.................. 11
Additional Information Regarding
Purchases and Redemptions
of Fund Shares................................... 12
Additional Information Regarding Taxation......... 13
The Trust's Underwriter........................... 14
Performance....................................... 14
Miscellaneous Information......................... 16
Summary of Procedures to Monitor
Conflicts of Interest............................ 17
Financial Statements.............................. 18
Appendix A........................................ 18
Appendix B........................................ 22
Institutional Fiduciary Trust (the "Trust") is an open-end management investment
company consisting of eight separate and distinct series. This Statement of
Additional Information (the "SAI") relates only to Franklin U.S. Government
Securities Money Market Portfolio (the "U.S. Securities Fund") and Money Market
Portfolio (the "Money Fund") (which may also be referred to as the "Fund" or
"Funds"), two no-load, open-end diversified series of the Trust. The U.S.
Securities Fund invests its assets in The U.S. Government Securities Money
Market Portfolio (the "U.S. Securities Portfolio") and the Money Fund invests
its assets in The Money Market Portfolio (the "Money Portfolio"). The U.S.
Securities Portfolio and the Money Portfolio (collectively the "Portfolios") are
series of The Money Market Portfolios, a separate open-end management investment
company, and are not part of the Trust.
A Prospectus for the Funds, dated November 1, 1995, as may be amended from time
to time, provides the basic information an investor should know before investing
in either Fund and may be obtained without charge from the Funds or from
Franklin/Templeton Distributors, Inc. ("Distributors"), at the address or
telephone number listed above.
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
INVESTORS WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF
THE FUNDS, AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
The investment objectives of the U.S. Securities Fund are capital preservation
and liquidity while seeking high current income consistent with capital
preservation and liquidity. The U.S. Securities Fund seeks to achieve these
objectives by investing its assets in the U.S. Securities Portfolio. At the
present time, it is the U.S. Securities Portfolio's policy to limit its
portfolio investments to U.S. Treasury bills, notes and bonds and to repurchase
agreements collateralized only by such securities. This policy may only be
changed upon 30 days' written notice to shareholders and to the National
Association of Insurance Commissioners.
The investments of the U.S. Securities Fund are limited to those specified in
California Government Code Sections 53601 and 53635.
The investment objectives of the Money Fund are high current income consistent
with capital preservation and liquidity. The Money Fund seeks to achieve these
objectives by investing its assets in the Money Portfolio. The Money Portfolio
in turn invests primarily in various types of money market instruments, such as
U.S. government and federal agency obligations, certificates of deposit,
banker's 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).
There, of course, can be no guarantee that the U.S. Securities Fund or the Money
Fund's investment objectives will be achieved.
The Funds are designed for institutional accounts, such as corporations, banks,
savings and loan associations, trust companies, and other related entities, for
investment of their own capital and of monies held in accounts for which they
act in a fiduciary, advisory, agency, custodial, or other similar capacity. The
U.S. Securities Fund is also designed for government authorities and agencies.
Shares of either Fund may not be purchased by individuals.
A registration statement under the Investment Company Act of 1940, as amended
(the "1940 Act"), as may be amended from time to time, for the Portfolios, is
available and may be obtained without charge from the Portfolios at the address
or telephone number listed above.
Investment Objectives and Policies
The U.S. Securities Fund
As noted in the Prospectus, the U.S. Securities Fund will invest its assets in
the U.S. Securities Portfolio. The U.S. Securities Portfolio in turn may invest
in marketable securities issued or guaranteed by the U.S. government, by various
agencies of the U.S. government and by various instrumentalities which have been
established or sponsored by the U.S. government, and repurchase agreements with
respect to obligations issued or guaranteed by the U.S. government and supported
by the full faith and credit of the U.S. government.
The Money Fund
As noted in the Prospectus, the Money Fund invests its assets in the Money
Portfolio. The Money 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). As noted in the Money Fund's
Prospectus, the Money Portfolio may invest in Eurodollar as well as Yankee
Dollar Certificates of Deposit, both of which are subject to the investment
risks noted above concerning foreign investments. The Money Portfolio will not
invest in warrants.
As stated in the Prospectus, the Money Portfolio may make loans of its portfolio
securities in accordance with guidelines adopted by The Money Market Portfolio's
Board of Trustees. The lending of securities is a common practice in the
securities industry. The Money Portfolio will engage in security loan
arrangements with the primary objective of increasing the Money Portfolio's
income either through investing cash collateral in short-term, interest bearing
obligations or by receiving a loan premium from the borrower. The Money
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 Money 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 Money Portfolio in the normal settlement time, currently five
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 Money Portfolio and its shareholders. The Money Portfolio may pay
reasonable finders', borrowers', administrative and custodial fees in connection
with a loan of its securities.
As stated in the Prospectus, the Money Portfolio may purchase and sell municipal
securities on a "when-issued" and "delayed delivery" basis. Although the Money
Portfolio will generally purchase municipal securities on a when-issued basis
with the intention of acquiring such securities, it may sell such securities
before the settlement date if it is deemed advisable. Securities purchased on a
when-issued or delayed delivery basis do not generally earn interest until their
scheduled delivery date.
General Policies
As stated in the Prospectus, the Portfolios may enter into repurchase agreements
which will be made only with financial institutions such as broker/dealers and
banks which are deemed creditworthy by the Portfolios' investment manager. This
is an agreement in which the seller of a security agrees to repurchase the
security sold at a mutually agreed upon time and price. It may also be viewed as
the loan of money by a Portfolio to the seller. The resale price is normally in
excess of the purchase price, reflecting an agreed upon interest rate. The
interest rate is effective for the period of time in which a Portfolio is
invested in the agreement and is not related to the coupon rate on the
underlying security. The period of these repurchase agreements will usually be
short, from overnight to one week, and at no time will a Portfolio invest in
repurchase agreements for more than one year. The securities which are subject
to repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreements. The transaction requires
the initial collateralization of the seller's obligation by securities with a
market value, including accrued interest, equal to at least 102% of the dollar
amount invested by the Portfolios, with the value marked to market daily to
maintain 100% coverage. A default by the seller might cause the Portfolios to
experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. The Portfolios might also incur disposition costs in
liquidating the collateral. The Portfolios that use these instruments will make
payment for such securities only upon physical delivery or evidence of book
entry transfer to the account of its custodian bank.
The Money Portfolio may not purchase time deposits or enter into repurchase
agreements with more than seven days duration if, as a result, more than 10% of
the market value of the Money Portfolio's total assets would be invested in such
time deposits or repurchase agreements.
The U.S. Securities Portfolios may not enter into repurchase agreements with
more than seven days duration, if, as a result, more than 10% of the market
value of the U.S. Securities Portfolio's total assets would be invested in such
repurchase agreements.
As stated in the Prospectus, each Portfolio seeks to earn high current income
consistent with capital preservation and liquidity. The achievement of each
Portfolio's objective will depend on market conditions generally and on the
analytical and portfolio management skills of the investment adviser. It should
be noted that each Portfolio's performance will also be a function of the
quality of the securities in which they invest. Accordingly, because the
Portfolios limit their investments to high quality securities, there will be a
generally lower yield than if such series purchased securities of a lower credit
rating and correspondingly greater risk. The value of securities held will
fluctuate inversely with interest rates and, therefore, there is no assurance
that the objectives will be achieved.
Because the Portfolios will not purchase any instrument with a remaining
maturity of greater than 397 calendar days, it is not expected that there will
be any reportable annual portfolio turnover rate.
Investment Restrictions
The Trust has adopted the following restrictions as additional fundamental
policies of each Fund, which means that they may not be changed without the
approval of a majority of the outstanding voting securities of that Fund. Under
the 1940 Act, a "vote of a majority of the outstanding voting securities" of a
Fund means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of such Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
such Fund are represented at the meeting in person or by proxy. A 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 Fund, (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) 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 a Fund may be invested in another registered investment
company having the same investment objective and policies as the Fund.
(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) 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 the total assets of such Fund would
be invested in such securities or repurchase agreements, except that, to the
extent this restriction is applicable, a Fund may purchase, in private
placements, shares of another registered investment company having the same
investment objective and policies as the Fund.
(6) Purchase 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 a Fund may be invested in another registered
investment company having the same investment objective and policies as the
Fund.
(7) 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 policies
of a Fund as described in the Prospectus specify otherwise.
(8) Act as underwriter of securities issued by other persons, except insofar as
the Trust 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 a Fund may be invested in another
registered investment company having the same investment objective and policies
as the Fund.
(9) Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
(10) 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.
(11) 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.
In addition to the above restrictions, the Funds have the following fundamental
policies, which may only be changed with the approval of shareholders: i) the
U.S. Securities Fund may invest only in marketable securities issued or
guaranteed by the U.S. government, by various agencies of the U.S. government
and by various instrumentalities which have been established or sponsored by the
U.S. government, including U.S. Treasury bills, notes, bonds and securities of
the Government National Mortgage Association and the Federal Housing
Administration, which are issued or guaranteed by the U.S. government or which
carry a guarantee supported by the full faith and credit of the U.S.; or in
another open-end investment company (such as the U.S. Securities Portfolio) that
has a fundamental policy to invest in these types of securities; ii) the Funds
will invest 100% of their assets in securities with remaining maturities of 397
days or less, or in another open-end management investment company which has
such a fundamental investment policy; iii) the Money Fund will invest primarily
in various types of money market instruments, such as U.S. government and
federal agency obligations, certificates of deposit, banker's 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) and may seek its
objective by investing all or substantially all of its assets in an open-end
management investment company with the same investment objective and policies;
iv) the Money Fund may not purchase the securities of any one issuer (other than
obligations of the U.S., its agencies or instrumentalities) if, immediately
thereafter, more than 5% of the value of its total assets would be invested in
the securities of any one issuer with respect to 75% of the Money Fund's total
assets (pursuant to an operating policy on diversification adopted by the Board
of Trustees of the Trust and The Money Market Portfolios which complies with
current requirements under Rule 2a-7, the 5% limitation applies to the
Portfolio's total assets and is more restrictive than the Fund's fundamental
policy), or more than 10% of the outstanding voting securities of any one issuer
would be owned by the Money Fund, except that this policy does not apply to the
extent all or substantially all of the assets of the Money Fund may be invested
in another registered investment company having the same investment objective
and policies as the Money Fund; and v) the Money Fund 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, except that this
policy is inapplicable to the extent all or substantially all of the assets of
the Money Fund may be invested in another registered investment company having
the same investment objectives and policies as the Money Fund.
In addition to these fundamental policies, it is the present policy of the Funds
(which may be changed without the approval of shareholders) not to invest in
real estate limited partnerships (investments in marketable securities issued by
real estate investment trusts are not subject to this restriction) or in
interests (other than publicly traded equity securities) in oil, gas, or other
mineral leases, exploration or development program.
In order to continue its money market status in Texas, the Money Fund and its
respective Portfolio will comply with Section 123.3 of the Texas Administrative
Code (as stated in Conditions 1-7 listed in Form 133.26, entitled "Request for
Determination as a Money Market Fund," with the understanding that Condition 4
excludes expenses of the Money Fund's transfer agent associated with shareholder
recordkeeping and reporting).
Trustees and Officers
The Board of Trustees has the responsibility for the overall management of the
Trust, including general supervision and review of the Funds' investment
activities. The trustees, in turn, elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Trust, as defined in the 1940 Act, are indicated by an asterisk
(*).
Positions and Offices
Name, Address and Age with the Trust Principal Occupations
During Past Five Years
Frank H. Abbott, III (74) Trustee
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 (63) Trustee
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 56 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director General Host
Corporation; and director, trustee or managing general partner, as the case may
be, of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80) Trustee
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 (62) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
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 57 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (39) President
777 Mariners Island Blvd. and Trustee
San Mateo CA 94404
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 24 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
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 43 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66) Trustee
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, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 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 (50) 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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) 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 (35) 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 of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56) 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.
Thomas J. Runkel (37) 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.
The officers and trustees of the Trust are also officers and trustees of The
Money Market Portfolios, except Thomas J. Runkel, Vice President of the Trust,
is not an officer or trustee of The Money Market Portfolios. The following
officers of The Money Market Portfolios are not officers or trustees of the
Trust:
Edward V. McVey (58)
777 Mariners Island Blvd. Vice President
San Mateo, CA 94404 of The Money Market Portfolios
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
R. Martin Wiskemann (68) Vice President
777 Mariners Island Blvd. of The Money
San Mateo, CA 94404 Market Portfolios
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 20 of the
investment companies in the Franklin Group of Funds.
Trustees not affiliated with the administrator ("nonaffiliated trustees") are
currently paid fees of $200 per month plus $200 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
Number of
Total Fees Boards in the
Total Fees Received from the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from Trust* Group of Funds** Which Each Serves***
<S> <C> <C> <C>
Frank H. Abbott, III..................................... $4,800 $176,870 31
Harris J. Ashton......................................... 4,800 318,125 56
S. Joseph Fortunato...................................... 4,800 334,265 57
David Garbellano......................................... 4,800 153,300 30
Frank W.T. LaHaye........................................ 4,600 150,817 26
Gordon S. Macklin........................................ 4,800 301,885 53
</TABLE>
*For the fiscal year ended June 30, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of more than 162 U.S.
based funds or series.
Nonaffiliated trustees 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 trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries. For additional
information concerning trustee compensation and expenses, please see the Trust's
Annual Report to Shareholders.
As of August 3, 1995, the trustees and officers, as a group, owned of record and
beneficially approximately 2,746,492 shares or less than 1% of the total
outstanding shares of the Money Fund and none of the outstanding shares of the
U.S. Securities Fund. Many of the Trust's trustees also own shares in various of
the other funds in the Franklin Templeton Group of Funds. Charles E. Johnson is
the son and nephew of Charles B. Johnson and Rupert H. Johnson, Jr.,
respectively, who are brothers.
The Board of Trustees, with all disinterested trustees as well as the interested
trustees voting in favor, have adopted written procedures designed to deal with
potential conflicts of interest which may arise from the fact of having the same
persons serving on each trust's Board of Trustees. The Board of Trustees has
determined that there are no conflicts of interest presented by this arrangement
at the present time. See "Summary of Procedures to Monitor Conflicts of
Interest."
Administrative and Other Services
The administrator of the Funds is Advisers. Advisers is a wholly-owned
subsidiary of Resources, a publicly owned holding company whose shares are
listed on the New York Stock Exchange (the "Exchange"). Resources owns several
other subsidiaries which are involved in investment management and shareholder
services. Advisers and other subsidiary companies of Resources currently manage
over $125 billion in assets for more than 3.8 million shareholder accounts.
Advisers acts as the administrator for the U.S. Securities Fund and the Money
Fund under separate administration agreements, dated November 1, 1992 (the
"Administration Agreements"), which provide for various administrative,
statistical, and other services for the Funds. Pursuant to the Administration
Agreements, the U.S. Securities Fund and Money Fund are each separately
obligated to pay Advisers (as Administrator) a monthly fee equal to an annual
rate of 5/100 of 1% of such Fund's average daily net assets. The U.S. Securities
Portfolio and the Money Portfolio, in which each Fund invests its assets, have
separate management agreements with Advisers, each dated August 27, 1992 (the
"Management Agreements"). The Management Agreements and the Administration
Agreements specify that the management fees and/or the administration fees will
be reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the Funds' shares are offered for sale. The
most stringent current state restriction limits a fund's allowable aggregate
operating expenses (excluding interest, taxes, brokerage commissions,
distribution plan expenses up to 1% and extraordinary expenses such as
litigation costs) in any fiscal year to 2.5% of the first $30 million of average
net assets of the Fund, 2% of the next $70 million of average net assets of the
Fund and 1.5% of average net assets of each Fund in excess of $100 million.
There are no management agreements for the Funds.
Pursuant to the separate Management Agreements with the U.S. Securities
Portfolio and the Money Portfolio, Advisers provides investment research and
portfolio management services, including the selection of securities for the
U.S. Securities Portfolio and the Money Portfolio to purchase, hold or sell, and
the selection of brokers or dealers through whom the Portfolios' security
transactions are executed. Advisers' activities are subject to the review and
supervision of the Board of Trustees of The Money Market Portfolios to whom
Advisers renders periodic reports of the investment activities of the U.S.
Securities Portfolio and the Money Portfolio. Under the terms of the Management
Agreements, Advisers provides the Portfolios with office space and office
furnishings, facilities and equipment required for managing the business affairs
of the Portfolios; 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 each Fund. Both the U.S.
Securities Portfolio, in which the U.S. Securities Fund invests its assets, and
the Money Portfolio, in which the Money Fund invests its assets, are obligated
to pay Advisers a monthly fee equal to an annual rate of 15/100 of 1% of the
Portfolio's average net assets.
Advisers became the Funds' Administrator on October 26, 1992. Prior to that
time, Franklin Trust Company served as the investment adviser and administrator
to the Money Fund pursuant to a management and administration agreement, and
Advisers served as investment adviser to the U.S. Securities Fund pursuant to a
management agreement.
Advisers agreed in advance to waive a portion of its fees under the
administration and management agreements in order to reduce the total expenses.
This arrangement may be terminated by Advisers at any time upon notice to the
Board.
For the fiscal years ended June 30, 1993, 1994 and 1995, the management
fees for the Money Portfolio, before any advance waiver were $272,196, $463,296
and $1,823,637, respectively. Management fees paid by the Money Portfolio for
the fiscal years ended June 30, 1993, 1994 and 1995 were $229,483, $415,665 and
$1,730,028 respectively. For the fiscal years ended June 30, 1993, 1994 and
1995, the management fees for the U.S. Securities Portfolio, before any advance
waiver were $253,943, $355,778 and $634,994, respectively. Management fees paid
by the U.S. Securities Portfolio for the fiscal years ended June 30, 1993, 1994
and 1995 were $211,003, $304,633 and $581,495 respectively.
The Management Agreements for the U.S. Securities Portfolio and the Money
Portfolio are each in effect until February 29, 1996. Thereafter, each may
continue in effect for successive annual periods, providing such continuance is
specifically approved at least annually by a vote of the Board of Trustees or by
a vote of the holders of a majority of the outstanding voting securities of the
Portfolios, and in either event by a majority vote of the trustees of The Money
Market Portfolios who are not parties to the Management Agreements or interested
persons of any such party (other than as trustees), cast in person at a meeting
called for that purpose. The Management Agreements may be terminated without
penalty at any time by The Money Market Portfolios or by Advisers on 60 days'
written notice and will automatically terminate in the event of their assignment
as defined in the 1940 Act.
The table below shows the management or administration fees, before any advance
waiver by Franklin Trust Company (1993) or Advisers (1993, 1994 and 1995), with
respect to the Money Fund, and Advisers, with respect to the U.S. Securities
Fund for the fiscal years ended June 30, 1993, 1994 and 1995, respectively.
June 30
1993 1994 1995
Money Fund.................. $660,106 $154,317 $123,118
U.S. Securities Fund........ $469,648 $118,962 $139,800
The Money Fund and the U.S. Securities Fund paid no management and
administration fees for the fiscal years ended June 30, 1993, 1994 and 1995.
Other Services
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for each Fund and acts as each Fund's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, and Morgan Guaranty Trust Company of New York, 60 Wall Street,
New York, New York 10260, act as custodians of the securities and other assets
of the Portfolio and the Funds. Citibank, Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian for the Funds 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. Coopers & Lybrand L.L.P., 333 Market Street, San
Francisco, California 94105, are the Trust's independent auditors. During the
fiscal year ended June 30, 1995, their auditing services consisted of rendering
an opinion on the financial statements of the Trust included in the Trust's
Annual Report dated June 30, 1995.
Policies Regarding Brokers
Used on Portfolio Transactions
The Funds will not incur any brokerage or other costs in connection with their
purchase or redemption of shares of the Portfolios. Under the Portfolios'
Management Agreements with Advisers, the selection of brokers and dealers to
execute transactions in each Portfolios' securities is made by Advisers in
accordance with criteria set forth in the Management Agreements and any
directions which the Board of Trustees of The Money Market Portfolios may give.
In all purchases and sales of securities for the Portfolios, Advisers seeks the
most favorable prices consistent with the best execution of the orders. So long
as Advisers believes that it is obtaining the best execution, it will give
consideration in placing portfolio transactions with securities dealers
furnishing research, statistical or factual information, or wire or other
services to the Portfolios or to Advisers, including appraisals or valuations of
portfolio securities of the Portfolios. While the information and services
provided by securities dealers are useful in varying degrees and would generally
reduce the amount of research or services otherwise performed by Advisers and
thus reduce its expenses, they are of indeterminable value and will not reduce
the management fees payable to Advisers by the Portfolios.
Depending on Advisers' view of market conditions, the Portfolios may or may not
purchase securities with the expectation of holding them to maturity, although
their general policy is to hold securities to maturity. A 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 past three fiscal
years, the Funds paid no brokerage commissions. The Portfolios' commenced
operations on October 26, 1992, and therefore did not incur any brokerage
commissions prior to such operations.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolio will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the ask price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other services as
mentioned above. No broker or dealer affiliated with the Funds or the
Portfolios, or with Advisers may purchase securities from, or sell securities
to, the Funds or the Portfolios.
Distributors, an affiliate of Advisers, is a member of the National Association
of Securities Dealers, Inc., and it may sometimes be entitled to obtain certain
fees when a Portfolio tenders portfolio securities pursuant to a tender-offer
solicitation. Accordingly, any portfolio securities tendered by a Portfolio will
be tendered through Distributors if it is legally permissible to do so. In turn,
the next management fees payable to Advisers by the Portfolios under the
Management Agreements will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities for the Portfolios and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in such 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 investment companies
or clients and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly have a detrimental
effect on the price or volume of the security so far as the Portfolios are
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 Portfolios.
Neither the Funds nor the Portfolios have acquired, since their inception, the
securities of any broker/dealer.
Distribution Plans
The Funds have each adopted a Distribution Plan (a "Plan") pursuant to Rule
12b-1 under the 1940 Act whereby each Fund may pay up to a maximum of 0.15% per
annum of each Fund's average daily net assets for expenses incurred by its
Manager in the distribution of a Fund's shares. No payments have been made by
the Funds pursuant to the Plans since inception.
Pursuant to each Plan, Advisers will be entitled to be reimbursed each month (up
to the maximum as stated above) for its actual expenses incurred in the
distribution and promotion of the Funds' shares, including, but not limited to,
the printing of prospectuses and reports used for sales purposes, expenses of
preparing sales literature and related expenses, advertisements, and other
distribution-related expenses.
In addition to the payments to which Advisers is entitled under each Plan, each
Plan also provides that to the extent any payments to or by the Fund, Advisers
or other parties on behalf of the Fund, are deemed to be payments for the
financing of any activity primarily intended to result in the sale of shares of
the Fund within the context of Rule 12b-1 under the 1940 Act, then such payments
shall be deemed to have been made pursuant to the Plan.
Such activities, the payment of which are intended to be within the scope of the
Plans, but will not involve the payment of any additional monies by the Funds
than they are otherwise obligated to make, shall include, but not necessarily be
limited to, the following: (a) the costs associated with reports and
prospectuses to shareholders; (b) fees and expenses relating to qualification
under state securities laws; (c) trade association dues; (d) costs associated
with sending confirmations and reports to shareholders on shares sold or
redeemed and responding to inquiries from prospective investors; and (e)
payments to dealers, financial institutions, advisers, or other firms, any one
of whom may receive monies in respect of shares of the Funds owned by
shareholders for whom such firm is the dealer or holder of record in any
capacity, or with whom such firm has a servicing, agency, or distribution
relationship.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans must be renewed annually by the Trust's Board of Trustees, including a
majority vote of the trustees who are non-interested persons of the Trust and
who have no direct or indirect financial interest in the operation of the Plans,
cast in person at a meeting called for that purpose. It is also required that
the selection and nomination of such trustees be done by the non-interested
trustees. The Plans may be terminated at any time, without any penalty, by such
trustees or by vote of a majority of each Fund's outstanding shares, on 60 days'
written notice, and will terminate automatically by any act that terminates the
Administration Agreements with Advisers.
The Plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the respective Fund's outstanding shares, and all material amendments to the
Plans or any related agreements also shall be approved by a vote of the
non-interested trustees, cast in person at a meeting called for the purpose of
voting on any such amendment. Advisers is required to report in writing to the
Board of Trustees of the Trust, at least quarterly, on the amounts and purpose
of any payment made under the Plans, as well as to furnish the board with such
other information as may reasonably be requested in order to enable the board to
make an informed determination of whether the Plans should be continued.
Determination of Net Asset Value
As noted in the Prospectus, the net asset value per share for purposes of both
purchase and redemption of shares is determined by the Funds on each day that
the Exchange is open for business. Valuation is currently made as of 12:30 p.m.
Pacific time. As of the date of this SAI, the Trust 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. Net asset value per share of each Fund is calculated by adding
the value of all securities and other assets in each Fund's portfolio, deducting
its liabilities, and dividing by the number of shares outstanding.
The valuation of each Portfolio's portfolio securities (including any securities
held in a separate account maintained for when-issued securities) is based upon
their amortized cost, which does not take into account unrealized capital gains
or losses. This 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 amortization cost, is
higher or lower than the price a Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Funds computed as described above may tend to be higher than a
like computation made by a fund with identical investments 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 a Portfolio
resulted in a lower aggregate portfolio value on a particular day, a prospective
investor in the Fund would be able to obtain a somewhat higher yield than would
result from investment in a fund utilizing solely market values, and existing
investors in the Funds would receive less investment income. The converse would
apply in a period of rising interest rates.
Each Portfolio's use of amortized cost which facilitates the maintenance of the
its per share net asset value of $1.00 is permitted by Rule 2a-7 of the 1940
Act, pursuant to which the Portfolios must adhere to certain conditions.
Generally, the Portfolios must maintain a dollar-weighted average portfolio
maturity of 90 days or less, only purchase instruments having remaining
maturities of 397 calendar days or less, and invest only in those United States
dollar-denominated instruments that the Board of Trustees determines present
minimal credit risks and which are, as required by the federal securities laws,
i) rated in one of the two highest rating categories as determined by nationally
recognized statistical rating agencies, with remaining maturities of 397 days or
less, ii) instruments deemed comparable in quality to such rated instruments,
iii) instruments, the issuers of which, with respect to an outstanding issue of
short-term debt that is comparable in priority and protection, have received a
rating within the two highest categories of a nationally recognized statistical
rating agency. Securities subject to floating or variable interest rates with
demand features may have stated maturities in excess of one year. The trustees
of The Money Market Portfolios have agreed to establish procedures designed to
stabilize, to the extent reasonably possible, the Portfolios' price per share as
computed for the purpose of sales and redemptions at $1.00. Such procedures will
include review of each Portfolio's portfolio holdings by the trustees, at such
intervals as they may deem appropriate, to determine whether the Portfolios' 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 trustees. If such deviation exceeds 1/2 of 1%, the trustees will promptly
consider what action, if any, will be initiated. In the event the trustees
determine that a deviation exists which may result in material dilution or other
unfair results to investors or existing shareholders, they will take such
corrective action as they regard as necessary and appropriate, which may include
the sale of portfolio instruments prior to maturity to realize capital gains or
losses or to shorten average portfolio maturity, withholding dividends,
redemptions of shares in kind, or establishing a net asset value per share by
using available market quotations.
The trustees of the Trust seek to maintain the net asset values of the Funds at
$1.00 per share.
Additional Information
Regarding Purchases and
Redemptions of Fund Shares
Effectiveness of Purchase Orders
The purchase price for shares of each Fund is the net asset value of such shares
next determined after receipt and acceptance of a purchase order in proper form.
Once shares of a Fund are purchased, they begin earning income immediately, and
income dividends will start being credited to the investor's account on the
effective date of purchase and continue through the business day prior to the
business day such shares are redeemed. Many of the types of instruments in which
the Funds (through the Portfolios) invest must be paid for in "federal funds,"
which are monies held by the Trust's custodian on deposit at the Federal Reserve
Bank of San Francisco and elsewhere. Therefore, the monies paid by an investor
for its shares in either Fund generally cannot be invested by such Fund's
respective Portfolio until they are converted into and are available to the Fund
in federal funds, which may take up to two days. In such cases, purchases by
investors may not be considered in proper form and effective until such
conversion and availability. In the event the Portfolio is able to make
investments immediately (within one business day), the Fund may accept a
purchase order with payment other than in federal funds; in such event, shares
of the Fund will be purchased at the net asset value next determined after
receipt of the order and payments.
Payments transmitted by wire and received by the custodian and reported by the
custodian to a Fund prior to 3:00 p.m. Pacific time on any business day are
normally effective on the same day as received, provided the Fund is timely
notified as described in the Fund's Prospectus. Wire payments received or
reported by the custodian to the Funds after the time set forth above will be
effective on the next business day. Payments transmitted by check or other
negotiable bank draft will normally be effective within two business days for
checks drawn on a member bank of the Federal Reserve System, and longer for most
other checks.
Shareholder Accounting
All purchases of shares of a Fund will be credited to the shareholder in full
and fractional shares of such Fund (rounded to the nearest 1/1000 of a share) in
an account maintained for the shareholder. To open an account in the name of a
corporation, a resolution of the corporation's Board of Directors will be
required.
The Trust reserves the right to reject any order for the purchase of shares of
the Funds and to waive minimum investment requirements. In addition, the
offering of shares of the Funds may be suspended at any time and resumed at any
time thereafter.
Shareholder Redemptions
Each Fund will attempt to make payment for all shares redeemed within one
business day, but in no event later than seven days after receipt by a Fund of
the redemption request in proper form. A Fund may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the Exchange is closed for periods other than weekends and holidays or when
trading on the Exchange is restricted as determined by the Securities and
Exchange Commission ("SEC"); (b) an emergency exists as determined by the SEC
making disposal of portfolio securities or valuation of net assets of a Fund not
reasonably practicable; or (c) for such other period as the SEC by order may
permit for the protection of the shareholders of a Fund. At various times, a
Fund may be requested to redeem shares for which it has not yet received proper
payment. Accordingly, a Fund may delay the sending of redemption proceeds until
such time as it has assured itself that proper payment has been collected for
the purchase of such shares.
Redemptions in Kind
Each Fund has committed itself to pay in cash 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 net assets of the applicable
Fund at the beginning of such period. Such commitment is irrevocable without the
prior approval of the SEC. In the case of requests for redemption in excess of
such amounts, the Board of Trustees reserves the right to make payments in whole
or in part in securities or other assets of the Fund from which the shareholder
is redeeming, in case of an emergency, or if the payment of such a redemption in
cash would be detrimental to the existing shareholders of such Fund. In such
circumstances, the securities distributed would be readily marketable securities
valued at the price used to compute that Fund's net assets. Should a Fund do so,
a shareholder may incur brokerage fees in converting the securities to cash.
Redemptions by the Fund
Each Fund reserves the right to redeem, involuntarily, at the then current net
asset value, shares held in an account for a shareholder in such Fund if the
aggregate net asset value for the shares held by any one shareholder falls below
$20,000, but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares. Prior to effecting any such
involuntary redemption, the Funds shall notify the shareholder and allow it 30
days to make an additional investment in an amount which will increase the
aggregate value of its account in such Fund to at least the minimum initial
investment.
Additional Information Regarding Taxation
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of a Fund as a regulated investment company if they determine such
course of action to be beneficial to the shareholders. In such case, such 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 its 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 a 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 October, November or 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 a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared. Each 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.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by a 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, each Fund will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment. Shareholders
should then consult with their own tax advisors with respect to the application
of their state and local laws to these distributions.
Distributions derived 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 the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund 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 such shares.
Each Portfolio's (and thus, each respective Fund's) portfolio is composed of
short-term securities and, under normal circumstances, each Fund (through its
investment in a Portfolio) does not expect to realize any long-term capital
gain. Any undistributed net short-term capital gain which is realized by the
Funds (adjusted for any daily amounts of unrealized appreciation or depreciation
reported above) will be distributed at least once each year and may be
distributed more frequently if necessary in order to avoid federal excise taxes.
Any distributions of short-term capital gain will also be reinvested in the form
of additional Fund shares at net asset value, unless the shareholder has
previously notified the Fund to have them paid in cash.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.
The Trust's Underwriter
Pursuant to an underwriting agreement in effect until February 29, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Funds. Distributors pays the expenses of distribution of Fund
shares, including advertising expenses and the costs of printing sales material
and prospectuses used to offer shares to the public. Each 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.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Trust's Board of Trustees, or by a vote of the holders of a majority
of the Trust's outstanding voting securities, and in either event by a majority
vote of the Trust's trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
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.
Performance
As noted in the Prospectus, each Fund may from time to time quote performance
figures to illustrate its past performance.
Current Yield
Current yield reflects the interest income per share earned by the Funds'
investments.
Current yield is computed 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, and then annualizing the result by multiplying
the base period return by (365/7).
The yield for each Fund for the seven-day period ended on June 30, 1995 was as
follows:
7 Days Ended
June 30, 1995
U.S. Securities Fund................. 5.79%
Money Fund........................... 5.97%
Effective Yield
Effective yield is computed in the same manner except that the annualization of
the return for the seven-day period reflects the results of compounding by
adding 1 to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result.
The effective yield for each Fund for the seven-day period ended on June 30,
1995 was as follows:
7 Days Ended
June 30, 1995
U.S. Securities Fund.................. 5.96%
Money Fund............................ 6.14%
365/7
Effective Yield = [(Base Period Return + 1) ]-1
Comparisons
To help investors better evaluate how an investment in a Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various 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.
Such comparisons may include, but are not limited to, the following examples:
a) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed-Income Fund
Performance Analysis and Lipper - Mutual Fund Yield Survey - These publications
measure total return and average current yield for the mutual fund industry.
They rank individual mutual fund performance over specified time periods
assuming reinvestment of all distributions, exclusive of any sales charges.
b) Bank Rate Monitor - A weekly publication which reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Bond Buyer - A daily publication which reports various articles as well as
indices.
d) Salomon Brothers Bond Market Roundup - A weekly publication which reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets. Also summarizes change in banking statistics and
reserve aggregates.
e) IBC/Donoghue's Money Fund Report(R) - Reports industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
f) 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.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Funds' composition of investments, that the averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate
their figures. In addition there can be no assurance that a Fund will continue
this performance as compared to such other averages.
From time to time, advertisements or information for a Fund may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's performance to the
return on certificates of deposit or other investments. Investors should be
aware, however, that an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of a Fund's fixed-income investments, as well as the value of
its shares which is based upon the value of such portfolio investments, can be
expected to decrease. Conversely, when interest rates decrease, the value of a
Fund's shares can be expected to increase. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in a Fund
is not insured by any federal, state or private entity.
From time to time, advertisements may depict various ways in which investors may
utilize a Fund to achieve their investment goals and various developments
affecting a Fund, including historical developments in the securities markets.
The following list reflects some of the illustrations that may appear in future
advertisements:
The Funds may be listed as members of the Franklin Group of Funds in shareholder
newsletters.
The Funds may be used in shareholder newsletters as an example of the benefits
of diversification.
The Funds may be used to demonstrate the benefits offered by professional
management.
Advertisements may indicate that as an established presence in the municipal
securities industry, Franklin currently manages over $40 billion in municipal
bond assets. Franklin's municipal bond experience and knowledge of municipal
issuers allows us to offer investment vehicles and services tailored to the
needs of government investors.
Of course, an investment in a Fund cannot guarantee that the shareholder's goals
will be met.
In addition to advertisements regarding the above matters, from time to time
advertisements regarding the Fund or the Franklin Group of Funds(R) may discuss
other matters, including a Dalbar Surveys, Inc.'s broker/dealer survey which
ranked Franklin number one in service quality for five out of the past seven
years.
The Funds may include in their advertising or sales material information
relating to investment objectives and performance results of funds belonging to
the Templeton Group of Funds. Franklin Resources, Inc. is the parent company of
the advisers and underwriter of both the Franklin Group of Funds and Templeton
Group of Funds.
Each Fund is a member of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States 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 47 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 $125 billion in
assets under management for more than 3.8 million shareholder accounts, in
addition to foundations and endowments, employee benefit plans, and individuals,
and offers 115 U.S.-based mutual funds. A Fund may identify itself by its NASDAQ
or CUSIP number.
Miscellaneous Information
A Fund may deduct from a shareholder's account the costs of its efforts to
locate such shareholder if mail is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account, when a search
company charges a percentage fee in exchange for their location services.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
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; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also 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.
As of August 3, 1995, the principal shareholders, beneficial or of record, of
the Funds, their addresses and the amount of their share ownership were as
follows:
Number
of Shares
Owned Percentage
Money Fund
Franklin Resources, Inc. 28,674,265 9.84%
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin/Templeton
Distributors, Inc. 18,471,931 6.34%
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin/Templeton
Investor Services, Inc. 60,000,000 20.59%
777 Mariners Island Blvd.
San Mateo, CA 94404
Sanyo Fisher (USA) Corp. 18,126,198 6.22%
21350 Lassen St.
Chatsworth, CA 91311
Urban & Co. 26,408,120 9.06%
P.O. Box 69
Urbana, IL 61801
U.S. Securities Fund
Alameda County
Treasurer 21,000,000 7.45%
4732 Calvert
Lincoln, NE 68506
Bank of America TTEE 21,698,361 7.70%
City of Oakland
1 Embarcadero Center,
28th Floor
San Francisco, CA 94111
City of Anaheim 17,089,203 6.06%
201 S. Anaheim Blvd.
#901
Anaheim, CA 92805
Number
of Shares
Owned Percentage
First Interstate Bank of
Nevada TTEE
City of Henderson 17,581,054.85 6.24%
Lake Las Vegas Ltd
Obl Imp Bonds
P.O. Box 9800
Calabasas, CA 91302
First Interstate Bank of
Nevada TTEE
City of Henderson 26,973,074 9.57%
Dtd 12/94-12/94 Water
Bonds
P.O. Box 9800 Calabasas, CA 91302
PNC Bank National
Association 38,422,090 13.63%
1 Oliver Plaza 25th Floor
Pittsburgh, PA 15222
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.
The shareholders of a Massachusetts business trust, such as the Trust, could,
under certain circumstances, be held personally liable as partners for its
obligations. The Trust's Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets for any shareholder held personally liable for
obligations of the Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. All such rights are limited to the assets of the respective Fund of
which a shareholder holds shares. The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example, fidelity, bonding,
and errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance exists, and the Fund itself is unable to meet its
obligations.
Special Services
Shareholders or prospective investors may utilize Franklin's IFT Hypothetical
Illustrations Service as a useful tool in considering investments. The service,
which is free of charge, enables an investor to make an actual,
dollar-for-dollar performance comparison of any of the Trust's funds to any
security, pool, or portfolio which the investor may currently be using. It is
based on historical information and covers any time period the investor desires
after February 4, 1988 (the commencement of dividend payments for two of the
funds). The investor simply chooses a fund of the Trust to compare and provides
Franklin with a starting date, a starting amount, and all subsequent purchases
or withdrawals. The illustration shows the actual dollar performance of these
actions in the selected fund, which the investor can use to compare to that of
their own investment or portfolio.
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires
each month or other special handling that a shareholder may request. Such
special services to certain shareholders will not increase the expenses borne by
either Fund or the Trust.
Investor Services or the Trust may pay certain financial institutions which
maintain omnibus accounts with the Trust on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such beneficial owners.
For each beneficial owner in the omnibus account such institutions may be paid
an amount, not to exceed the per account fee which the Trust normally pays
Investor Services.
Summary of Procedures to
Monitor Conflicts of Interest
The Boards of Trustees of The Money Market Portfolios, on behalf of its series
("master fund[s]"), and of the Trust, on behalf of certain of its series which
participate in a master/feeder fund structure ("feeder fund[s]"), (both of which
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
funds in this format. Such potential conflicts of interest could include, among
others: the creation of additional feeder funds with different fee structures;
the creation of additional feeder funds which 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 which
may or may not be acceptable to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Boards
of Trustees have adopted certain procedures, pursuant to which i) the
independent members of each board will review the master/feeder fund structure
at least annually, as well as on an ongoing basis, and report to their
respective full board after each annual review; ii) if the independent trustees
determine that a situation or proposal presents a potential conflict, they will
request a written analysis from the master fund management describing whether
such apparent potential conflict of interest will impede the operation of any of
the constituent feeder funds and the interests of the feeder fund's
shareholders; and iii) upon receipt of the analysis, such trustees shall review
the analysis and present their conclusion to the full board.
If no actual conflict is deemed to exist, the independent trustees 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 an independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following courses of action: i) suggest a course of
action designed to eliminate the potential conflict of interest; ii) if
appropriate, request that the full board of the Trust submit the potential
conflict to shareholders for resolution; iii) recommend to the full board of the
Trust 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 board of the Trust that a new group of trustees be recommended to the
shareholders of the affected feeder fund for approval; or v) recommend such
other action as may be considered appropriate.
Financial Statements
The financial statements contained in the Annual Report to Shareholders of
Institutional Fiduciary Trust and The Money Market Portfolios dated June 30,
1995, including the auditor's report, are incorporated herein by reference.
Appendix A
California Government Code Section 53601. Securities authorized for investment;
text of section effective on July 7, 1988, amended in 1992.
The legislative body of a local agency having money in a sinking fund of, or
surplus money in, its treasury not required for the immediate necessities of the
local agency may invest any portion of the money which it deems wise or
expedient in the following; provided, however, that where this section does not
specify a limitation on the term or remaining maturity at the time of the
investment, no investment shall be made in any security, other than a security
underlying a repurchase or reverse repurchase agreement authorized by this
section, which at the time of the investment has a term remaining to maturity in
excess of five years, unless the legislative body has granted express authority
to make that investment either specifically or as a part of an investment
program approved by the legislative body no less than three months prior to the
investment:
(a) Bonds issued by the local agency, including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or operated by the
local agency or by a department, board, agency, or authority of the local
agency.
(b) United States Treasury notes, bonds, bills, or certificates of indebtedness,
or those for which the faith and credit of the United States are pledged for the
payment of principal and interest.
(c) Registered state warrants or Treasury notes or bonds of this state,
including bonds payable solely out of the revenues from a revenue-producing
property owned, controlled, or operated by the state or by a department, board,
agency, or authority of the state.
(d) Bonds, notes, warrants, or other evidences of indebtedness of any local
agency within this state, including bonds payable solely out of the revenues
from a revenue-producing property owned, controlled, or operated by the local
agency, or by a department, board, agency, or authority of the local agency.
(e) Obligations issued by banks for cooperatives, federal land banks, federal
intermediate credit banks, federal home loan banks, the Federal Home Loan Bank
Board, the Tennessee Valley Authority, or in obligations, participations, or
other instruments of, or issued by, or fully guaranteed as to principal and
interest by, the Federal National Mortgage Association; or in guaranteed
portions of Small Business Administration notes; or in obligations,
participations, or other instruments of, or issued by, a federal agency or a
United States government-sponsored enterprise.
(f) Bills of exchange or time drafts drawn on and accepted by a commercial bank,
otherwise known as banker's acceptances, which are eligible for purchase by the
Federal Reserve System. Purchases of bankers acceptances may not exceed 270 days
maturity or 40 percent of the agency's surplus money which may be invested
pursuant to this section. No more than 30 percent of the agency's surplus funds,
however, may be invested in the banker's acceptances of any one commercial bank
pursuant to this section.
This subdivision does not preclude a municipal utility district from investing
any surplus money in its treasury in any manner authorized by the Municipal
Utility District Act, Division 6 (commencing with Section 11501) of the Public
Utilities Code.
(g) Commercial paper of "prime" quality of the highest ranking or of the highest
letter and numerical rating as provided for by Moody's Investors Service or
Standard and Poor's Corporation. Eligible paper is further limited to issuing
corporations that are organized and operating within the United States and
having total assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than commercial
paper, if any, as provided for by Moody's Investors Service or Standard and
Poor's Corporation. Purchases of eligible commercial paper may not exceed 180
days' maturity nor represent more than 10 percent of the outstanding paper of an
issuing corporation. Purchases of commercial paper may not exceed 15 percent of
the agency's surplus money which may be invested pursuant to this section. An
additional 15 percent, or a total of 30 percent of the agency's surplus money,
may be invested pursuant to this subdivision. The additional 15 percent may be
so invested only if the dollar-weighted average maturity of the entire amount
does not exceed 31 days. "Dollar-weighted average maturity" means the sum of the
amount of each outstanding commercial paper investment multiplied by the number
of days to maturity, divided by the total amount of outstanding commercial
paper.
(h) Negotiable certificates of deposit issued by a nationally or state-chartered
bank or a state or federal association (as defined by Section 5102 of the
Financial Code) or by a state-licensed branch of a foreign bank. Purchases of
negotiable certificates of deposit may not exceed 30 percent of the agency's
surplus money which may be invested pursuant to this section. For purposes of
this section, negotiable certificates of deposits do not come within Article 2
(commencing with Section 53630) of Chapter 4 of Part 1 of Division 2 of Title 5,
except that the amount so invested shall be subject to the limitations of
Section 53638.
(i) Investments in repurchase agreements or reverse repurchase agreements of any
securities authorized by this section, so long as the proceeds of the reverse
repurchase agreement are invested solely to supplement the income normally
received from these securities. Investment in a reverse repurchase agreement
shall be made only upon prior approval of the legislative body of the local
agency. For purposes of this section, the term "repurchase agreement" means a
purchase of securities by the local agency pursuant to an agreement by which the
seller will repurchase the securities on or before a specified date and for a
specified amount and will deliver the underlying securities to the local agency
by book entry, physical delivery, or by third-party custodial agreement. The
transfer of underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery. The term "counterparty" for the
purposes of this subdivision, means the other party to the transaction. A
counter-party bank's trust department or safekeeping department may be used for
physical delivery of the underlying security. The term of repurchase agreements
shall be for one year or less. The term "securities," for purpose of repurchase
under this subdivision, means securities of the same issuer, description, issue
date, and maturity.
The term "reverse repurchase agreement" means a sale of securities by the local
agency pursuant to an agreement by which the local agency will repurchase such
securities on or before a specified date and for a specified amount.
(j) Medium-term notes of a maximum of five years maturity issued by corporations
organized and operating within the United States or by depository institutions
licensed by the United States or any state and operating within the United
States. Notes eligible for investment under this subdivision shall be rated in a
rating category of "A" or its equivalent or better by a nationally recognized
rating services. Purchases of medium-term notes may not exceed 30 percent of the
agency's surplus money which may be invested pursuant to this section.
(k) Shares of beneficial interest issued by diversified management companies, as
defined in Section 23701m of the Revenue and Taxation Code, investing in the
securities and obligations as authorized by subdivisions (a) to (l), inclusive,
of this section and which comply with the investment restrictions of this
article and Article 2 (commencing with Section 53630). To be eligible for
investment pursuant to this subdivision, these companies shall either: (1)
attain the highest ranking or the highest letter and numerical rating provided
by not less than two of the three largest nationally recognized rating services,
or (2) have an investment advisor registered with the SEC with not less than
five years' experience investing in the securities and obligations as authorized
by subdivisions (a) to (m), inclusive, of this section and with assets under
management in excess of five hundred million dollars ($500,000,000). The
purchase price of shares of beneficial interest purchased pursuant to this
subdivision shall not include any commission that these companies may charge and
shall not exceed 15 percent of the agency's surplus money which may be invested
pursuant to this section.
(l) Notwithstanding anything to the contrary contained in this section, Section
53635 or any other provision of law, monies held by a trustee or fiscal agent
and pledged to the payment or security of bonds or other indebtedness, or
obligations under a lease, installment sale, or other agreement of a local
agency, or certificates of participation in those bonds, indebtedness, or lease
installment sale, or other agreements, may be invested in accordance with the
statutory provisions governing the issuance of those bonds, indebtedness, or
lease installment sale, or other agreement, or to the extent not inconsistent
therewith or if there are no specific statutory provisions, in accordance with
the ordinance, resolution, indenture, or agreement of the local agency providing
for the issuance.
(m) Notes, bonds, or other obligations which are at all times secured by a valid
first priority security interest in securities of the types listed by Section
53651 as eligible securities for the purpose of securing local agency deposits
having a market value at least equal to that required by Section 53652 for the
purpose of securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust company or
the trust department of a bank which is not affiliated with the issuer of the
secured obligations, and the security interest shall be perfected in accordance
with the requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest is granted.
(n) Any mortgage pass-through security, collateralized mortgage obligation,
mortgage-backed or other pay-through bond, equipment lease-backed certificate,
consumer receivable pass-through certificate, or consumer receivable-backed bond
of a maximum of five years maturity. Securities eligible for investment under
this subdivision shall be issued by an issuer having an "A" or higher rating for
the issuer's debt as provided by a nationally recognized rating service and
rated in a rating category of "AA" or its equivalent or better by a nationally
recognized rating service. Purchase of securities authorized by this subdivision
may not exceed 20 percent of the agency's surplus money that may be invested
pursuant to this section.
California Government Code Section 53635. Funds of local agency; deposit or
investment. Text of section effective July 7, 1988, amended in 1992. As far as
possible, all money belonging to, or in the custody of, a local agency,
including money paid to the treasurer or other official to pay the principal,
interest, or penalties of bonds, shall be deposited for safekeeping in state or
national banks, savings associations or federal associations, credit unions, or
federally insured industrial loan companies in this state selected by the
treasurer or other official having the legal custody of the money; or, unless
otherwise directed by the legislative body pursuant to Section 53601, may be
invested in the following:
(a) Bonds issued by the local agency, including bonds payable solely out of the
revenues from a revenue-producing property owned, controlled, or operated by the
local agency or by a department, board, agency, or authority of the local
agency.
(b) United States Treasury notes, bonds, bills, or certificates of
indebtedness, or those for which the faith and credit of the United States are
pledged for the payment of principal and interest.
(c) Registered state warrants or Treasury notes or bonds of this state,
including bonds payable solely out of the revenues from a revenue-producing
property owned, controlled, or operated by the state or by a department, board,
agency, or authority of the state.
(d) Bonds, notes, warrants, or other evidences of indebtedness of any local
agency within this state, including bonds payable solely out of the revenues
from a revenue-producing property owned, controlled, or operated by the local
agency, or by a department, board, agency, or authority of the local agency.
(e) Obligations issued by banks for cooperatives, federal land banks, federal
intermediate credit banks, federal home loan banks, the federal home loan bank,
the Tennessee Valley Authority, or in obligations, participations, or other
instruments of, or issued by, or fully guaranteed as to principal and interest
by, the Federal National Mortgage Association; or in guaranteed portions of
Small Business Administration notes; or in obligations, participations, or other
instruments of, or issued by, a federal agency or a United States
government-sponsored enterprise.
(f) Bills of exchange or time drafts drawn on and accepted by a commercial bank,
otherwise known as banker's acceptances, which are eligible for purchase by the
Federal Reserve System. Purchases of banker's acceptances may not exceed 270
days maturity or 40 percent of the agency's surplus funds which may be invested
pursuant to this section. No more than 30 percent of the agency's surplus funds,
however, may be invested in the banker's acceptances of any one commercial bank
pursuant to this section.
This subdivision does not preclude a municipal utility district from investing
any surplus money in its treasury in any manner authorized by the Municipal
Utility District Act, Division 6 (commencing with Section 11501) of the Public
Utilities Code.
(g) Commercial paper of "prime" quality of the highest ranking or of the highest
letter and numerical rating as provided for by Moody's Investors Service or
Standard and Poor's Corporation. Eligible paper is further limited to issuing
corporations that are organized and operating within the United States and
having total assets in excess of five hundred million dollars ($500,000,000) and
having an "A" or higher rating for the issuer's debt, other than commercial
paper, if any, as provided for by Moody's Investors Service or Standard and
Poor's Corporation. Purchases of eligible commercial paper may not exceed 180
days maturity nor represent more than 10 percent of the outstanding paper of an
issuing corporation. Purchases of commercial paper may not exceed 15 percent of
the agency's surplus money which may be invested pursuant to this section. An
additional 15 percent, or a total of 30 percent of the agency's money or money
in its custody, may be invested pursuant to this subdivision. The additional 15
percent may be so invested only if the dollar-weighted average maturity of the
entire amount does not exceed 31 days. "Dollar-weighted average maturity" means
the sum of the amount of each outstanding commercial paper investment multiplied
by the number of days to maturity, divided by the total amount of outstanding
commercial paper.
(h) Negotiable certificates of deposit issued by a nationally or state-chartered
bank or a savings association or federal association or a state or federal
credit union or by a state-licensed branch of a foreign bank. Purchases of
negotiable certificates of deposit may not exceed 30 percent of the agency's
surplus money which may be invested pursuant to this section. For purposes of
this section, negotiable certificates of deposit do not come within Article 2
(commencing with Section 53630) of Chapter 4 of Part 1 of Division 2 of Title 5,
except that the amount so invested shall be subject to the limitations of
Section 53638. For purposes of this section, the legislative body of a local
agency and the treasurer or other official of the local agency having legal
custody of the money are prohibited from depositing or investing local agency
funds, or funds in the custody of the local agency, in negotiable certificates
of deposit issued by a state or federal credit union if a member of the
legislative body of the local agency, or an employee of the administrative
officer, manager's office, budget office, auditor-controller's office, or
treasurer's office of the local agency also serves on the board of directors, or
any committee appointed by the board of directors, or the credit committee or
supervisory committee of the state or federal credit union issuing the
negotiable certificates of deposit.
(i) Investments in repurchase agreements or reverse repurchase agreements of any
securities authorized by this section, so long as the proceeds of the reverse
repurchase agreement are invested solely to supplement the income normally
received from these securities. Investment in a reverse repurchase agreement
shall be made only upon prior approval of the legislative body of the local
agency. For purposes of this section, the term "repurchase agreement" means a
purchase of securities by the local agency pursuant to an agreement by which the
seller will repurchase the securities on or before a specified date and for a
specified amount and will deliver the underlying securities to the local agency
by book entry, physical delivery, or by third-party custodial agreement. The
transfer of underlying securities to the counterparty bank's customer book-entry
account may be used for book-entry delivery. The term "counterparty" for the
purposes of this subdivision, means the other party to the transaction. A
counter-party bank's trust department or safekeeping department may be used for
physical delivery of the underlying security. The term of repurchase agreements
shall be for one year or less. The term "securities," for purpose of repurchase
under this subdivision, shall mean securities of the same issuer, description,
issue date, and maturity. The term "reverse repurchase agreement" means a sale
of securities by the local agency pursuant to an agreement by which the local
agency will repurchase such securities on or before a specified date and for a
specified amount.
(j) Medium-term notes of a maximum of five years maturity issued by corporations
organized and operating within the United States or by depository institutions
licensed by the United States or any state and operating within the United
States. Notes eligible for investment under this subdivision shall be rated in a
rating category of "A" or its equivalent or better by a nationally recognized
rating service. Purchases of medium-term notes may not exceed 30 percent of the
agency's surplus money which may be invested pursuant to this section.
(k) Shares of beneficial interest issued by diversified management companies, as
defined in Section 23701m of the Revenue and Taxation Code, investing in the
securities and obligations as authorized by subdivisions (a) to (k), inclusive,
of this section and which comply with the investment restrictions of this
article and Article 1 (commencing with Section 53600). To be eligible for
investment pursuant to this subdivision, these companies shall either: (1)
attain the highest ranking or the highest letter and numerical rating provided
by not less than two of the three largest nationally recognized rating services,
or (2) have an investment advisor registered with the SEC with not less than
five years' experience investing in the securities and obligations as authorized
by subdivisions (a) to (m), inclusive, of this section and with assets under
management in excess of five hundred million dollars ($500,000,000). The
purchase price of shares of beneficial interest purchased pursuant to this
subdivision shall not include any commission that these companies may charge and
shall not exceed 15 percent of the agency's surplus money which may be invested
pursuant to this section.
(l) Notes, bonds, or other obligations which are at all times secured by a valid
first priority security interest in securities of the types listed by Section
53651 as eligible securities for the purpose of securing local agency deposits
having a market value at least equal to that required by Section 53652 for the
purpose of securing local agency deposits. The securities serving as collateral
shall be placed by delivery or book entry into the custody of a trust company or
the trust department of a bank which is not affiliated with the issuer of the
secured obligations, and the security interest shall be perfected in accordance
with the requirements of the Uniform Commercial Code or federal regulations
applicable to the types of securities in which the security interest is granted.
(m) Any mortgage pass-through security, collateralized mortgage obligation,
mortgage-backed or other pay-through bond, equipment lease-backed certificate,
consumer receivable pass-through certificate, or consumer receivable-backed bond
of a maximum of five years maturity. Securities eligible for investment under
this subdivision shall be issued by an issuer having an "A" or higher rating for
the issuer's debt as provided by a nationally recognized rating service and
rated in a rating category of "AA" or its equivalent or better by a nationally
recognized rating service. Purchase of securities authorized by this subdivision
may not exceed 20 percent of the agency's surplus money that may be invested
pursuant to this section.
Appendix B
A-1, A-2 and Prime-1, Prime-2
Commercial Paper Ratings
Commercial paper rated by Standard & Poor's Corporation ("S&P") has the
following characteristics: Liquidity ratios are adequate to meet cash
requirements. Long-term senior debt is rated "A" or better. The issuer has
access to at least two additional channels of borrowing. Basic earnings and cash
flow have an upward trend with allowance made for unusual circumstances.
Typically, the issuer's industry is well established and the issuer has a strong
position within the industry. The reliability and quality of management are
unquestioned. Relative strength or weakness of the above factors determines
whether the issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investor Services, Inc. ("Moody's"). Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations, and preparations to meet
such obligations, which may be present or may arise as a result of public
interest questions. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1 or Prime-2.
Description of Moody's corporate
and municipal bond ratings
Aaa - Bonds which are 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 by an 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 - Bonds which are rated Aa are judged to be of 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 as in Aaa securities or 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 than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as 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 - Bonds which are 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.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Description of S&P corporate
and municipal bond ratings
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
they differ from AAA issues only in small degree.
A - 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.
Municipal Notes
Moody's
Moody's ratings for state and 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, while various 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.
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 usually will 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.
INSTITUTIONAL
FIDUCIARY TRUST
Franklin Late Day Money Market Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin U.S. Government Agency Money Market Fund
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777 NOVEMBER 1, 1995
San Mateo, CA 94403-7777 1-800/321-8563
Contents Page
Investment Objectives and Policies 2
Investment Restrictions........... 2
Trustees and Officers............. 4
Investment Management
and Other Services............... 8
The Funds' Policies Regarding Brokers
Used on Portfolio Transactions... 9
Distribution Plans................ 10
Determination of Net Asset Value.. 11
Additional Information Regarding
Purchases and Redemptions of
Fund Shares...................... 12
Additional Information
Regarding Taxation................ 13
The Trust's Underwriter........... 14
Performance....................... 14
Miscellaneous Information......... 16
Financial Statements.............. 17
Institutional Fiduciary Trust (the "Trust") is an open-end management investment
company consisting of eight separate and distinct series. This Statement of
Additional Information ("SAI") relates only to Franklin Late Day Money Market
Portfolio (the "Late Day Fund") (formerly Franklin Government Investors Money
Market Portfolio), Franklin U.S. Treasury Money Market Portfolio (the "U.S.
Treasury Fund") and the Franklin U.S. Government Agency Money Market Fund (the
"Government Agency Fund") (also referred to collectively as the "Fund" or
"Funds"), three open-end, diversified series of the Trust.
Prospectuses for the Funds, dated November 1, 1995, as may be amended from time
to time, provide the basic information an investor should know before investing
in a Fund and may be obtained without charge from each Fund or from the Funds'
principal underwriter, Franklin/Templeton Distributors, Inc. ("Distributors"),
at the address listed above.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN EACH PROSPECTUS. THIS STATEMENT OF ADDITIONAL
INFORMATION IS INTENDED TO PROVIDE A PROSPECTIVE INVESTOR WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE TRUST AND EACH FUND
AND SHOULD BE READ IN CONJUNCTION WITH THE RESPECTIVE PROSPECTUS.
Investment Objectives and Policies
Institutional Fiduciary Trust issues its shares of beneficial interest in eight
different and distinct series. As noted in each Prospectus, each Fund has its
own investment objectives and policies which an investor should consider prior
to investing.
Franklin U.S. Treasury
Money Market Portfolio
As noted in the Prospectus, this Fund invests only in short-term U.S. Treasury
securities. This Fund does not invest in repurchase agreements, securities
issued by agencies or instrumentalities of the federal government or any other
type of money market instrument.
Franklin Late Day
Money Market Portfolio
As stated in the Prospectus, the Fund invests in U.S. Treasury securities and
repurchase agreements secured by U.S. government securities. Such repurchase
agreements will be made only with government securities dealers recognized by
the Federal Reserve Board or with member banks of the Federal Reserve System.
This is an agreement in which the seller of a security agrees to repurchase the
security sold at a mutually agreed upon time and price. It may also be viewed as
the loan of money by the Fund to the seller. The resale price is normally in
excess of the purchase price, reflecting an agreed upon interest rate. The
interest rate is effective for the period of time in which the Fund is invested
in the agreement and is not related to the coupon rate on the underlying
security. The period of these repurchase agreements will usually be short, from
overnight to one week, and at no time will the Fund invest in repurchase
agreements with a duration of more than one year. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
one year from the effective date of the repurchase agreements. The transaction
requires the initial collateralization of the seller's obligation by the
transfer of securities with a market value, including accrued interest, equal to
at least 102% of the dollar amount invested by the Fund, with the value marked
to market daily to maintain 100% coverage. A default by the seller may cause the
Fund to experience a loss or delay in the liquidation of the collateral securing
the repurchase agreement. The Fund may also incur disposition costs in
liquidating the collateral. The Fund will make payment for such securities only
upon physical delivery or evidence of book entry transfer to the account of its
custodian bank. The Fund may not enter into a repurchase agreement with more
than seven days duration if, as a result, more than 10% of the market value of
the Fund's total assets would be invested in such repurchase agreements.
Franklin U.S. Government Agency
Money Market Fund
To achieve its goal, the Fund invests only in securities issued by the U.S.
government, its agencies or instrumentalities. At least 65% of the Fund's net
assets will be invested in notes, bonds, discount notes and other short-term
securities which mature in thirteen months or less of U.S. government agencies
or instrumentalities, such as the Federal Farm Credit System, Federal Home Loan
Banks, Student Loan Marketing Association, and Tennessee Valley Authority. The
Fund may also invest directly in U.S. Treasury bills, notes and bonds. Some of
the short-term U.S. government securities the Government Agency Fund may
purchase carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S. Treasury
bill rate. Variable interest rates generally reduce changes in the market of
such securities from their original purchase prices. Accordingly, the potential
for capital appreciation or capital depreciation should not be greater than the
potential for capital appreciation or capital depreciation of fixed interest
rate U.S. government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities. The Government
Agency Fund may purchase variable rate U.S. government securities upon the
determination by the Board of Trustees that the interest rate as adjusted will
cause the instrument to have a current market value that approximates its par
value on the adjustment date.
Credit Union Investment Regulations
This section summarizes the Funds' investment policies, under which, in the
opinion of the Institutional Fiduciary Trust (the "Trust") and based on the
Trust's understanding of laws and regulations governing investments by federal
credit unions on September 30, 1994, the Funds would be a permissible investment
for federal credit unions. CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR
OWN LEGAL ADVISERS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE
FUNDS CONSTITUTE LEGAL INVESTMENTS FOR THEM.
All investments of the Funds will be subject to the following limitations:
(a) Each Fund may invest only in (1) obligations of, or securities guaranteed as
to principal and interest by, the U.S. Government or its agencies and
instrumentalities, including repurchase agreements involving such obligations
and securities, and (2) time and savings deposits in financial institutions
whose accounts are insured by the FDIC.
(b) All purchases and sales of securities will be settled on a cash basis within
30 days of the trade date. However, each Fund may agree to settle a purchase or
sale transaction on a specific date up to 120 days after the trade date if, on
the trade date, the Fund has cash flow projections evidencing its ability to
complete the purchase or the Fund owns the security it has agreed to sell.
(c) Any repurchase agreements, in which a Fund purchased U.S. government
securities subject to resale to a bank or dealer at an agreed-upon price and
date, will be subject to these conditions: the value of the U.S. government
securities will equal or exceed the initial price of the repurchase agreement,
plus interest; and a custodian of the Fund will hold the U.S. government
securities in an account for the benefit of the Fund .
(d) In the event that a Fund were to engage in reverse repurchase transactions,
the Fund would, in addition to abiding by its fundamental policies and SEC
regulations with respect to borrowing, engage in reverse repurchase transactions
involving only securities with maturity dates earlier than the closing date of
the reverse repurchase agreement.
(e) None of the Funds will engage in (1) futures or options transactions; (2)
short sales; or (3) purchases of zero-coupon bonds which mature more than ten
years after the purchase date.
(f) None of the Funds will not invest in mortgage related securities.
Investment Restrictions
The Trust has adopted the following restrictions as additional fundamental
policies of each Fund, which means that they may not be changed without the
approval of a majority of the outstanding voting securities of that Fund. Under
the Investment Company Act of 1940, as amended ("1940 Act"), a "vote of a
majority of the outstanding voting securities" of the Fund means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund,
or (2) 67% or more of the shares of the Fund present at a shareholders' meeting
if more than 50% of the outstanding shares of the Fund are represented at the
meeting in person or by proxy. A 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 Fund, (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 of the
Fund. (It is the policy of the U.S. Treasury Fund and the Government Agency Fund
not to enter into repurchase agreements.)
(3) 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 Government Agency Fund may be invested in another
registered investment company having the same investment objectives and policies
as the Government Agency Fund.
(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) Purchase securities, in private placements or in other transactions, for
which there are legal or contractual restrictions on resale, 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 such Fund
would be invested in such securities or repurchase agreements except that, to
the extent this restriction is applicable, the Government Agency Fund may
purchase, in private placements, shares of another registered investment company
having the same investment objectives and policies as the Government Agency
Fund. (As noted under #2 above, the U.S. Treasury Fund and the Government Agency
Fund do not enter into repurchase agreements.)
(6) Purchase 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 Government Agency Fund may be invested
in another registered investment company having the same investment objectives
and policies as the Government Agency Fund.
(7) Invest more than 25% of its assets in securities of any industry, except
that this policy is inapplicable to the extent all or substantially all of the
assets of the Government Agency Fund may be invested in another registered
investment company having the same investment objectives and policies as the
Government Agency Fund. 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 policies of a Fund as described in its Prospectus specify
otherwise.
(8) Act as underwriter of securities issued by other persons except insofar as
the Trust 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 Government Agency Fund may be invested
in another registered investment company having the same investment objectives
and policies as the Government Agency Fund.
(9) Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
(10) 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.
(11) 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" in accordance with its stated
investment policies.
(12) The Government Agency Fund will 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.
Although currently the Late Day Fund invests only in U.S. Treasury securities
and repurchase agreements secured by such securities, the Fund has a fundamental
policy which permits it to purchase other securities, subject to the following
limitations: The Late Day Fund 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 Fund's total
assets would be invested in securities of any one issuer with respect to 75% of
the Fund's total assets (pursuant to an operational policy which complies with
current requirements under Rule 2a-7 of the 1940 Act, the Fund is limited to
investing not more than 5% in the securities of any one issuer with respect to
100% of the Fund's total assets), or more than 10% of the outstanding voting
securities of any one issuer would be owned by the Fund. In addition, the Fund
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 Fund may, however (although not currently doing so), invest more
than 25% but no more than 30% 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 secured
by such 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
Internal Revenue Code.
In addition to these fundamental policies, it is the present policy of the Funds
(which may be changed without the approval of shareholders) not to invest in
real estate limited partnerships (investments in marketable securities issued by
real estate investment trusts are not subject to this restriction) or in
interests (other than publicly traded equity securities) in oil, gas, or other
mineral leases, exploration or development.
Trustees and Officers
The Board of Trustees has the responsibility for the overall management of the
Trust, including general supervision and review of the Funds' investment
activities. The trustees, in turn, elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Trust as defined in the 1940 Act are indicated by an asterisk
(*).
Frank H. Abbott, III (74) Trustee
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 (63) Trustee
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 56 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63) Trustee
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 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80) Trustee
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 (62) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
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 57 of the investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (39) President
777 Mariners Island Blvd. and Trustee
San Mateo CA 94404
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 24 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
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 43 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66) Trustee
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, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 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 (50) 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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) Vice President -
777 Mariners Island Blvd. Financial
San Mateo, CA 94404 Reporting 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 (35) 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 of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56) Treasurer
777 Mariners Island Blvd. and 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.
Thomas J. Runkel (37) 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.
Trustees not affiliated with the investment manager ("nonaffiliated trustees")
are currently paid fees of $200 per month plus $200 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
Total Fees Number of Boards in
Total Fees Received from the the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from Trust* Group of Funds** Which Each Serves***
<S> <C> <C> <C>
Frank H. Abbott, III................... $4,800 $176,870 31
Harris J. Ashton....................... 4,800 318,125 55
S. Joseph Fortunato.................... 4,800 334,265 57
David Garbellano....................... 4,800 153,300 30
Frank W.T. LaHaye...................... 4,600 150,817 26
Gordon S. Macklin...................... 4,800 301,885 52
</TABLE>
* For the fiscal year ended June 30, 1995.
** For the calendar year ended December 31, 1994.
*** The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of more than 162 U.S.
based mutual funds or series.
Nonaffiliated trustees 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 trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries. For additional
information concerning director compensation and expenses, please see the
Trust's Annual Report to Shareholders.
As of August 3, 1995, none of the trustees or officers owned any of the shares
of the Funds. Many of the Trust's trustees own shares in various of the other
funds in the Franklin Templeton Group of Funds. Charles E. Johnson is the son
and nephew of Charles B. Johnson and Rupert H. Johnson, Jr., respectively, who
are brothers.
Investment Management and
Other Services
Management Agreement
The investment manager of the Late Day Fund, U.S. Treasury Fund and the
Government Agency Fund is Franklin Advisers, Inc. ("Advisers" or the "Manager").
Advisers is a wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"),
a publicly owned holding company whose shares are listed on the New York Stock
Exchange ("Exchange"). Resources owns several other subsidiaries which are
involved in investment management and shareholder services. The Manager and
other subsidiary companies of Resources currently manage over $125 billion in
assets for over 3.8 million shareholders.
Pursuant to the separate management agreements with Advisers (hereafter
individually and collectively the "Management Agreement" or the "Management
Agreements"), the Manager provides investment research and portfolio management
services, including the selection of securities for each Fund to purchase, hold
or sell and the selection of brokers through whom the Funds' portfolio
transactions are executed. The Manager's activities are subject to the review
and supervision of the Trust's Board of Trustees to whom the Manager renders
periodic reports of each Fund's investment activities. Under the terms of the
management agreements, the Manager provides office space and office furnishings,
facilities and equipment required for managing the business affairs of the
Funds; maintains all internal bookkeeping, clerical, secretarial and
administrative personnel and services; and provides certain telephone and other
mechanical services. The Manager is covered by fidelity insurance on its
officers, directors and employees for the protection of each Fund.
Pursuant to the Management Agreement for the Late Day Fund, the Fund is
obligated to pay a daily fee (payable at the request of Advisers) computed at
the rate of 1/584 of 1% (approximately 5/8 of 1% per year) of the net assets of
the Fund at the close of business each business day on net assets up to and
including $100 million; 1/730 of 1% (approximately 1/2 of 1% per year) of such
assets over $100 million up to and including $250 million, and 1/811 of 1%
(approximately 9/20 of 1% per year) of such assets over $250 million. The U.S.
Treasury Fund is obligated to pay a daily fee (payable at the request of
Advisers) computed at the rate of 1/4 of 1% per year of the average daily net
assets of the Fund at the close of business each business day. The Government
Agency Fund is obligated to pay a monthly fee equal to an annual rate of 15/100
of 1% of the Fund's average daily net assets.
The management agreements specify that the management fee will be reduced to the
extent necessary to comply with the most stringent limits on the expenses which
may be borne by a Fund as prescribed by any state in which the Fund's shares are
offered for sale. The most stringent current state restriction limits a fund's
allowable aggregate operating expenses (excluding interest, taxes, brokerage
commissions, distribution plan expenses up to 1% of the Fund's average net
assets during its fiscal year and extraordinary expenses such as litigation
costs) in any fiscal year to 2.5% of the first $30 million of average net assets
of the fund, 2% of the next $70 million of average net assets of the fund and
1.5% of average net assets of the fund in excess of $100 million. Expense
reductions have not been necessary based on state requirements.
Advisers has agreed in advance to limit its management fees and make certain
payments to reduce expenses. This arrangement may be terminated by the Manager
at any time upon notice to the Trust's Board of Trustees. The table below shows
the management fees, before any advance waiver, and the amounts actually paid by
each Fund, for the fiscal years ended June 30, 1993, 1994 and 1995, respectively
(if applicable).
Fiscal Year Ended June 30
1993 1994 1995
------------------------------------------------
Accrued Paid Accrued Paid Accrued Paid
-------- ------ -------- ---- -------- --------
Late Day Fund................. $214,042 $1,958 $142,990 $0 $205,231 $ 8,108
U.S. Treasury Fund............ $522,903 $ 0 $602,746 $0 $554,196 $127,141
Government Agency............. n/a n/a $ 2,973 $0 $ 21,314 $ 0
The Management Agreements for each Fund are in effect until February 29, 1996,
and will continue thereafter so long as such continuance is specifically
approved at least annually by a vote of a majority of each Fund's outstanding
shares or by the Trust's Board of Trustees, and by a vote of a majority of the
Trust's trustees who are not parties to such Management Agreements or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such approval. The Management Agreements may be terminated at any
time, without penalty, on 30 days' written notice with respect to the Late Day
Fund and the U.S. Treasury Fund and on 60 days' written notice with respect to
the Government Agency Fund, by the Board of Trustees of the Trust, by the
holders of a majority of the relevant Fund's shares, or by the Manager. The
Management Agreements will automatically terminate in the event of their
assignment as defined in the 1940 Act.
Other Services
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a wholly-owned
subsidiary of Resources, is the shareholder servicing agent for the Funds and
acts as the Funds' transfer agent and dividend-paying agent. Investor Services
is compensated on the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Funds. Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New
York 10260, also acts as custodian of the securities and other assets of the
Late Day and the U.S. Treasury Funds. 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.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Trust's independent auditors. During the fiscal year ended June 30,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report dated June 30,
1995.
The Funds' Policies Regarding Brokers Used on Portfolio Transactions
The Manager makes the investment decisions and arranges for the placement of buy
and sell orders and the execution of portfolio transactions for each Fund.
Depending on the Manager's view of market conditions, each Fund may or may not
purchase securities with the expectation of holding them to maturity, although
their general policy is to hold securities to maturity. Each Fund may, however,
sell securities prior to maturity to meet redemptions or as a result of a
revised management evaluation of the issuer.
In executing portfolio transactions, the Manager seeks the most favorable prices
consistent with the best execution of the orders. So long as the Manager
believes it is obtaining the best execution, it will give consideration in
placing portfolio transactions with broker-dealers furnishing research,
statistical or factual information or wire or other services to the Fund or the
Manager, including appraisals or valuations of portfolio securities of each
Fund. While the information and services provided by broker-dealers are useful
in varying degrees and would generally reduce the amount of research or services
otherwise performed by the Manager and thus reduce its expenses, they are of
indeterminable value and will not reduce the management fees payable to the
Manager by each Fund.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Fund will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the ask price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other services as
mentioned above. No broker or dealer affiliated with the Trust or with the
Manager may purchase securities from, or sell securities to, the Funds.
Because Distributors is a member of the National Association of Securities
Dealers, Inc. it is sometimes entitled to obtain certain fees when a Fund
tenders portfolio securities pursuant to a tender-offer solicitation. As a means
of recapturing brokerage for the benefit of a Fund, any portfolio securities
tendered by a Fund will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers under
the management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities for a Fund and one or more other investment
companies or clients supervised by the Manager are considered at or about the
same time, transactions in such securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by the
Manager, taking into account the respective sizes of the funds and the amount of
securities to be purchased or sold. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Funds are concerned. In other cases, however, it is
possible that the ability to participate in volume transactions and to negotiate
lower brokerage commissions will be beneficial to the Funds.
For the past three fiscal years ended June 30, 1995 (as applicable), the Funds
paid no brokerage commissions. The Funds have not acquired the securities of any
broker/dealer during the last fiscal year.
Distribution Plans
As noted in the Prospectus, the Trust has adopted distribution plans (the
"Plans") pursuant to Rule 12b-1 under the 1940 Act whereby the Late Day and U.S.
Treasury Funds may pay up to a maximum of 0.15% per annum and the Government
Agency Fund may pay up to a maximum of 0.30% per annum of each Fund's average
daily net assets for expenses incurred in the promotion and distribution of a
Fund's shares.
Pursuant to these Plans, Distributors or others will be entitled to be
reimbursed each quarter (up to the maximum as stated above) for actual expenses
incurred in the distribution and promotion of a Fund's shares, including but not
limited to, the printing of prospectuses and reports used for sales purposes,
expenses of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, the Manager or
Distributors or other parties on behalf of the Fund, the Manager or Distributors
make payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of the Fund within the
context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to
have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges which include payments
made under the Plan, plus any other payments deemed to be made pursuant to the
Plan, exceed the amount permitted to be paid pursuant to the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., Article III,
Section 26(d)4.
The terms and provisions of the Plans relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plans do not permit unreimbursed
expenses incurred in a particular year to be carried over to, or reimbursed in,
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plans as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plans for administrative servicing or for agency transactions. If a bank
were prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of such Fund, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Funds' shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Funds may be required to register
as dealers pursuant to state law.
The Plans have been approved in accordance with the provisions of Rule 12b-1.
The Plans must be renewed annually by a vote of the Trust's Board of Trustees,
including a majority vote of the trustees who are non-interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plans, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. The Plans and any related agreement may be terminated
at any time, without any penalty, by vote of a majority of the non-interested
trustees on not more than 60 days' written notice, by Distributors on not more
than 60 days' written notice, by any act that constitutes assignment of the
Management Agreement with the Manager or the Underwriting Agreement with
Distributors, or by vote of a majority of such Fund's outstanding shares.
Distributors or any dealer or other firm may also terminate their respective
distribution or service agreement at any time upon written notice.
The Plans and any related agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
of the Trust's outstanding shares, and all material amendments to the Plans or
any related agreements shall be approved by a vote of the non-interested
trustees, cast in person at a meeting called for the purpose of voting on any
such amendment. Distributors is required to report in writing to the Board of
Trustees, at least quarterly, on the amounts and purpose of any payment made
under the Plans and any related agreements, as well as to furnish the Board of
Trustees with such other information as may reasonably be requested in order to
enable the Board of Trustees to make an informed determination of whether the
Plans should be continued.
No payments have been made by the Late Day Fund and the U.S. Treasury Fund
pursuant to the Plans since inception. The Government Agency Fund made payments
of $20,717 during the fiscal year ended June 30, 1995, all of which was paid to
dealers.
Determination of Net Asset Value
As noted in the Prospectus, the net asset value per share for purposes of both
purchase and redemption of shares is determined by the Funds on each day that
the Exchange is open for business. Valuation is currently made for the Late Day
Fund as of 3:00 p.m. Pacific time and for the U.S. Treasury Fund and the
Government Agency Fund as of 12:30 p.m. Pacific time. As of the date of this
SAI, the Trust 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. Net asset value per share of each
Fund is calculated by adding the value of all securities and other assets in
each Fund's portfolio, deducting its liabilities, and dividing by the number of
shares outstanding.
The valuation of each Fund's portfolio securities (including any securities held
in a separate account maintained for when-issued securities) is based upon their
amortized cost which does not take into account unrealized capital gains or
losses. This 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 a Fund would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of the Funds computed as
described above may tend to be higher than a like computation made by a fund
with identical investments 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 a Fund resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Fund would be
able to obtain a somewhat higher yield than would result from investment in a
fund utilizing solely market values, and existing investors in the Funds would
receive less investment income. The converse would apply in a period of rising
interest rates.
Each Fund's use of amortized cost which facilitates the maintenance of the
Funds' per share net asset value of $1.00 is permitted by Rule 2a-7 of the 1940
Act, pursuant to which the Funds must adhere to certain conditions.
The trustees have agreed to establish procedures designed to stabilize, to the
extent reasonably possible, each Fund's price per share as computed for the
purpose of sales and redemptions at $1.00. Such procedures will include review
of each Fund's portfolio holdings by the trustees, at such intervals as they may
deem appropriate, to determine whether each Fund'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 trustees. If
such deviation exceeds 1/2 of 1%, the trustees will promptly consider what
action, if any, will be initiated. In the event the trustees determine that a
deviation exists which may result in material dilution or other unfair results
to investors or existing shareholders, they will take such corrective action as
they regard as necessary and appropriate, which may include the sale of
portfolio instruments prior to maturity to realize capital gains or losses or to
shorten average portfolio maturity, withholding dividends, redemptions of shares
in kind, or establishing a net asset value per share by using available market
quotations.
Additional Information
Regarding Purchases
and Redemptions of Fund Shares
Effectiveness of Purchase Orders
The purchase price for shares of each Fund is the net asset value of such shares
next determined after receipt and acceptance of a purchase order in proper form.
Many of the types of instruments in which the Funds invest must be paid for in
"federal funds" which are monies held by the Trust's custodian on deposit at the
Federal Reserve Bank of San Francisco and elsewhere. Therefore, the monies paid
by an investor for its shares in a Fund generally cannot be invested by such
Fund until they are converted into and are available to the Fund in federal
funds, which may take up to two days. In such cases, purchases by investors may
not be considered in proper form and effective until such conversion and
availability. In the event the Fund is able to make investments immediately
(within one business day), it may accept a purchase order with payment other
than in federal funds; in such event shares of the Fund will be purchased at the
net asset value next determined after receipt of the order and payments.
Payments transmitted by wire and received by the custodian and reported by the
custodian to a Fund prior to 3:00 p.m. Pacific time on any business day are
normally effective on the same day as received, provided the Fund is timely
notified as described in the Fund's Prospectus. Wire payments received or
reported by the custodian to the Funds after the time set forth above will be
effective on the next business day. Payments transmitted by check or other
negotiable bank draft will normally be effective within two business days for
checks drawn on a member bank of the Federal Reserve System, and longer for most
other checks.
Once shares of a Fund are purchased, they begin earning income immediately, and
income dividends will start being credited to the investor's account on the
effective date of purchase and continue through the business day prior to the
business day such shares are redeemed.
Shareholder Accounting
All purchases of shares of a Fund will be credited to the shareholder in full
and fractional shares of such Fund (rounded to the nearest 1/1000 of a share) in
an account maintained for the shareholder. To open an account in the name of a
corporation, a resolution of the corporation's Board of Directors will be
required.
The Trust reserves the right to reject any order for the purchase of shares of
the Funds and to waive minimum investment requirements. In addition, the
offering of shares of the Funds may be suspended at any time and resumed at any
time thereafter.
Shareholder Redemptions
Each Fund will attempt to make payment for all shares redeemed within one
business day, but in no event later than seven days after receipt by a Fund of
the redemption request in proper form. A Fund may suspend the right of
redemption or postpone the date of payment during any period when (a) trading on
the New York Stock Exchange (the "Exchange") is closed for periods other than
weekends and holidays or when trading on the Exchange is restricted as
determined by the Securities and Exchange Commission ("SEC"); (b) an emergency
exists as determined by the SEC making disposal of portfolio securities or
valuation of net assets of a Fund not reasonably practicable; or (c) for such
other periods as the SEC by order may permit for the protection of the
shareholders of a Fund. At various times, a Fund may be requested to redeem
shares for which it has not yet received proper payment. Accordingly, a Fund may
delay the sending of redemption proceeds until such time as it has assured
itself that proper payment has been collected for the purchase of such shares.
Redemptions in Kind
Each 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 net assets of
the applicable Fund at the beginning of such period. Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amounts, the Board of Trustees reserves the right
to make payments in whole or in part in securities or other assets of the Fund
from which the shareholder is redeeming, in case of an emergency, or if the
payment of such a redemption in cash would be detrimental to the existing
shareholders of such Fund. In such circumstances, the securities distributed
would be valued at the price used to compute that Fund's net assets. Should a
Fund do so, a shareholder may incur brokerage fees in converting the securities
to cash.
Redemptions by the Fund
Each Fund reserves the right to redeem, involuntarily, at the then-current net
asset value, shares held in an account for a shareholder in such Fund if the
aggregate net asset value for the shares held by any one shareholder falls below
$20,000 (or one-half the minimum required investment, whichever is less), but
only where the value of such account has been reduced by the shareholder's prior
voluntary redemption of shares. Prior to effecting any such involuntary
redemption, the Funds shall notify the shareholder and allow it 30 days to make
an additional investment in an amount which will increase the aggregate value of
its account in such Fund to at least the minimum initial investment.
Additional Information Regarding Taxation
As stated in the Prospectus, the Funds have elected to be treated as regulated
investment companies under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of a Fund as a regulated investment company if they determine such
course of action to be beneficial to the shareholders. In such case, such Fund
will be subject to federal and possibly state corporate taxes on its taxable
income and gains, and distributions to shareholders will be taxable as ordinary
income to the extent of its 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 a 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 October, November or 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 a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared. Each 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.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by a 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, each Fund will provide shareholders with the percentage of any
dividends paid which may qualify for such tax-free treatment. Shareholders
should then consult with their own tax advisors with respect to the application
of their state and local laws to these distributions.
Distributions derived 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 the shareholder has owned Fund shares and regardless of whether
such distributions are received in cash or in additional shares.
Redemptions and exchanges of Fund shares are taxable events on which a
shareholder may realize a gain or loss. Any loss incurred on the sale or
exchange of Fund 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 such shares.
The Funds' portfolios are composed of short-term securities and, under normal
circumstances, a Fund does not expect to realize any long-term capital gain. Any
capital gains which are realized by the Fund (adjusted for any daily amounts of
unrealized appreciation or depreciation and taking into account any capital loss
carryovers) may generally be distributed once each year and may be distributed
more frequently if necessary in order to avoid federal excise taxes. Any
distributions of capital gain will also be reinvested in the form of additional
Fund shares at net asset value, unless the shareholder has previously notified
the Funds to have them paid in cash.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.
The Trust's Underwriter
Pursuant to an underwriting agreement in effect until February 29, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Funds.
Distributors pays the expenses of distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each 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.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Trust's Board of Trustees, or by a vote of the holders of a majority
of the Trust's outstanding voting securities, and in either event by a majority
vote of the Trust's trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
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.
Performance
As noted in the Prospectus, each Fund may from time to time quote performance
figures to illustrate its past performance.
Current Yield
Current yield reflects the interest income per share earned by the Funds'
portfolio investments.
Current yield is computed 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, and then annualizing the result by multiplying the base period
return by (365/7).
The yield for each Fund for the 7-day period ended on June 30, 1995, was as
follows:
7 Days Ended
June 30, 1995
Late Day Fund................ 5.71%
U.S. Treasury Fund........... 5.54%
Government Agency Fund....... 5.66%
Effective Yield
Effective yield is computed in the same manner except that the annualization of
the return for the seven-day period reflects the results of compounding by
adding one to the base period return, raising the sum to a power equal to 365
divided by seven, and subtracting one from the result.
Effective yield for each Fund for the seven-day period ended June 30, 1995, was
as follows:
7 Days Ended
June 30, 1995
Late Day Fund................ 5.87%
U.S. Treasury Fund........... 5.69%
Government Agency Fund....... 5.82%
These figures were obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-1
Comparisons
To help investors better evaluate how an investment in one of the Funds might
satisfy their investment objective, advertisements and other materials regarding
the Funds may discuss various measures of Fund performance, including current
performance ratings and/or rankings appearing in financial magazines,
newspapers, and publications which track mutual fund performance. Materials may
also compare performance (as calculated above) to performance as reported by
other investments, indices, and averages. Such comparisons may include, but are
not limited to, the following examples:
a) 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.
b) Bank Rate Monitor - A weekly publication which reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Bond Buyer - A daily publication which reports various articles as well as
indexes.
d) Salomon Brothers Bond Market Roundup - A weekly publication which 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) IBC/Donoghue's Money Fund Report(R) - industry averages for seven-day
annualized and compounded yields of taxable, tax-free, and government money
funds.
f) 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.
From time to time, advertisements or information for the Funds may include a
discussion of certain attributes or benefits to be derived by an investment in a
Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare a Fund's performance to the
return on certificates of deposit or other investments. Investors should be
aware, however, that an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit 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 which 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. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in a Fund
is not insured by any federal, state or private entity.
In assessing such comparisons of performance an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to a Fund's portfolio, that the indices and averages are generally
unmanaged, and that the items included in the calculations of such averages may
not be identical to the formula used by a Fund to calculate its figures. In
addition there can be no assurance that a Fund will continue this performance as
compared to such other averages.
From time to time, advertisements may depict various ways in which investors may
utilize a Fund to achieve their investment goals and various developments
affecting a Fund, including historical developments in the securities markets.
The following list reflects some of the illustrations that may appear in future
advertisements:
College Costs - College cost estimates will be used to show how investment in
the Funds can help an investor save for a child's college education. Information
from the College Board may be cited.
Miscellaneous - The Funds may be used in shareholder newsletters as examples of
how investors can meet long-term investment goals. Advertisements may indicate
how Franklin Gift Certificates may be used to purchase shares of the Funds.
The Funds may be listed as members of the Franklin Group of Funds(R) in
shareholder newsletters.
The Funds may be used in shareholder newsletters as an example of the benefits
of diversification.
The Funds may be used to demonstrate the benefits offered by professional
management.
Advertisements may indicate that as an established presence in the municipal
securities industry, Franklin currently manages over $40 billion in municipal
bond assets. Franklin's municipal bond experience and knowledge of municipal
issuers allows us to offer investment vehicles and services tailored to the
needs of government investors.
Of course, an investment in any of the Funds cannot guarantee that the
shareholder's goals will be met.
In addition to advertisements regarding the above matters, from time to time
advertisements regarding the Funds or the Franklin Group of Funds may discuss
other matters, including the Dalbar Surveys, Inc. broker/dealer survey, which
ranked Franklin number one in service quality for five of the past seven years.
The Funds may include in their 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 advisers
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.
The Funds of the Trust are members of the Franklin Templeton Group, one of the
largest mutual fund organizations in the United States 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 47 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 $125
billion in assets under management for more than 3.8 million shareholder
accounts, in addition to foundations and endowments, employee benefit plans, and
individuals, and offers 115 U.S.-based mutual funds. The Fund may identify
itself by its NASDAQ or CUSIP number.
Miscellaneous Information
A Fund may deduct from a shareholder's account the costs of its efforts to
locate such shareholder if the shareholder's mail is returned as undeliverable
or the Fund is otherwise unable to locate the shareholder or verify the current
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
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; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also 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.
The organization expenses attributable to the U.S. Treasury Fund is being
amortized on a straight line basis over a period of five years from August 20,
1991, the effective date of the registration statement covering that Fund's
shares. New investors purchasing shares of the U.S. Treasury Fund after the
effective date of its Registration Statement under the Securities Act of 1933
will be bearing such expenses during the amortization period only as such
charges are accrued daily against investment income.
The shareholders of a Massachusetts business trust, such as the Trust, could,
under certain circumstances, be held personally liable as partners for its
obligations. The Trust's Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets for any shareholder held personally liable for
obligations of the Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. All such rights are limited to the assets of the respective Fund of
which a shareholder holds shares. The Declaration of Trust further provides that
the Trust may maintain appropriate insurance (for example, fidelity bonding and
errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Thus, the risk of a shareholder's incurring financial
loss on account of shareholder liability is limited to circumstances in which
both inadequate insurance exists, and the Fund itself is unable to meet its
obligations.
As of August 3, 1995, the principal shareholders, beneficial or of record, of
the Funds, their addresses and the amount of their share ownership were as
follows:
Number of
Shares
Owned Percentage
Late Day Fund
County of Madera 2,551,418 7.78%
209 W. Yosemite
Madera, CA 93637-3534
Foothill Capital Corporation 17,414,000 53.12%
11111 Santa Monica Blvd.
Los Angeles, CA 90025
Franklin Resources, Inc. 6,201,794 18.92%
777 Mariners Island Blvd.
San Mateo, CA 94404
William Blair & Company 2,500,001 7.63%
222 W. Adams St.
Chicago, IL 60606
U.S. Treasury Fund
BCT Co. FBO Twin City
Bank 10,464,095 5.91%
P.O. Box 5581
North Little Rock, AR 72119
Farmco Omnibus Cash 24,251,421 13.70%
302 Pine Ave. 2nd Floor
P.O. Box 891
Long Beach, CA 90801
First Interstate Bank
of Nevada TTEE 10,737,745 6.07%
For City of Henderson
1993 Park Bonds
#1201277800
P.O. Box 9800
Calabasas, CA 91302
U.S. Treasury Fund
First Interstate Bank
of Nevada TTEE 9,312,633 5.26%
For City of Henderson
T-6 Acquisition Fund
#1201310410
Dept. 9800
Calabasas, CA 91302
The Washington Trust
Company 46,665,5112 6.36%
23 Broad Street
Westerly, RI 02891
Government Agency Fund
Franklin Resources, Inc. 5,354,718 14.74%
777 Mariners Island Blvd.
San Mateo, CA 94404
Republic Bank of
California NA 19,922,050 54.84%
445 N. Bedford Dr. 2nd Floor
Beverly Hills, CA 90210
Summit National Bank . 2,353,571 6.48%
937 N. Pleasantburg Dr.
P.O. Box 1087
Greenville, SC 29602
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 Funds, no other person holds beneficially or of record
more than 5% of a Fund's outstanding shares.
Special Services
Shareholders or prospective investors may utilize the Franklin/Templeton
Hypothetical Illustrations Program as a useful tool in considering investments.
The service, which is free of charge, enables an investor to make an actual,
dollar-for-dollar performance comparison of any of the Trust's Funds to any
security, pool, or portfolio which the investor may currently be using. It is
based on historical information. The investor simply chooses a series of the
Trust to compare and provides Franklin with a starting date, a starting amount,
and all subsequent purchases or withdrawals. The illustration shows the actual
dollar performance of these actions in the selected series, which the investor
can use to compare to that of their own investment or portfolio.
Investor Services or the Trust may pay certain financial institutions which
maintain omnibus accounts with the Trust on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such beneficial owners.
For each beneficial owner in the omnibus account such institutions may be paid
an amount not to exceed the per account fee which the Trust normally pays
Services.
Financial Statements
The financial statements contained in the Annual Reports to Shareholders of
Institutional Fiduciary Trust dated June 30, 1995, including the auditors report
are incorporated herein by reference.
INSTITUTIONAL
FIDUCIARY TRUST
Franklin Institutional Adjustable
U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
STATEMENT OF ADDITIONAL INFORMATION
777 Mariners Island Blvd.,
P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
NOVEMBER 1, 1995
Contents Page
About the Trust................................... 2
The Investment Objective
and Policies of the Funds........................ 2
Trustees and Officers............................. 4
Administrative and Other Services................. 8
Policies Regarding Brokers
Used on Portfolio Transactions................... 9
Additional Information Regarding
Purchases and Redemptions of
Shares of the Funds.............................. 10
Additional Information
Regarding Taxation............................... 11
The Funds' Underwriter............................ 12
General Information............................... 13
Summary of Procedures to
Monitor Conflicts of Interest.................... 16
Financial Statements.............................. 17
Appendix.......................................... 17
Institutional Fiduciary Trust (the "Trust") is an open-end management investment
company consisting of eight separate and distinct series. This Statement of
Additional Information relates only to the Franklin Institutional Adjustable
U.S. Government Securities Fund (the "Adjustable U.S. Government Fund") and
Franklin Institutional Adjustable Rate Securities Fund (the "Adjustable Rate
Securities Fund") (the "Fund" or "Funds"), two no-load, diversified series of
the Trust. The Adjustable U.S. Government Fund invests all of its assets in the
U.S. Government Adjustable Rate Mortgage Portfolio (the "Mortgage Portfolio")
and the Adjustable Rate Securities Fund invests all of its assets in the
Adjustable Rate Securities Portfolio (the "Securities Portfolio"). The Mortgage
Portfolio and Securities Portfolio are series of Adjustable Rate Securities
Portfolios (the "Portfolios") , a separate open-end management investment
company, and are not part of the Trust.
THIS STATEMENT OF ADDITIONAL INFORMATION ("SAI") IS NOT A PROSPECTUS. IT
CONTAINS INFORMATION IN ADDITION TO AND IN MORE DETAIL THAN SET FORTH IN THE
PROSPECTUS. THIS STATEMENT IS INTENDED TO PROVIDE INVESTORS WITH ADDITIONAL
INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUNDS, AND SHOULD BE
READ IN CONJUNCTION WITH THE FUNDS' PROSPECTUS.
A registration statement under the Investment Company Act of 1940, as amended
(the "1940 Act"), as may be amended from time to time, for the Portfolios, is
available and may be obtained without charge from the Portfolios at the address
or telephone number listed above.
The investment objective of the Adjustable U.S. Government Fund is to seek a
high level of current income, consistent with lower volatility of principal than
a fund which invests in long term fixed-rate debt securities. The Adjustable
U.S. Government Fund seeks to achieve this objective by investing all of its
assets in the Mortgage Portfolio, which in turn invests primarily in adjustable
rate mortgage securities ("ARMs") or other securities collateralized by or
representing an interest in mortgages which have interest rates resetting at
periodic intervals and that are issued or guaranteed by the U.S. government, or
one of its agencies or instrumentalities.
The investment objective of the Adjustable Rate Securities Fund is to seek a
high level of current income, with lower volatility of principal than a mutual
fund which invests in fixed rate securities. The Adjustable Rate Securities Fund
seeks to achieve this objective by investing all of its assets in the Securities
Portfolio, which in turn invests primarily in adjustable rate securities,
including ARMS, which are issued or guaranteed by private institutions or by the
U.S. government, its agencies or instrumentalities, collateralized by or
representing an interest in mortgages created from pools of adjustable rate
mortgages, and other adjustable rate asset backed securities (collectively
"ARS"). The Securities Portfolio will invest in securities which are rated at
least AA by Standard & Poor's Corporation ("S&P") or Aa by Moody's Investors
Service ("Moody's") or, if unrated, will be deemed to be of comparable quality
by the Securities Portfolio's investment manager. See Appendix A for a
discussion of the rating categories.
There, of course, can be no guarantee that either Fund's investment objective
will be achieved.
A Prospectus for the Funds, dated November 1, 1995, as may be amended from time
to time, provides the basic information an investor should know before investing
in the Funds and may be obtained without charge from the Funds or from its
principal underwriter Franklin/Templeton Distributors, Inc. ("Distributors"), at
the address set forth on the cover.
About the Trust
The Trust is an open-end, management investment company, commonly called a
"mutual fund," organized as a Massachusetts business trust on January 15, 1985,
and is registered with the Securities and Exchange Commission ("SEC") under the
1940 Act. The Trust issues its shares of beneficial interest in separate
distinct series. This SAI relates only to the Adjustable U.S. Government Fund
and the Adjustable Rate Securities Fund.
The Investment Objective
and Policies of the Funds
As noted in the Prospectus, each Fund has its own investment objective and
follows policies designed to achieve those objectives. In addition to the
policies stated in the Prospectus, the following restrictions have been adopted
as fundamental policies for each Fund (except as noted), which means that they
may not be changed without the approval of a majority of the outstanding shares
of the Fund that would be affected. The Funds 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 an amount up to 20% of total asset value. The Adjustable U.S.
Government Fund will not purchase additional portfolio securities (additional
shares of the Mortgage Portfolio) while borrowings in excess of 5% of total
assets are outstanding.
2. Buy any securities on "margin" or sell any securities "short," except for any
delayed delivery or when-issued securities as described in the Prospectus.
3. Lend any funds or other assets, except by the purchase of bonds, debentures,
notes or other debt securities as described in the Prospectus, and except that
securities of each Fund may be loaned to qualified broker-dealers or other
institutional investors if at least 102% cash collateral is pledged and
maintained by the borrower, provided such loans may not be made if, as a result,
the aggregate of such loans exceeds 10% of the value of the Fund's total assets
at the time of the most recent loan. Also, the entry into repurchase agreements
is not considered a loan for purposes of this restriction.
4. Act as underwriter of securities issued by other persons except insofar as a
Fund may be technically deemed an underwriter under the federal securities laws
in connection with the disposition of portfolio securities, and except that all
or substantially all of the assets of each Fund may be invested in another
registered investment company having the same investment objective and policies
of that Fund.
5. Invest more than 5% of the value of a Fund's total assets in the securities
of any one issuer, but this limitation does not apply to investments in
securities issued or guaranteed by the U.S. government or its agencies or
instrumentalities; except that all or substantially all of the assets of each
Fund may be invested in another registered investment company having the same
investment objective and policies of that Fund.
6. Purchase the securities of any issuer which would result in owning more than
10% of any class of the outstanding voting securities of such issuer, except
that all or substantially all of the assets of a Fund may be invested in another
registered investment company having the same investment objective and policies
of that Fund.
7. Purchase from or sell to the officers and trustees of the Trust, or to any
firm of which any officer or trustee is a member, as principal, any securities,
but may deal with such persons or firms as brokers and pay a customary brokerage
commission; or retain securities of any issuer if, to the knowledge of the
Funds, one or more of its officers, trustees or the administrator, own
beneficially more than one-half of 1% of the securities of such issuer and all
such officers and trustees together own beneficially more than 5% of such
securities.
8. Purchase any securities issued by a corporation which has not been in
continuous operation for three years, but such period may include the operation
of a predecessor, except that, to the extent this restriction is applicable, all
or substantially all of the assets of each Fund may be invested in another
registered investment company having the same investment objective and policies
of that Fund without regard to how long it has been in operation.
9. Acquire, lease or hold real estate. (Does not preclude investments in
securities collateralized by real estate or interests therein.)
10. 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 program.
11. Invest in companies for the purpose of exercising control or management,
except that, to the extent this restriction is applicable, all or substantially
all of the assets of each Fund may be invested in another registered investment
company having the same investment objective and policies of that Fund which may
issue voting shares to the Fund.
12. Purchase securities of other investment companies, except to the extent
permitted by the 1940 Act, except in connection with a merger, consolidation,
acquisition or reorganization; provided that all or substantially all of the
assets of each Fund may be invested in another registered investment company
having the same investment objective and policies of that Fund. To the extent
permitted by exemptions which may be granted under the 1940 Act, the Funds may
invest in shares of one or more money market funds managed by Franklin Advisers,
Inc. or its affiliates.
13. Issue senior securities as defined in the 1940 Act except that this
restriction will not prevent the Funds from entering into repurchase agreements
or making borrowings, mortgages and pledges as permitted by restriction 1 above.
In order to change any of the foregoing restrictions, approval must be obtained
from the shareholders of the Fund and the Portfolio that would be affected. Such
approval requires the affirmative vote of the lesser of (i) 67% or more of the
voting securities present at a meeting if the holders of more than 50% of voting
securities are represented at that meeting or (ii) more than 50% of the
outstanding voting securities of each Fund. If a percentage restriction
contained herein is adhered to at the time of investment, a later increase or
decrease in the percentage resulting from a change in the value of portfolio
securities or the amount of a Fund's net assets will not be considered a
violation of any of the foregoing restrictions.
Other Policies
The Portfolios and the Funds have adopted substantially similar investment
policies, restrictions and limitations, however, the Portfolios follow such
policies, restrictions and limitations with respect to their direct investments,
while the Funds follow such policies indirectly in connection with investing in
their respective Portfolio.
There are no restrictions or limitations on investments in obligations of the
U.S. government, or of corporations chartered by Congress as federal government
instrumentalities. In the case of each Portfolio, the underlying assets may be
retained in cash, including cash equivalents which are Treasury bills,
commercial paper and short-term bank obligations such as certificates of
deposit, bankers' acceptances and repurchase agreements. It is intended,
however, that only so much of the underlying assets of each Portfolio be
retained in cash as is deemed desirable or expedient under then-existing market
conditions. Each Portfolio may invest up to 10% of its net assets in illiquid
securities, a term which means securities that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
a Portfolio has valued the securities and includes, among other things,
repurchase agreements of more than seven days duration, and other securities
which are not readily marketable.
Each Portfolio may invest up to 5% of its total assets in inverse floaters.
Inverse floaters are instruments with floating or variable interest rates that
move in the opposite direction, at an accelerated speed, to short-term interest
rates.
To the extent indicated in the Prospectus, the Mortgage Portfolio and the
Securities Portfolio may invest in collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduits ("REMICs"). CMOs and REMICs may be
issued by governmental or government related entities or by nongovernmental
entities such as banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers.
Privately issued CMOs and REMICs include obligations issued by such
non-governmental entities which are collateralized by (a) mortgage securities
issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the Federal
National Mortgage Association or the Government National Mortgage Association
("GNMA"), (b) pools of mortgages which are guaranteed by an agency or
instrumentality of the U.S. government, or (c) pools of mortgages which are not
guaranteed by an agency or instrumentality of the U.S. government and which may
or may not be guaranteed by the private issuer. The Mortgage Portfolio will not
invest in privately issued CMOs.
The Mortgage Portfolio and the Securities Portfolio may purchase securities
issued or guaranteed by the U.S. government, or one of its agencies or
instrumentalities, such as GNMAs, which are backed by the full faith and credit
of the U.S. Treasury. GNMA may borrow from the U.S. Treasury to the extent
needed to make payments under its guarantee. No assurances, however, can be
given that the U.S. government will provide such financial support to the
obligations of the other U.S. government agencies or instrumentalities in which
a Portfolio invests, since it is not obligated to do so. These agencies and
instrumentalities are supported by either the issuer's right to borrow an amount
limited to a specific line of credit from the U.S. Treasury, the discretionary
authority of the U.S. government to purchase certain obligations of an agency or
instrumentality, or the credit of the agency or instrumentality.
Several of the investment companies in the Franklin Group of Funds, including
the Mortgage Portfolio and the Securities Portfolio, are major purchasers of
government securities. Franklin Advisers, Inc., the investment manager for most
of these investment companies, will seek to negotiate attractive prices for such
securities and to pass on any savings derived from such negotiations to their
shareholders in the form of higher current yields.
The Securities Portfolio may invest a portion of its assets in asset-backed
securities. The rate of principal payment on asset-backed securities generally
depends on the rate of principal payments received on the underlying assets.
Such rate of payments may be affected by economic and various other factors.
Therefore, the yield may be difficult to predict and actual yield to maturity
may be more or less than the anticipated yield to maturity. The credit quality
of most asset-backed securities depends primarily on the credit quality of the
assets underlying such securities, how well the entities issuing the securities
are insulated from the credit risk of the originator or affiliated entities, and
the amount of credit support provided to the securities.
Asset-backed securities are often backed by a pool of assets representing the
obligations of a number of different parties. To lessen the effect of failures
by obligors on underlying assets to make payments, such securities may contain
elements of credit support. Such credit support falls into two categories: (i)
liquidity protection, and (ii) protection against losses resulting from ultimate
default by an obligor on the underlying assets. Liquidity protection refers to
the provision of advances, generally by the entity administering the pool of
assets, to ensure that the receipt of payments due on the underlying pool is
timely. Protection against losses resulting from ultimate default enhances the
likelihood of payments of the obligations on at least some of the assets in the
pool. Such protection may be provided through guarantees, insurance policies or
letters of credit obtained by the issuer or sponsor from third parties, through
various means of structuring the transaction or through a combination of such
approaches. The Securities Portfolio will not pay any additional fees for such
credit support, although the existence of credit support may increase the price
of a security.
Examples of credit support arising out of the structure of the transaction
include "senior-subordinated securities" (multiple class securities with one or
more classes subordinate to other classes as to the payment of principal thereof
and interest thereon, with the result that defaults on the underlying assets are
borne first by the holders of the subordinated class), creation of "reserve
funds" (where cash or investments, sometimes funded from a portion of the
payments on the underlying assets, are held in reserve against future losses)
and "over-collateralization" (where the scheduled payments on, or the principal
amount of, the underlying assets exceeds that required to make payments of the
securities and pay any servicing or other fees). The degree of credit support
provided for each issue is generally based on historical information respecting
the level of credit risk associated with the underlying assets. Delinquencies or
losses in excess of those anticipated could adversely affect the return on an
investment in such issue.
Trustees and Officers
The Board of Trustees of the Trust ("Board") has the responsibility for the
overall management of the Trust, including general supervision and review of the
investment activities of each Fund. The trustees, in turn, elect the officers of
the Trust who are responsible for administering the day-to-day operations of
each Fund. The affiliations of the officers and trustees and their principal
occupations for the past five years are listed below. Trustees who are deemed to
be "interested persons" of the Trust as defined in the 1940 Act are indicated by
an asterisk (*).
Positions and Offices
Name, Address and Age with the Trust Principal Occupations
During Past Five Years
Frank H. Abbott, III (74) Trustee
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 (63) Trustee
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 56 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63) Trustee
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 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80) Trustee
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 (62) Chairman
777 Mariners Island Blvd. of the Board
San Mateo, CA 94404 and Trustee
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 57 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (39) President
777 Mariners Island Blvd. and Trustee
San Mateo CA 94404
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 24 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
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 43 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66) Trustee
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, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Road
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 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 (50) 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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) 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 (35) 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 of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56) 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.
Thomas J. Runkel (37) Accounting
777 Mariners Island Blvd.
San Mateo, CA 94404
Employee of Franklin Advisers, Inc. and officer of four of the funds in the
Franklin Group of Funds.
The officers and trustees of the Trust are also officers and trustees of the
Portfolios. The following trustee of the Portfolios is not a trustee of the
Trust:
William J. Lippman (70) Trustee
One Parker Plaza
Fort Lee, NJ 07024
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc.,
Franklin Templeton Distributors, Inc. and Franklin Management, Inc.; officer
and/or director or trustee of six of the investment companies in the Franklin
Group of Funds.
The following officer of the Portfolios is not an officer of the Trust:
Edward V. McVey (58) 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.
Trustees not affiliated with the administrator ("nonaffiliated trustees") are
currently paid fees of $200 per month plus $200 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds(R).
<TABLE>
<CAPTION>
Number of
Total Fees Boards in the
Total Fees Received from the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from Trust* Group of Funds** Which Each Serves***
<S> <C> <C> <C>
Frank H. Abbott, III..................................... $4,800 $176,870 31
Harris J. Ashton......................................... 4,800 318,125 56
S. Joseph Fortunato...................................... 4,800 334,265 58
David Garbellano......................................... 4,800 153,300 30
Frank W.T. LaHaye........................................ 4,600 150,817 26
Gordon S. Macklin........................................ 4,800 301,885 53
</TABLE>
*For the fiscal year ended June 30, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of more than 162 U.S.
based funds or series.
Nonaffiliated trustees 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 trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. ("Resources") may be deemed to receive indirect remuneration by virtue of
their participation, if any, in the fees paid to its subsidiaries. For
additional information concerning trustee compensation and expenses, please see
the Trust's Annual Report to Shareholders.
As of August 3, 1995, none of the officers or trustees of the Trust owned any
shares of the Funds. Many of the Trust's trustees own shares in various of the
other funds in the Franklin Templeton Group of Funds. Charles E. Johnson is the
son and nephew of Charles B. Johnson and Rupert H. Johnson, Jr., respectively,
who are brothers.
The Board, with all disinterested trustees as well as the interested trustees
voting in favor, have adopted written procedures designed to deal with potential
conflicts of interest which may arise from the fact of having substantially the
same persons serving on each trust's Board of Trustees. The Board has determined
that there are no conflicts of interest presented by this arrangement at the
present time. See "Summary of Procedures to Monitor Conflicts of Interest."
Administrative and Other Services
As noted in the Prospectus, Advisers is the administrator of the Funds and also
the investment manager for the Mortgage Portfolio and the Securities Portfolio.
Advisers is a wholly-owned subsidiary of Resources.
The Board, with all disinterested trustees as well as the interested trustees
voting in favor, has adopted written procedures designed to deal with potential
conflicts of interest which may arise from the fact of having the same persons
serving on each trust's Board of Trustees. The Board has determined that there
are no conflicts of interest presented by this arrangement at the present time.
See "Summary of Procedures to Monitor Conflicts of Interest."
Advisers acts as the administrator for the Adjustable U.S. Government Fund and
Adjustable Rate Securities Fund under separate administration agreements (the
"Administration Agreements") which provide for various administrative,
statistical, and other services for the Funds. Pursuant to the Administration
Agreements, the Adjustable U.S. Government Fund and the Adjustable Rate
Securities Fund are each separately obligated to pay Advisers (as administrator)
a monthly fee equal to an annual rate of 5/100 of 1% of such Fund's average
daily net assets. For the fiscal year ended June 30, 1995, Advisers agreed in
advance to waive all or a portion of its fees under the Administration
Agreements in order to reduce the total expenses of the Funds.
The table below sets forth the administration fees before and after fee waiver
by Advisers.
Fiscal Year Ended June 30, 1993:
Administration Administration
Fee Before Fee After
Name of Fund Waiver Waiver
Adjustable U.S.
Government Fund........ $631,936 $530,498
Adjustable Rate
Securities Fund........ 14,745 0
Fiscal Year Ended June 30, 1994:
Administration Administration
Fee Before Fee Paid
Fund Waiver
Adjustable U.S.
Government Fund........ $176,440 $110,182
Adjustable Rate
Securities Fund........ 33,771 0
Fiscal Year Ended June 30, 1995:
Administration Administration
Fee Before Fee Paid
Fund Waiver
Adjustable U.S.
Government Fund........ $18,855 $7,825
Adjustable Rate
Securities Fund........ 7,453 0
The Mortgage Portfolio and the Securities Portfolio, in which each Fund invests
all its assets, have separate management agreements with Advisers (collectively,
the "Management Agreements"). The Management Agreements and the Administration
Agreements specify that the management fee and/or the administration fee will be
reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the Funds' shares are offered for sale. The
most stringent current state restriction limits a fund's allowable aggregate
operating expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses such as litigation costs) in any fiscal year to 2.5% of
the first $30 million of average net assets of the Fund, 2% of the next $70
million of average net assets of the Fund and 1.5% of average net assets of each
Fund in excess of $100 million.
Under its separate management agreement, the Mortgage Portfolio, in which the
Adjustable U.S. Government Fund invests all its assets, and the Securities
Portfolio, in which the Adjustable Rate Securities Fund invests all its assets,
the monthly fees to the Manager equal to an annual rate of 40/100 of 1% for the
first $5 billion of each Portfolio's average daily net assets; plus 35/100 of 1%
of net assets in excess of $5 billion up to $10 billion; 33/100 of 1% of net
assets in excess of $10 billion up to $15 billion; and 30/100 of 1% of net
assets in excess of $15 billion. For the fiscal year ended June 30, 1995,
however, Advisers agreed in advance to waive all or a portion of its fee under
each management agreement in order to reduce the total expenses of each
Portfolio.
The following table sets forth the management fees before advance waiver by
Advisers, for the fiscal years ended June 30, 1993, 1994 and 1995, and the
management fees paid by the Portfolios for the same periods. As a shareholder in
its respective Portfolio, each Fund its attributed its proportionate share of
the management fees.
Year Ended June 30, 1993:
Management Management
Fee Before Fees Paid
Fund Waiver
Mortgage Portfolio....... $17,376,004 $10,230,471
Securities Portfolio..... 176,819 0
Year Ended June 30, 1994:
Management Management
Fee Before Fees Paid
Fund Waiver
Mortgage Portfolio....... $7,447,108 $2,149,445
Securities Portfolio..... 443,410 176,318
Year Ended June 30, 1995:
Management Management
Fee Before Fees Paid
Fund Waiver
Mortgage Portfolio....... $2,842,304 $534,173
Securities Portfolio..... 155,407 82,591
Pursuant to the Management Agreements, Advisers provides investment research and
portfolio management services, including the selection of securities for the
Portfolios to purchase, hold or sell and the selection of brokers through whom
each Portfolio's securities transactions are executed. Advisers' activities are
subject to the review and supervision of the Board of Trustees of the Portfolios
and of the Trust to whom Advisers renders periodic reports of investment
activities. Under the terms of the management agreements, Advisers provides
office space and office furnishings, facilities and equipment required for
managing the business affairs of each Portfolio; 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 Portfolios and the Trust.
The Management Agreements are in effect until February 29, 1996, and may
continue in effect thereafter for successive annual periods, provided such
continuance is specifically approved at least annually by a vote of the Board of
Trustees of the Portfolios or, as to each Portfolio, by a vote of the holders of
a majority of its outstanding voting securities, and in either event by a
majority vote of the trustees of the Portfolios who are not parties to the
Management Agreements or interested persons of any such party (other than as
trustees), cast in person at a meeting called for that purpose. The Management
Agreements may be terminated without penalty at any time by the Portfolios or by
Advisers on 60 days' written notice and will automatically terminate in the
event of their assignment as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Funds and acts as the Funds' transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a fixed
fee per account. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian of the securities and other
assets of each Fund. 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. Coopers & Lybrand
L.L.P., 333 Market Street, San Francisco, California 94105, are the Funds'
independent auditors. During the fiscal year ended June 30, 1995, their audit
services consisted of rendering an opinion on the financial statements of the
Funds' included in the Annual Report to Shareholders dated June 30, 1995.
Policies Regarding Brokers
Used on Portfolio Transactions
Under the current Management Agreements with Advisers, the selection of brokers
and dealers to execute portfolio transactions in each Portfolio is made by
Advisers in accordance with criteria set forth in the Management Agreement and
any directions which the Board of Trustees of the Portfolios may give.
When placing a portfolio transaction, Advisers attempts to obtain the best net
price and execution of the transaction. On portfolio transactions which are done
on a securities exchange, the amount of commission paid by a Portfolio is
negotiated between Advisers and the broker executing the transaction. Advisers
seeks to obtain the lowest commission rate available from brokers which are felt
to be capable of efficient execution of the transactions. The determination and
evaluation of the reasonableness of the brokerage commissions paid in connection
with portfolio transactions are based to a large degree on the professional
opinions of the persons responsible for the placement and review of such
transactions. These opinions are formed on the basis of, among other things, the
experience of these individuals in the securities industry and information
available to them concerning the level of commissions being paid by other
institutional investors of comparable size. Advisers will ordinarily place
orders for the purchase and sale of over-the-counter securities on a principal,
rather than agency, basis with a principal market maker unless, in the opinion
of Advisers, a better price and execution can otherwise be obtained. 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 price.
The amount of commission is not the only relevant factor to be considered in the
selection of a broker to execute a trade. If it is felt to be in the Portfolios'
best interests, Advisers may place portfolio transactions with brokers who
provide the types of services described below, even if it means the Portfolios
will have to pay a higher commission than would be the case if no weight were
given to the broker's furnishing of these services. This will be done only if,
in the opinion of Advisers, the amount of any additional commission is
reasonable in relation to the value of the services. Higher commissions will be
paid only when the brokerage and research services received are bona fide and
produce a direct benefit to the Portfolios to assist Advisers in carrying out
its responsibilities to the Portfolios, or when it is otherwise in the best
interest of the Portfolios to do so, whether or not such data may also be useful
to Advisers in advising other clients.
When it is felt that several brokers are equally able to provide the best net
price and execution, Advisers may decide to execute transactions through brokers
who provide quotations and other services to the Portfolios, specifically
including the quotations necessary to determine the value of a Portfolio's net
assets, in such amount of total brokerage as may reasonably be required in light
of such services, and through brokers who supply research, statistical and other
data to the Portfolios and Advisers in such amount of total brokerage as may
reasonably be required. 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 staffs 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. Provided that the Portfolios' (and the Trust's) officers are satisfied
that the best execution is obtained, the sale of shares of the Funds may also be
considered as a factor in the selection of securities dealers to execute the
Portfolios' securities transactions.
Because Distributors is a member of the National Association of Securities
Dealers Inc., it is sometimes entitled to obtain certain fees when a Portfolio
tenders securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of a Portfolio, any portfolio securities
tendered by a Portfolio will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers by
the Portfolios under the Management Agreements will be reduced by the amount of
any fees received by Distributors in cash, less any costs and expenses incurred
in connection therewith.
If purchases or sales of securities of the Portfolios or one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in such 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. It is recognized that in some cases this
procedure could possibly have a detrimental effect on the price or volume of the
security so far as the Portfolios are 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 Portfolios.
For the past three fiscal years ended June 30, 1995, the Portfolios paid no
brokerage commissions.
Additional Information
Regarding Purchases and
Redemptions of Shares of the Funds
Under agreements with certain banks in Taiwan, Republic of China, the Funds'
shares are available to such banks' discretionary trust funds at net asset
value. The banks may charge service fees to their customers who participate in
the discretionary trusts. Pursuant to agreements, a portion of such service fees
may be paid to Distributors, or an affiliate thereof, to help defray expenses of
maintaining a service office in Taiwan, including expenses related to local
literature fulfillment and communication facilities.
All checks, drafts, wires and other payment mediums used for purchasing or
redeeming shares of the Funds must be denominated in U.S. dollars. Each Fund
reserves the right, in its sole discretion, to either (a) reject any order for
the purchase or sale of shares denominated in any other currency, or (b) to
honor the transaction or make adjustments to a shareholder's account for the
transaction as of a date and with a foreign currency exchange factor determined
by the drawee bank.
Dividend checks which are returned to a Fund marked "unable to forward" by the
postal service will be deemed to be a request by the shareholder to change the
dividend option and the proceeds will be reinvested in additional shares of that
Fund at net asset value until new instructions are received.
Redemptions in Kind
Each 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 a Fund's net
assets at the beginning of such period. Such commitment is irrevocable without
the prior approval of the SEC. In the case of requests for redemption in excess
of such amounts, the Trustees reserve the right to make payments in whole or in
part in securities or other assets of the Fund from which the shareholder is
redeeming in case of an emergency, or if the payment of such redemption in cash
would be detrimental to the existing shareholders of that Fund. In such
circumstances, the securities distributed would be valued at the price used to
compute that Fund's net assets. Should the Fund do so, a shareholder may incur
brokerage fees or other transaction costs in converting the securities to cash.
The Funds do not intend to redeem illiquid securities in kind; however, should
it happen, shareholders may not be able to timely recover their investment and
may also incur brokerage costs in selling such securities.
Redemptions by the Funds
Each Fund reserves the right to redeem, involuntarily, the shares of any
shareholder whose account has a value of less than a minimum amount but only
where the value of such account has been reduced by its prior voluntary
redemption of shares. Until further notice, it is the present policy of each
Fund not to exercise this right with respect to any shareholder whose account
has a value of $1,000,000 or more ($500,000 with respect to trust companies and
bank trust departments). In any event, before a Fund redeems such shares and
sends the proceeds to the shareholder, it will notify the shareholder that the
value of the shares in its account is less than the minimum amount and allow 30
days for the shareholder to make an additional investment in an amount which
will increase the value of the account to at least the minimum amount.
Calculation of Net Asset Value
As noted in the Prospectus, each Fund calculates its net asset value separately
as of the scheduled closing of the New York Stock Exchange (the "Exchange")
(generally 1:00 p.m. Pacific time) each day that the Exchange is open for
trading. As of the date of this Statement of Additional Information, the Funds
are 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.
Special Services
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires
each month or other special handling that a shareholder may request. Such
special services to certain shareholders will not increase the expenses borne by
the Trust.
Investor Services or the Trust may pay certain financial institutions which
maintain omnibus accounts with the Trust on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such beneficial owners.
For each beneficial owner in the omnibus account such institutions may be paid
an amount not to exceed the per account fee which the Trust normally pays
Investor Services.
Additional Information Regarding Taxation
As stated in the Prospectus, each Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of a Fund as a regulated investment company if they determine such
course of action to be beneficial to the shareholders. In such case, that Fund
will be subject to federal and possibly state corporate taxes on its taxable
income and gains, and distributions to shareholders will be ordinary dividend
income 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 October, November or 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 a Fund and received by the shareholder on
December 31 of the calendar year in which they are declared. Each Fund intends,
as a matter of policy, to declare 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.
Redemptions and exchanges of shares of each Fund are taxable transactions for
federal and state income tax purposes. For most shareholders, gain or loss will
be recognized in an amount equal to the difference between the shareholder's
basis in the shares and the amount received, subject to the rules described
below. If such shares are a capital asset in the hands of the shareholder, gain
or loss will be capital gain or loss and will be long-term for federal income
tax purposes if the shares have been held for more than one year.
All or a portion of a loss realized upon a redemption of shares will be
disallowed to the extent other shares of the Fund are purchased (through
reinvestment of dividends or otherwise) within 30 days before or after such
redemption. Any loss disallowed under these rules will be added to the tax basis
of the shares purchased.
While many states grant tax-free status to dividends paid to shareholders of
mutual funds from interest income earned by a Fund from direct obligations of
the U.S. government, none of the distributions of the Funds are expected to
qualify for such tax-free treatment. Investments in mortgage-backed securities
(including GNMA, FNMA and FHLMC securities) and repurchase agreements
collateralized by U.S. government securities do not qualify as direct federal
obligations in most states.
Gain realized by a Fund from transactions entered into after April 30, 1993 that
are deemed to constitute "conversion transactions" under the Code and which
would otherwise produce capital gain may be recharacterized as ordinary income
to the extent that such gain does not exceed an amount defined by the Code as
the "applicable imputed income amount." A conversion transaction is any
transaction in which substantially all of the Fund's expected return is
attributable to the time value of the Fund's net investment in such transaction
and any one of the following criteria are met: 1) there is an acquisition of
property with a substantially contemporaneous agreement to sell the same or
substantially identical property in the future; 2) the transaction is an
applicable straddle; 3) the transaction was marketed or sold to the Fund on the
basis that it would have the economic characteristics of a loan but would be
taxed as capital gain; or 4) the transaction is specified in Treasury
regulations to be promulgated in the future. The applicable imputed income
amount, which represents the deemed return on the conversion transaction based
upon the time value of money, is computed using a yield equal to 120 percent of
the applicable federal rate, reduced by any prior recharacterizations under this
provision or Section 263(g) of the Code concerning capitalized carrying costs.
The Fund's Underwriter
Pursuant to an underwriting agreement in effect until February 29, 1996,
Distributors acts as principal underwriter in a continuous public offering of
each Fund's shares.
The underwriting agreement will continue in effect for successive annual periods
provided that 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 each Fund's
outstanding voting securities, and in either event by a majority vote of the
Trust's trustees who are not parties to the underwriting agreement or interested
persons of any such party (other than as trustees of the Trust), 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 distribution of each Fund's shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. Each 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.
General Information
Performance
As noted in each Prospectus, each Fund may from time to time quote various
performance figures to illustrate a Fund's past performance. It may occasionally
cite statistics to reflect its volatility or risk.
Performance quotations by investment companies are subject to rules adopted by
the SEC. These rules require the use of standardized performance quotations or,
alternatively, that every non-standardized performance quotation furnished by a
Fund be accompanied by certain standardized performance information computed as
required by the SEC. Current yield and average annual compounded total return
quotations used by the Funds are based on the standardized methods of computing
performance mandated by the SEC. An explanation of those and other methods used
by the Funds to compute or express performance follows.
Total Return
The average annual total return is determined by finding the average annual
compounded rates of return over one-, five-, and ten-year periods that would
equate an initial hypothetical $1,000 investment to its ending redeemable value.
The quotation assumes the account was completely redeemed at the end of each
one-, five-, and ten-year period and the deduction of all applicable charges and
fees.
The total returns for each Fund for the period ended on June 30, 1995, were as
follows:
Inception to
One Year June 30, 1995
Adjustable U.S.
Government Fund
(inception date -
November 1, 1991)............ 4.41% 2.89%
Adjustable Rate
Securities Fund
(inception date -
January 3, 1992)............. 6.35% 4.75%
These figures were calculated according to the following SEC formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, or ten-year periods at the end of the one-, five-,
or ten-year periods (or fractional portion thereof)
As discussed in the Prospectus, each Fund may quote total rates of return in
addition to its average annual total return. Such quotations are computed in the
same manner as the Fund's average annual compounded rate, except that such
quotations will be based on a Fund's actual aggregate return for a specified
period instead of its average return over one-, five-, and ten-year periods.
The total returns for each Fund for the period ended on June 30, 1995, were as
follows:
Inception to
One Year June 30, 1995
Adjustable U.S.
Government Fund
(inception date -
November 1, 1991)............ -4.41% 10.73%
Adjustable Rate
Securities Fund
(inception date -
January 3, 1992)............. 6.35% 17.60%
Yield
Current yield reflects the income per share earned by a Fund's portfolio
investments.
Current yield is determined by dividing the net investment income per share
earned during a 30-day base period by the net asset value per share on the last
day of the period and annualizing the result. The yield for each Fund for the 30
day period ended June 30, 1995, was as follows:
30 Day Yield
Adjustable U.S. Government Fund........... 6.46%
Adjustable Rate Securities Fund........... 6.63%
These figures were obtained using the following SEC formula:
6
Yield = 2 [( a-b +1 ) - 1]
----
cd
where:
a = dividends and interest earned during the period
b = expenses accrued for the period (net of advance waivers)
c = the average daily number of shares outstanding during the period that were
entitled to receive income distributions
d = the maximum offering price (net asset value) per share on the last day of
the period
Current Distribution Rate
Yield which is calculated according to a formula prescribed by the SEC is not
indicative of the amounts which will be paid to a Fund's shareholders. Amounts
paid to shareholders are reflected in the quoted "current distribution rate."
The current distribution rate is computed by dividing the total amount of
dividends per share paid by a Fund during the past twelve months by a current
net asset value. Under certain circumstances, such as when there has been a
change in the amount of dividend payout or a fundamental change in investment
policies, it might be appropriate to annualize the dividends paid over the
period such policies were in effect, rather than using the dividends during the
past twelve months. The current distribution rate differs from the current yield
computation because it may include distributions to shareholders from sources
other than dividends and interest, such as short-term capital gains, and is
calculated over a different period of time.
Volatility
Occasionally statistics may be used to specify fund volatility or risk. Measures
of volatility or risk are generally used to compare fund net asset value or
performance relative to a market index. One measure of volatility is beta. Beta
is the volatility of a fund relative to the total market as represented by the
Standard & Poor's 500 Stock Index. A beta of more than 1.00 indicates volatility
greater than the market, and a beta of less than 1.00 indicates volatility less
than the market. Another measure of volatility or risk is standard deviation.
Standard deviation is used to measure variability of net asset value or total
return around an average, over a specified period of time. The premise is that
greater volatility connotes greater risk undertaken in achieving performance.
Comparisons and Advertisements
To help investors better evaluate how investments in a Fund might satisfy their
investment objective, advertisements and other materials regarding either Fund
may discuss various measures of the Fund's 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.
Such comparisons may include, but are not limited to, the following examples:
The following publications, indices, and averages may be used:
a) Lipper - Mutual Fund Performance Analysis, Lipper-Fixed Income Analysis and
Lipper Mutual Fund Yield Survey, and Lipper Mutual Fund Indices - measure total
return and average current yield for the mutual fund industry. Ranks individual
mutual fund performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.
b) CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. -
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
c) Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price,
yield, risk, and total return for equity funds.
d) Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines - provide
performance statistics over specified time periods.
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 -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
g) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
h) Salomon Brothers Broad Bond Index or its component indices - The Broad Index
measures yield, price, and total return for Treasury, Agency, Corporate, and
Mortgage bonds.
i) Salomon Brothers Composite High Yield Index or its component indices - The
High Yield Index measures yield, price and total return for Long-Term High-Yield
Index, Intermediate-Term High-Yield Index and Long-Term Utility High-Yield
Index.
j) Lehman Brothers Aggregate Bond Index or its component indices - The Aggregate
Bond Index measures yield, price and total return for Treasury, Agency,
Corporate, Mortgage, and Yankee bonds.
k) Other taxable investments, including certificates of deposit (CDs), money
market deposit accounts (MMDAs), checking accounts, savings accounts, money
market mutual funds, and repurchase agreements.
l) Standard & Poor's Bond Indices - measure yield and price of Corporate,
Municipal, and Government bonds.
m) Donoghues' Money Fund Report(R) - industry averages for seven-day annualized
and compounded yields of taxable, tax-free and government money funds.
n) Historical data supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill Lynch, Pierce,
Fenner & Smith, Lehman Brothers and Bloomberg L.P.
In assessing such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical, and in some cases is very different, to a Fund's portfolio, that
the averages are generally unmanaged and that the items included in the
calculations of such 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 such other averages.
Advertisements or information may also compare a Fund's performance to the
return on certificates of deposit or other investments. Investors should be
aware, however, that an investment in a Fund involves the risk of fluctuation of
principal value, a risk generally not present in an investment in a certificate
of deposit issued by a bank. For example, as the general level of interest rates
rise, the value of a Fund's fixed-income investments, as well as the value of
its shares which 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. Certificates of deposit are
frequently insured by an agency of the U.S. government. An investment in each
Fund is not insured by any federal, state or private entity.
From time to time, the Adjustable U.S. Government Fund may advertise offers for
the general public to attend free seminars where a guest speaker will discuss
the benefits of investing in Franklin's professionally managed portfolio of U.S.
government securities. In addition, advertisements or information for a Fund may
include a discussion of certain attributes or benefits to be derived by an
investment in the Fund. Such advertisements or information may include symbols,
headlines, or other material which highlight or summarize the information
discussed in more detail in the communication. Among the benefits to be derived
from an investment in the Fund is its relatively low fluctuation in principal
value. Compared to thirty-year U.S. Treasury bonds and ten-year U.S. Treasury
notes, shares of the Adjustable U.S. Government Fund fluctuated less in
principal value over the last two years. During the same time period, the
Adjustable U.S. Government Fund's current yield was higher than the yield on
money market funds, certificates of deposit or thirty-year Treasury bonds. Of
course, U.S. Treasury bonds and notes are backed by the full faith and credit of
the U.S. government and are not subject to principal or interest fluctuation if
held to maturity. Certificates of deposit are frequently insured by an agency of
the U.S. government, and money market funds generally maintain an absolutely
stable net asset value of $1.00 per share. An investment in the Adjustable U.S.
Government Fund lacks these characteristics.
The Dalbar Surveys, Inc. broker/dealer survey has ranked Franklin number one in
service quality for five of the past seven years.
The Funds may include in their 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 advisers
and underwriter of both the Franklin Group of Funds and Templeton Group of
Funds.
In addition, in promoting the sale of Fund shares, advertisements or information
for each of the Funds may also include quotes from Benjamin Franklin, especially
Poor Richard's Almanac.
The Funds are members of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States 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 47 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 $129 billion in
assets under management for more than 3.91 million shareholder accounts, in
addition to foundations and endowments, employee benefit plans, and individuals,
and offers 115 U.S.-based mutual funds. The Fund may identify itself by its
NASDAQ or CUSIP number.
Miscellaneous Information
A Fund may deduct from a shareholder's account the costs of its efforts to
locate such shareholder if the shareholder's mail is returned as undeliverable
or the Fund is otherwise unable to locate the shareholder or verify the current
mailing address. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) the trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) copies of all brokerage confirmations must be sent to the
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; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also 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.
As of August 3, 1995, the principal shareholders, beneficial or of record, of
each Fund, their addresses and the amount of their share ownership were as
follows:
Number of
Shares Owned Percentage
Adjustable U.S.
Government Fund
Bank of Stockton............ 264,735 7.69%
Trust Department
P.O. Box 1110
Stockton, CA 95201-1110
Branch Banking &
Trust Co................... 955,214 27.75%
Wilbranch & Co.
223 W. Nash St.
P.O. Box 2887
Wilson, NC 27894-2887
City of Stockton
General Pool............... 410,000 11.91%
425 N. El
Stockton, CA 95202-1951
County of Yolo.............. 502,008 14.58%
P.O. Box 1995
Woodland, CA 95776-1995
Number of
Shares Owned Percentage
Massachusetts
Educational................ 378,810 11.00%
Financing Authority
Reserve Fund
176 Federal St.
Boston, MA 02110-2223
Adjustable Rate
Securities Fund
County of Stanislaus........ 352,993 40.56%
Treasurer-Tax Collector
P.O. Box 859
Modesto, CA 95353-0859
First American Trust Co.-
Managed Omnibus............ 382,438 43.94%
421 N. Main St.
Santa Ana, CA 92701-4617
Firtan & Co................. 53,207 6.11%
c/o Trust Company
of Manhattan
P.O. Box 66
Manhattan, KS 66505-0066
In addition to the above accounts, from time to time the number of shares of
each Fund 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.
Additional Information for
Institutional Investors
As the investments permitted to the Mortgage Portfolio, in which the Adjustable
U.S. Government Fund invests all of its assets, are primarily in adjustable rate
mortgage securities issued or guaranteed by the U.S. government or its agencies
and instrumentalities, the shares of the Fund may be eligible for investment by
federally chartered credit unions, federally chartered thrifts, national banks
and other financial institutions. The Fund may be a permissible investment for
certain state chartered institutions as well, including state and local
government authorities and agencies. Any financial institution or agency
considering an investment in the Fund should refer to the applicable laws and
regulations governing its operations in order to determine if the Fund is a
permissible investment.
Summary of Procedures to
Monitor Conflicts of Interest
The Boards of Trustees of the Adjustable Rate Securities Portfolios, on behalf
of its series ("master funds"), and of the Trust, on behalf of certain of its
series which participate in a master/feeder fund structure ("feeder funds"),
(both of which, except in the case of two trustees, 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 funds in this format.
Such potential conflicts of interest could include, among others: the creation
of additional feeder funds with different fee structures; the creation of
additional feeder funds which 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 which may or may not be acceptable
to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Boards
of Trustees have adopted certain procedures, pursuant to which i) the
independent members of each board will review the master/feeder fund structure
at least annually, as well as on an ongoing basis, and report to their
respective full board after each annual review; ii) if the independent trustees
determine that a situation or proposal presents a potential conflict, they will
request a written analysis from the master fund management describing whether
such apparent potential conflict of interest will impede the operation of any of
the constituent feeder funds and the interests of the feeder fund's
shareholders; and iii) upon receipt of the analysis, such trustees shall review
the analysis and present their conclusion to the full board.
If no actual conflict is deemed to exist, the independent trustees 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 an independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following courses of action: i) suggest a course of
action designed to eliminate the potential conflict of interest; ii) if
appropriate, request that the full board of the Trust submit the potential
conflict to shareholders for resolution; iii) recommend to the full board of the
Trust 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 board of the Trust that a new group of trustees be recommended to the
shareholders of the affected feeder fund for approval; or v) recommend such
other action as may be considered appropriate.
Financial Statements
The audited financial statements of the Funds contained in the Annual Reports to
Shareholders of the Trust dated June 30, 1995 which includes the auditors
report, the audited financial statements of the Portfolios for the fiscal year
ended October 31, 1995, and the unaudited financial statements for the period
ended June 30, 1995, are incorporated herein by reference.
Appendix
Description of Moody's
Corporate Bond Ratings:
Aaa - Bonds which are 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 by an 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 - Bonds which are rated Aa are judged to be of 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 as in Aaa securities or 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 than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as 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 - Bonds which are 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.
Ba - Bonds which are rated Ba are judged to have predominantly speculative
elements; their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very moderate and, thereby,
not well safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
Description of S&P's Corporate Bond Ratings:
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and, in the majority of instances,
they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit 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.
BB, B, CCC, CC - Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
FRANKLIN CASH
RESERVES FUND
Institutional Fiduciary Trust
STATEMENT OF
ADDITIONAL INFORMATION
777 Mariners Island Blvd., P.O. Box 7777 NOVEMBER 1, 1995
San Mateo, CA 94403-7777 1-800/321-8563
Contents Page
Investment Objectives and
Policies (See also the Prospectus
"Investment Objectives and Policies
of the Fund").................... 2
Trustees and Officers............. 4
Administrative and Other Services
(See also the Prospectus "Administration
and Management of the Fund")..... 7
Policies Regarding Brokers
Used on Portfolio Transactions... 8
Distribution Plan................. 9
Determination of Net Asset Value
(See also the Prospectus
"Valuation of Fund Shares")...... 10
Additional Information Regarding
Purchases and Redemptions of
Fund Shares...................... 11
Additional Information
Regarding Taxation............... 12
The Fund's Underwriter............ 13
Performance....................... 13
Miscellaneous Information......... 15
Summary of Procedures to
Monitor Conflicts of Interest.... 16
Financial Statements.............. 17
Appendix.......................... 17
Institutional Fiduciary Trust (the "Trust") is an open-end management investment
company consisting of eight separate and distinct series. This Statement of
Additional Information (the "SAI") relates only to the policies of the Franklin
Cash Reserves Fund (the "Fund").
A Prospectus, dated November 1, 1995, as may be amended from time to time,
describing the Fund and the Trust, which provides the basic information a
prospective investor should know before investing in the Fund, may be obtained
without charge from the Fund or the Fund's principal underwriter, Franklin/
Templeton Distributors, Inc. ("Distributors"), at the address or telephone
number listed above.
THIS STATEMENT OF ADDITIONAL INFORMATION 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 INVESTORS WITH ADDITIONAL INFORMATION REGARDING
THE ACTIVITIES AND OPERATIONS OF THE TRUST AND THE FUND AND SHOULD BE READ IN
CONJUNCTION WITH THE FUND'S CURRENT PROSPECTUS.
The investment objectives of the Fund are high current income consistent with
capital preservation and liquidity. The Fund is offered exclusively to qualified
retirement plan participants and other institutional investors, including
corporations, banks, savings and loan associations and government entities. The
Fund may not otherwise be purchased by individuals.
The Fund seeks to achieve its objectives by investing all of its assets in The
Money Market Portfolio (the "Portfolio"), a separate series of The Money Market
Portfolios. 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, and repurchase agreements secured by U.S. government securities.
A registration statement for the Portfolio under the Investment Company Act of
1940, as amended (the "1940 Act"), as may be amended from time to time, is
available and may be obtained without charge from the Portfolio at the address
or telephone number listed above.
Investment Objectives and Policies
As noted in the Prospectus, the Fund invests all of its assets in the Portfolio.
The Portfolio in turn invests in various types of money market instruments
including 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, and
repurchase agreements secured by U.S. government securities. The Portfolio may
invest in Eurodollar as well as Yankee Dollar Certificates of Deposit, both of
which are subject to the investment risks concerning foreign investments
discussed in the Prospectus. The Portfolio will not purchase warrants. Since the
Fund and the Portfolio in which it invests have substantially similar investment
objectives and policies, the following is a description of the Portfolio's
investment policies, unless otherwise indicated.
As stated in the Prospectus, the Portfolio may make loans of its portfolio
securities, up to 25% of its total assets, in accordance with guidelines adopted
by The Money Market Portfolios' 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 the cash collateral in short-term,
interest bearing obligations or by receiving loan premiums 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 five 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.
As discussed in its Prospectus, the Portfolio may purchase and sell securities
on a "when-issued" and "delayed-delivery" basis. Although the Portfolio will
generally purchase securities on a "when-issued" basis with the intention of
acquiring such securities, it may sell such securities before the settlement
date if it is deemed advisable. When the Portfolio is the buyer in such a
transaction, it will maintain, in a segregated account with its custodian, cash
or high-grade marketable securities having an aggregate value equal to the
amount of such 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 objectives and policies and not for the purpose of investment
leverage. Securities purchased on a "when-issued" or "delayed-delivery" basis do
not generally earn interest until their scheduled delivery date.
General Policies
As stated in the Prospectus, the Portfolio may use any portion of its assets
invested in U.S. government securities and concurrently enter into repurchase
agreements with respect to such securities. Such repurchase agreements will be
made only with government securities dealers recognized by the Federal Reserve
Board or with member banks of the Federal Reserve System. A repurchase agreement
is an agreement in which the seller of a security agrees to repurchase the
security sold at a mutually agreed upon time and price. It may also be viewed as
the loan of money by the Portfolio to the seller. The resale price is normally
in excess of the purchase price, reflecting an agreed upon interest rate. The
interest rate is effective for the period of time in which the Portfolio is
invested in the agreement and is not related to the coupon rate on the
underlying security. The period of these repurchase agreements will usually be
short, from overnight to one week, and at no time will the Portfolio invest in
repurchase agreements for more than one year. The securities which are subject
to repurchase agreements, however, may have maturity dates in excess of one year
from the effective date of the repurchase agreements. The transaction requires
the initial collateralization of the seller's obligation by securities with a
market value, including accrued interest, equal to at least 102% of the dollar
amount invested by the Portfolio, with the value marked to market daily to
maintain 100% coverage. 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. When the Portfolio invests in these instruments, it
will make payment for such securities only upon physical delivery or evidence of
book entry transfer to the account of its custodian bank. The Portfolio may not
enter into repurchase agreements with more than seven days duration if, as a
result, more than 10% of the market value of the Portfolio's total assets would
be invested in such repurchase agreements.
The achievement of the Portfolio's objectives will depend on market conditions
generally and on the analytical and portfolio management skills of Franklin
Advisers, Inc., the Portfolio's investment manager. It should be noted that the
Portfolio's performance will also be a function of the quality of the securities
in which it invests. Accordingly, because the Portfolio limits its investments
to high quality securities, there will generally be a lower yield than if the
Portfolio purchased securities with a lower credit rating and correspondingly
greater risk. The value of securities held will fluctuate inversely with
interest rates and, therefore, there is no assurance that the Portfolio's
objectives will be achieved.
Because the Portfolio will not purchase any instrument with a remaining maturity
of greater than 397 calendar days, it is not expected that there will be any
reportable annual portfolio turnover rate.
Investment Restrictions
The Trust has adopted the following restrictions as additional fundamental
policies of the Fund, which means that they may not be changed without the
approval of a majority of the outstanding voting securities of the Fund. Under
the 1940 Act, a "vote of a majority of the outstanding voting securities" of the
Fund, means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of the Fund
present at a shareholders' meeting if more than 50% of the outstanding shares of
the Fund are represented at the meeting in person or by proxy. 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 Fund's total asset value.
(2) Make loans, except (a) through the purchase of debt securities in
accordance with the investment objectives and policies of the Fund, (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) 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.
(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) 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.
(6) Purchase 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.
(7) Invest more than 25% of its assets in securities of any industry, except
that this policy is inapplicable where the Fund's policies, as described in its
current Prospectus, state otherwise, and further to the extent 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. For purposes of this limitation, U.S. government obligations are
not considered to be part of any industry.
(8) Act as underwriter of securities issued by other persons, except insofar as
the Trust 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.
(9) Purchase securities from or sell to the Trust's officers and trustees, or
any firm of which any officer or trustee is a member, as principal, or retain
securities of any issuer if, to the knowledge of the Trust, one or more of the
Trust's officers, trustees, or investment adviser own beneficially more than 1/2
of 1% of the securities of such issuer and all such officers and trustees
together own beneficially more than 5% of such securities.
(10) 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.
(11) 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" in accordance with its stated
investment policies.
Trustees and Officers
The Board of Trustees has the responsibility for the overall management of the
Trust, including general supervision and review of the Fund's investment
activities. The trustees, in turn, elect the officers of the Trust who are
responsible for administering the day-to-day operations of the Trust. The
affiliations of the officers and trustees and their principal occupations for
the past five years are listed below. Trustees who are deemed to be "interested
persons" of the Trust, as defined in the 1940 Act, are indicated by an asterisk
(*).
Principal Occupation
Positions and Offices During Past
Name, Age and Address with the Fund Five Years
Frank H. Abbott, III (74) Trustee
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 (63) Trustee
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 56 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (63) Trustee
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director, General Host
Corporation; and director, trustee or managing general partner, as the case may
be, of 58 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (80) Trustee
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 (62) Chairman of the
777 Mariners Island Blvd. Board and Trustee
San Mateo, CA 94404
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 57 of the investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (39) President and
777 Mariners Island Blvd. Trustee
San Mateo CA 94404
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 24 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (55) Vice President
777 Mariners Island Blvd. and Trustee
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 43 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (66) Trustee
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, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (67) Trustee
8212 Burning Tree Rd.
Bethesda, MD 20817
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., Lockheed Martin Corporation, MCI
Communications Corporation, MedImmune, Inc. (biotechnology), InfoVest
Corporation (information services), and Fusion Systems Corporation (industrial
technology); and director, trustee or managing general partner, as the case may
be, of 53 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 (50) 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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 43 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (63) 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 (35) 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 of 61 of the investment companies in the Franklin Templeton Group of
Funds.
Deborah R. Gatzek (46) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President - Legal, Franklin Resources, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and officer of 37 of
the investment companies in the Franklin Group of Funds.
Diomedes Loo-Tam (56) 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.
Thomas J. Runkel (37) 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.
The officers and trustees of the Trust are also officers and trustees of The
Money Market Portfolios, except Thomas J. Runkel, Vice President of the Trust,
is not an officer or trusteee of The Money Market Portfolios. The following
officers of The Money Market Portfolios are not officers or trustees of the
Trust:
Edward V. McVey (58) Vice President of
777 Mariners Island Blvd. The Money
San Mateo, CA 94404 Market Portfolios
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
R. Martin Wiskemann (68) Vice President of
777 Mariners Island Blvd. The Money
San Mateo, CA 94404 Market Portfolios
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 20 of the
investment companies in the Franklin Group of Funds.
Trustees not affiliated with the administrator ("nonaffiliated trustees") are
currently paid fees of $200 per month plus $200 per meeting attended. As
indicated above, certain of the Trust's nonaffiliated trustees also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Group of Funds(R) and the Templeton Group of Funds (the
"Franklin Templeton Group of Funds") from which they may receive fees for their
services. The following table indicates the total fees paid to nonaffiliated
trustees by the Trust and by other funds in the Franklin Templeton Group of
Funds.
Total Fees Number of Boards in
Total Fees Received From the the Franklin Templeton
Received Franklin Templeton Group of Funds on
Name from Trust* Group of Funds** Which Each Serves***
Frank H. Abbott, III. $4,800 $176,870 31
Harris J. Ashton..... 4,800 $318,125 56
S. Joseph Fortunato.. 4,800 $334,265 57
David W. Garbellano.. 4,800 $153,300 30
Frank W. T. LaHaye... 4,800 $150,817 26
Gordon S. Macklin.... 4,800 $301,885 53
*For the fiscal year ended June 30, 1995.
**For the calendar year ended December 31, 1994.
***The number of boards is based on the number of registered investment
companies in the Franklin Templeton Group of Funds and does not include the
total number of series or funds within each investment company for which the
trustees are responsible. The Franklin Templeton Group of Funds currently
includes 61 registered investment companies, consisting of more than 162 U.S.
based funds or series.
Nonaffiliated trustees 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 trustee received any other compensation directly from the
Fund. Certain officers or trustees who are shareholders of Franklin Resources,
Inc. may be deemed to receive indirect remuneration by virtue of their
participation, if any, in the fees paid to its subsidiaries. For additional
information concerning trustee compensation and expenses, please see the Trust's
Annual Report to Shareholders.
As of August 3, 1995, the trustees and officers, as a group, owned of record and
beneficially none of the outstanding shares of the Fund. Many of the Trust's
trustees own shares in various of the other funds in the Franklin Templeton
Group of Funds. Charles E. Johnson is the son and nephew of Charles B. Johnson
and Rupert H. Johnson, Jr., respectively, who are brothers.
The Board of Trustees, with all disinterested trustees as well as the interested
trustees voting in favor, have adopted written procedures designed to deal with
potential conflicts of interest which may arise from the fact of having the same
persons serving on each trust's Board of Trustees. The Board of Trustees has
determined that there are no conflicts of interest presented by this arrangement
at the present time. See "Summary of Procedures to Monitor Conflicts of
Interest."
Administrative and Other Services
As noted above, the administrator of the Fund and investment manager of the
Portfolio is Franklin Advisers, Inc. ("Advisers"). Advisers is a wholly-owned
subsidiary of Resources. Advisers and other subsidiary companies of Resources
currently manage over $114 billion in assets for more than 3.7 million
shareholders.
Advisers acts as the administrator for the Fund under an administration
agreement dated July 1, 1994, which provides for various administrative,
statistical, and other services. Pursuant to the administration agreement, the
Fund is obligated to pay Advisers (as administrator) a monthly fee equal to an
annual rate of 25/100 of 1% of the Fund's average daily net assets.
Advisers agreed in advance to limit its management and administrative fees and
make certain payments to reduce expenses. This arrangement may be terminated by
Advisers at any time upon notice to the Board of Trustees.
The Portfolio has a separate management agreement with Advisers, dated August
27, 1993. The management agreement specifies that the management fee will be
reduced to the extent necessary to comply with the most stringent limits
prescribed by any state in which the Fund's shares are offered for sale. The
most stringent current state restriction limits a fund's allowable aggregate
operating expenses (excluding interest, taxes, brokerage commissions,
distribution plan expenses up to 1% and extraordinary expenses such as
litigation costs) in any fiscal year to 21/2% of the first $30 million of net
assets of the Fund, 2% of the next $70 million of net assets of the Fund and
11/2% of average annual net assets of the Fund in excess of $100 million. There
is no management agreement for the Fund.
Pursuant to the separate management agreement with the Portfolio, Advisers
provides investment research and portfolio management services, including the
selection of securities for the Portfolio to purchase, hold or sell, and the
selection of brokers through whom the Portfolio's security transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of The Money Market Portfolios to whom Advisers renders
periodic reports of the investment activities of the Portfolio. Under the terms
of the management agreement, Advisers furnishes the Portfolio with office space
and office furnishings, facilities and equipment required for managing the
business affairs of the Portfolio; 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
Portfolio. The Portfolio is obligated to pay Advisers a monthly fee equal to an
annual rate of 15/100 of 1% of the Portfolio's average net assets.
For the fiscal years ended June 30, 1993, 1994 and 1995, the Portfolio's
management fees, before any advance waiver, were $272,196, $463,296 and
$1,823,637, respectively. Management fees paid by the Portfolio for the fiscal
years ended June 30, 1993, 1994 and 1995 were $229,483, $415,665 and $1,730,028,
respectively.
The management agreement for the Portfolio is in effect until February 29, 1996.
Thereafter, it may continue in effect for successive annual periods, providing
such continuance is specifically approved at least annually by a vote of the
Board of Trustees or by a vote of the holders of a majority of the outstanding
voting securities of the Portfolio, and in either event by a majority vote of
the trustees of The Money Market Portfolios who are not parties to the
management agreement or interested persons of any such party (other than as
trustees), cast in person at a meeting called for that purpose. The management
agreement may be terminated without penalty at any time by The Money Market
Portfolios or by Advisers on 60 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
For the fiscal year ended June 30, 1995, the administration fees, before any
advance waiver, were $23,461. The Fund paid no administration fees for the
fiscal year ended June 30, 1995.
Other Services
Franklin/Templeton Investor Services, Inc. ("Investor Services" or "Shareholder
Services Agent"), a wholly-owned subsidiary of Resources, is the shareholder
servicing agent for the Fund and acts as its transfer agent and dividend-paying
agent. Investor Services is compensated on the basis of a fixed fee per account.
Bank of America NT & SA, 555 California Street, 4th Floor, San Francisco,
California 94104, acts as custodian of the securities and other assets of the
Portfolio and the Fund. Citibank Delaware, One Penn's Way, New Castle, Delaware
19720, acts as custodian for the Fund 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.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Trust's independent auditors. During the fiscal year ended June 30,
1995, their auditing services consisted of rendering an opinion on the financial
statements of the Trust included in the Trust's Annual Report dated June 30,
1995.
Policies Regarding Brokers
Used on Portfolio Transactions
The Fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio. Under the Portfolio's
management agreement with Advisers, the selection of brokers and dealers to
execute transactions in the Portfolio's securities is made by Advisers in
accordance with criteria set forth in the management agreement and any
directions which the Board of Trustees of The Money Market Portfolios may give.
It is not anticipated, however, that the Portfolio will incur a significant
amount of brokerage expense because brokerage commissions are not normally
incurred on investments in short-term debt securities, which are generally
traded on a "net" basis, that is, in principal amounts without the addition or
deduction of brokerage commissions or transfer taxes.
In all purchases and sales of securities for the Portfolio, Advisers seeks the
most favorable prices consistent with the best execution of the orders. So long
as Advisers believes it is obtaining the best execution, it will give
consideration in placing portfolio transactions with broker-dealers furnishing
research, statistical or factual information, or wire or other services to the
Portfolio or to Advisers, including appraisals or valuations of portfolio
securities of the Portfolio. While the information and services provided by
broker-dealers are useful in varying degrees and would generally reduce the
amount of research or services otherwise performed by Advisers and thus reduce
its expenses, they are of indeterminable value and will not reduce the
management fees payable to Advisers by the Portfolio.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolio will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter and purchases from dealers will include the spread
between the bid and the ask price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other services as
mentioned above. No broker or dealer affiliated with the Fund, the Portfolio, or
with Advisers may purchase securities from, or sell securities to, the Fund or
the Portfolio.
Distributors, an affiliate of Advisers, is a member of the National Association
of Securities Dealers, Inc., and it may sometimes be entitled to obtain certain
fees when the Portfolio tenders portfolio securities pursuant to a tender-offer
solicitation. Accordingly, any portfolio securities tendered by the Portfolio
will be tendered through Distributors if it is legally permissible to do so. In
turn, the next management fees payable to Advisers by the Portfolio under the
management agreement will be reduced by the amount of any fees received by
Distributors in cash, less any costs and expenses incurred in connection
therewith.
If purchases or sales of securities for the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in such 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 investment companies
or clients and the amount of securities to be purchased or sold. It is
recognized that in some cases this procedure could possibly 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
purchase 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 period from
July 28, 1992 (effective date of registration) through June 30, 1995, the
Portfolio paid no brokerage commissions.
As of June 30, 1995, the Portfolio did not own the securities of its regular
broker/dealer.
Distribution Plan
The Fund has adopted a distribution plan (the "Plan") pursuant to Rule 12b-1
under the 1940 Act whereby the Fund may pay up to a maximum of 0.25% per annum
of its average daily net assets for expenses incurred in the promotion and
distribution of the Fund's shares.
Pursuant to the Plan, Distributors or others will be entitled to be reimbursed
each quarter (up to the maximum as stated above) for actual expenses incurred in
the distribution and promotion of the Fund's shares, including, but not limited
to, the printing of prospectuses and reports used for sales purposes, expenses
of preparing and distributing sales literature and related expenses,
advertisements, and other distribution-related expenses, including a prorated
portion of Distributors' overhead expenses attributable to the distribution of
Fund shares, as well as any distribution or service fees paid to securities
dealers or their firms or others who have executed a servicing agreement with
the Fund, Distributors or its affiliates.
In addition to the payments to which Distributors or others are entitled under
the Plan, the Plan also provides that to the extent the Fund, Advisers,
Distributors or other parties on behalf of the Fund, Advisers or Distributors,
make payments that are deemed to be payments for the financing of any activity
primarily intended to result in the sale of shares of the Fund within the
context of Rule 12b-1 under the 1940 Act, then such payments shall be deemed to
have been made pursuant to the Plan.
In no event shall the aggregate asset-based sales charges, which include
payments made under the Plan, plus any other payments deemed to be made pursuant
to the Plan, exceed the amount permitted to be paid pursuant to the Rules of
Fair Practice of the National Association of Securities Dealers, Inc., Article
III, Section 26(d)4.
The terms and provisions of the Plan relating to required reports, term, and
approval are consistent with Rule 12b-1. The Plan does not permit unreimbursed
expenses incurred in a particular year to be carried over to or reimbursed in
subsequent years.
To the extent fees are for distribution or marketing functions, as distinguished
from administrative servicing or agency transactions, certain banks will not be
entitled to participate in the Plan as a result of applicable federal law
prohibiting certain banks from engaging in the distribution of mutual fund
shares. Such banking institutions, however, are permitted to receive fees under
the Plan for administrative servicing or for agency transactions. If a bank were
prohibited from providing such services, its customers who are shareholders
would be permitted to remain shareholders of the Fund, and alternate means for
continuing the servicing of such shareholders would be sought. In such an event,
changes in the services provided might occur and such shareholders might no
longer be able to avail themselves of any automatic investment or other services
then being provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these changes.
Securities laws of states in which the Fund's shares are offered for sale may
differ from the interpretations of federal law expressed herein, and banks and
financial institutions selling shares of the Fund may be required to register as
dealers pursuant to state law.
The Plan has been approved in accordance with the provisions of Rule 12b-1. The
Plan must be renewed annually by a vote of the Trust's Board of Trustees,
including a majority vote of the trustees who are non-interested persons of the
Trust and who have no direct or indirect financial interest in the operation of
the Plan, cast in person at a meeting called for that purpose. It is also
required that the selection and nomination of such trustees be done by the
non-interested trustees. The Plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested trustees
on not more than 60 days' written notice, by Distributors on not more than 60
days' written notice, by any act that constitutes an assignment of the
administration agreement or the management agreement with the Advisers, or by
vote of a majority of the Fund's outstanding shares. Distributors or any dealer
or other firm may also terminate their respective distribution or service
agreement at any time upon written notice.
The Plan and any related agreement may not be amended to increase materially the
amount to be spent for distribution expenses without approval by a majority vote
of the Fund's outstanding shares, and all material amendments to the Plan or any
related agreements shall be approved by a vote of the non-interested trustees,
cast in person at a meeting called for the purpose of voting on any such
amendment. Distributors is required to report in writing to the Board of
Trustees, at least quarterly, on the amounts and purpose of any payment made
under the Plan and any related agreement, as well as to furnish the Board of
Trustees with such other information as may reasonably be requested in order to
enable the Board of Trustees to make an informed determination of whether the
Plan should be continued.
For the fiscal year ended June 30, 1995, the total amount paid by the Fund
pursuant to the Plan was $19,156 all of which was paid to broker-dealers.
Determination of Net Asset Value
As noted in the Prospectus, the Fund generally calculates net asset value as of
3:00 p.m. Pacific time each day that the New York Stock Exchange (the
"Exchange") is open for trading. As of the date of this SAI, the Trust 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. Net asset value per share of the Fund is
calculated by adding the value of all securities and other assets in the Fund's
portfolio, deducting its liabilities, and dividing by the number of shares
outstanding.
The valuation of the Portfolio's portfolio securities (including any securities
held in a separate account maintained for when-issued securities) is based upon
their amortized cost, which does not take into account unrealized capital gains
or losses. This 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
Fund computed as described above may tend to be higher than a like computation
made by a fund with identical investments 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 Fund would be able to obtain a somewhat higher yield than would result from
investment in a fund utilizing solely market values, and existing investors in
the Fund would receive less investment income. The converse would apply in a
period of rising interest rates.
The Portfolio's use of amortized cost, which facilitates the maintenance of the
Portfolio's per share net asset value of $1.00, is permitted by a rule adopted
by the Securities and Exchange Commission ("SEC"). Pursuant to this rule, the
Portfolio must adhere to certain conditions. The Portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less, only purchase
instruments having remaining maturities of 397 calendar days or less, and invest
only in those United States dollar-denominated instruments that the Board of
Trustees 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 agencies, instruments
deemed comparable in quality to such rated instruments, or instruments, the
issuers of which, with respect to an outstanding issue of short-term debt that
is comparable in priority and protection, have received a rating within the two
highest categories of nationally recognized statistical rating agencies.
Securities subject to floating or variable interest rates with demand features
in compliance with applicable rules of the SEC may have stated maturities in
excess of one year.
The trustees of The Money Market Portfolios have agreed to establish procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share as computed for the purpose of sales and redemptions at $1.00. Such
procedures will include review of the Portfolio's portfolio holdings by the
trustees, at such intervals as they may deem appropriate, to determine whether
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 trustees. If such deviation exceeds 1/2 of 1%,
the trustees will promptly consider what action, if any, will be initiated. In
the event the trustees determine that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
they will take such corrective action as they regard as necessary and
appropriate, which may include the sale of portfolio instruments prior to
maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redemptions of shares in kind, or establishing
a net asset value per share by using available market quotations.
Additional Information
Regarding Purchases and
Redemptions of Fund Shares
Effectiveness of Purchase Orders
The purchase price for shares of the Fund is the net asset value of such shares
next determined after receipt and acceptance of a purchase order in proper form.
Once shares of the Fund are purchased, they begin earning income immediately,
and income dividends will start being credited to the investor's account on the
effective date of purchase and continue through the business day prior to the
business day such shares are redeemed.
Payments transmitted by wire and received by the custodian and reported by the
custodian to the Fund prior to 3:00 p.m. Pacific time on any business day are
normally effective on the same day as received, provided the Fund is timely
notified as described in the Fund's Prospectus. Wire payments received or
reported by the custodian to the Fund after the time set forth above will be
effective on the next business day.
Payments transmitted by check or other negotiable bank draft will normally be
effective within two business days for checks drawn on a member bank of the
Federal Reserve System and longer for most other checks. All checks are accepted
subject to collection at full face value in United States funds and must be
drawn in United States dollars on a United States bank. Checks drawn in United
States funds on foreign banks will not be credited to the shareholder's account
and dividends will not begin accruing until the proceeds are collected, which
can take a long period of time. The Fund reserves the right, in its sole
discretion, to either (a) reject any order for the purchase or sale of shares
denominated in any other currency, or (b) honor the transaction or make
adjustments to the shareholder's account for the transaction as of a date and
with a foreign currency exchange factor determined by the drawee bank.
Shareholder Accounting
All purchases of Fund shares will be credited to the shareholder in full and
fractional shares of the Fund (rounded to the nearest 1/1000 of a share) in an
account maintained for the shareholder by the Fund's transfer agent. Share
certificates will not be issued.
The Fund reserves the right to reject any order for the purchase of shares of
the Fund and to waive minimum investment requirements. In addition, the offering
of shares of the Fund may be suspended at any time and resumed at any time
thereafter.
Shareholder Redemptions
The Fund will attempt to make payment for all shares redeemed on the day the
request is submitted, provided the Fund is timely notified as described in the
Fund's Prospectus, but in no event later than seven days after receipt by the
Fund of the redemption request in proper form. The Fund reserves the right,
however, to suspend redemptions or postpone the date of payment during any
period when (1) trading on the Exchange is closed for periods other than
weekends and holidays; (2) trading on the Exchange is restricted or an emergency
exists, as determined by the SEC, so that disposal of portfolio securities or
valuation of the net assets of the Fund is not reasonably practicable; or (3)
for such other period as the SEC, by order, may permit for the protection of the
Fund's shareholders. At various times, the Fund may be requested to redeem
shares for which it has not yet received proper payment. Accordingly, the Fund
may delay the sending of redemption proceeds until such time as it has assured
itself that proper payment has been collected for the purchase of such shares.
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 such period (but it may pay more). Such commitment is
irrevocable without the prior approval of the SEC. In the case of requests for
redemption in excess of such amounts, the Board of Trustees 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 such circumstances, the
securities distributed would be valued at the price used to compute the Fund's
net assets. Should the Fund do so, a shareholder may incur brokerage fees in
converting the securities to cash.
Redemptions by the Fund
The Fund reserves the right to redeem, involuntarily, at net asset value, the
shares of any shareholder whose account has a value of less than one-half the
minimum initial required investment for that shareholder, if any, but only where
the value of such account has been reduced by the shareholder's prior voluntary
redemption of shares. Prior to effecting any such involuntary redemption, the
Fund shall notify the shareholder and allow the shareholder 30 days to make an
additional investment in an amount which will increase the aggregate value of
the account in the Fund to at least the minimum initial required investment.
Additional Information Regarding Taxation
As stated in the Prospectus, the Fund has elected to be treated as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). The trustees reserve the right not to maintain the
qualification of the Fund as a regulated investment company if they determine
such course of action to be beneficial to the shareholders. In such 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 as
ordinary income to the extent of its 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 October, November or 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 the shareholder
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.
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 shareholders with the
percentage of any dividends paid which may qualify for such tax-free treatment.
Shareholders should then consult with their own tax advisers with respect to the
application of their state and local laws to these distributions.
Distributions derived from the excess of net long-term capital gain over net
short-term capital loss, if any, are treated as long-term capital gain
regardless of the length of time the shareholder has owned Fund shares and
regardless of whether such distributions are received in cash or in additional
shares.
Redemptions and exchanges of Fund shares are taxable events and may result in a
capital gain or loss. Any loss incurred on the sale or exchange of Fund 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 such shares. Since the
Fund seeks to maintain a stable $1.00 per share price for both purchases and
redemptions, however, shareholders are not expected to realize a capital gain or
loss upon redemption and exchange of Fund shares.
The Portfolio's investments are generally composed of short-term securities and,
under normal circumstances, the Fund (through its investment in the Portfolio)
does not expect to realize any long-term capital gain. Any undistributed net
short-term capital gain which is realized by the Fund from the Portfolio
(adjusted for any daily amounts of unrealized appreciation or depreciation
reported above) will be distributed at least once each year to Fund shareholders
and may be distributed more frequently if necessary in order to avoid federal
excise taxes. Any distributions of short-term capital gain will also be
reinvested in the form of additional Fund shares at net asset value, unless the
shareholder has previously notified the Fund to have them paid in cash.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Fund shares.
The Fund's Underwriter
Pursuant to an underwriting agreement in effect until February 29, 1996,
Distributors acts as principal underwriter in a continuous public offering for
shares of the Fund.
Distributors pays the expenses of 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.
The underwriting agreement will continue in effect for successive annual periods
provided that its continuance is specifically approved at least annually by a
vote of the Trust's Board of Trustees, 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 Trust's trustees who are not parties to the underwriting agreement
or interested persons of any such party (other than as trustees of the Trust),
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.
Performance
As noted in the Prospectus, the Fund may from time to time quote performance
figures to illustrate its past performance.
Current Yield
Current yield reflects the interest income per share earned by the Fund's
investments.
Current yield is computed 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, and then annualizing the result by multiplying the base period
return by (365/7).
The yield for the Fund for the seven-day period ended on June 30, 1995 was
5.76%.
Effective Yield
Effective yield is computed in the same manner except that the annualization of
the return for the seven-day period reflects the results of compounding by
adding 1 to the base period return, raising the sum to a power equal to 365
divided by 7, and subtracting 1 from the result.
The effective yield for the Fund for the seven-day period ended on June 30, 1995
was 5.93%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-1
Comparisons
To help investors better evaluate how an investment in the Fund might satisfy
their investment objective, advertisements and other materials regarding the
Fund may discuss various 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.
Such comparisons may include, but are not limited to, the following examples:
a) Lipper - Mutual Fund Performance Analysis and Lipper - Fixed-Income Fund
Performance Analysis - These publications measure total return and average
current yield for the mutual fund industry. They rank individual mutual fund
performance over specified time periods assuming reinvestment of all
distributions, exclusive of sales charges.
b) Bank Rate Monitor - A weekly publication which reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Bond Buyer - A daily publication which reports various articles as well as
indices.
d) Salomon Brothers Bond Market Roundup - A weekly publication which reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets. Also summarizes changes in banking statistics and
reserve aggregates.
e) IBC/Donoghue's Money Fund Report(R) - Reports industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
f) 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.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived by an investment in
the Fund. Such advertisements or information may include symbols, headlines, or
other material which highlight or summarize the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on certificates of deposit or other investments. Investors 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
certificate of deposit 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 which 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.
Certificates of deposit 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 such comparisons of performance, an investor should keep in mind
that the composition of the investments in the reported indices and averages is
not identical to the Fund's composition of investments, that the averages are
generally unmanaged, and that the items included in the calculations of such
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 this
performance as compared to such other averages.
From time to time, advertisements may depict various ways in which investors may
utilize the Fund to achieve their investment goals and various developments
affecting the Fund, including historical developments in the securities markets.
The following list reflects some of the illustrations that may appear in future
advertisements:
College Costs - College cost estimates will be used to show how an investment in
the Fund can help an investor save for a child's college education. Information
from the College Board may be cited.
Miscellaneous - The Fund may be used in shareholder newsletters as examples of
how investors can meet long-term investment goals. Advertisements may indicate
how Franklin Gift Certificates may be used to purchase shares of the Fund.
The Fund may be listed as a member of the Franklin Group of Funds in shareholder
newsletters.
The Fund may be used in shareholder newsletters as an example of the benefits of
diversification.
The Fund may be used to demonstrate the benefits offered by professional
management.
Advertisements may indicate that as an established presence in the municipal
securities industry, Franklin currently manages over $40 billion in municipal
bond assets. Franklin's municipal bond experience and knowledge of municipal
issuers allows Franklin to offer investment vehicles and services tailored to
the needs of government investors.
Of course, an investment in the Fund cannot guarantee that the shareholder's
goals will be met.
In addition to advertisements regarding the above matters, from time to time
advertisements regarding the Fund or the Franklin Group of Funds(R) may discuss
other matters, including a Dalbar Surveys, Inc.'s broker/dealer survey which
ranked Franklin number one in service quality for five out of the past seven
years.
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 advisers and
underwriter of both the Franklin Group of Funds and the Templeton Group of
Funds.
The Fund is a member of the Franklin Templeton Group, one of the largest mutual
fund organizations in the United States 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 47 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 $125 billion in
assets under management for more than 3.8 million shareholder accounts, in
addition to foundations and endowments, employee benefit plans, and individuals,
and offers 115 U.S.-based mutual funds. The Fund may identify itself by its
NASDAQ or CUSIP number.
Miscellaneous Information
The Fund may deduct from a shareholder's account the costs of its efforts to
locate such shareholder if mail is returned as undeliverable or the Fund is
otherwise unable to locate the shareholder or verify the current mailing
address. These costs may include a percentage of the account, when a search
company charges a percentage fee in exchange for their location services.
Access persons of the Franklin Templeton Group, as defined in SEC Rule 17(j)
under the 1940 Act, who are employees of Resources or its subsidiaries, are
permitted to engage in personal securities transactions subject to the following
general restrictions and procedures: (1) The trade must receive advance
clearance from a Compliance Officer and must be completed within 24 hours after
this clearance; (2) Copies of all brokerage confirmations must be sent to the
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; (3) In addition to items (1) and (2), access persons involved in
preparing and making investment decisions must file annual reports of their
securities holdings each January and also 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.
As of August 3, 1995, the principal shareholders of the Fund, beneficial or of
record, their addresses and the amount of their share ownership were as follows:
Shares Percentage
FTTC TTEE for ValuSelect
401K Plans 815,183 5.49%
1800 Gateway
San Mateo, CA 94404
FTTC TTEE for ValuSelect
CACI International Inc. 3,209,235 21.61%
1800 Gateway
San Mateo, CA 94404
FTTC TTEE for ValuSelect 3,340,905 22.50%
IBEW
1800 Gateway
San Mateo, CA 94404
FTTCTTEE for ValuSelect 4,864,190 32.76%
Mid-State Bank
1800 Gateway
San Mateo, CA 94404
ValuSelect for 911,431 6.14%
Aerospace Techniques Inc.
1800 Gateway
San Mateo, CA 94404
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.
The shareholders of a Massachusetts business trust, such as the Trust, could,
under certain circumstances, be held personally liable as partners for its
obligations. The Trust's Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Trust. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of Trust assets for any shareholder held personally liable for
obligations of the Trust. The Declaration of Trust provides that the Trust
shall, upon request, assume the defense of any claim made against any
shareholder for any act or obligation of the Trust and satisfy any judgment
thereon. All such rights are limited to the assets of the Fund of which a
shareholder holds shares. The Declaration of Trust further provides that the
Trust may maintain appropriate insurance (for example, fidelity, bonding, and
errors and omissions insurance) for the protection of the Trust, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
on account of shareholder liability is limited to circumstances in which both
inadequate insurance exists, and the Fund itself is unable to meet its
obligations.
Special Services
Shareholders or prospective investors may utilize Franklin's IFT Hypothetical
Illustrations Service as a useful tool in considering investments. The service,
which is free of charge, enables an investor to make an actual,
dollar-for-dollar performance comparison of any of the Trust's funds to any
security, pool, or portfolio which the investor may currently be using. It is
based on historical information, and covers any time period the investor desires
after February 4, 1988 (the commencement of dividend payments for two series of
the Trust). The investor simply chooses a series of the Trust to compare and
provides Franklin with a starting date, a starting amount, and all subsequent
purchases or withdrawals. The illustration shows the actual dollar performance
of these actions in the selected series, which the investor can use to compare
to that of the investor's own investment or portfolio.
Investor Services may charge separate fees to shareholders, to be negotiated
directly with such shareholders, for providing special services in connection
with their accounts, such as subaccounting, processing a large number of wires
each month or other special handling that a shareholder may request. Such
special services provided to certain shareholders will not increase the expenses
borne by the Fund.
Summary of Procedures to
Monitor Conflicts of Interest
The Boards of Trustees of The Money Market Portfolios, on behalf of its series
("master fund(s)"), and of the Trust, on behalf of certain of its series which
participate in a master/feeder fund structure ("feeder fund(s)"), (both of which
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
funds in this format. Such potential conflicts of interest could include, among
others: the creation of additional feeder funds with different fee structures;
the creation of additional feeder funds which 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 which
may or may not be acceptable to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Boards
of Trustees have adopted certain procedures, pursuant to which i) the
independent members of the board will review the master/feeder fund structure at
least annually, as well as on an ongoing basis, and report to the full board
after each annual review; ii) if the independent trustees determine that a
situation or proposal presents a potential conflict, they will request a written
analysis from the master fund management describing whether such apparent
potential conflict of interest will impede the operation of any of the
constituent feeder funds and the interests of the feeder fund's shareholders;
and iii) upon receipt of the analysis, such trustees shall review the analysis
and present their conclusion to the full board.
If no actual conflict is deemed to exist, the independent trustees 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 an independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following courses of action: i) suggest a course of
action designed to eliminate the potential conflict of interest; ii) if
appropriate, request that the full board of the Trust submit the potential
conflict to shareholders for resolution; iii) recommend to the full board of the
Trust 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 board of the Trust that a new group of trustees be recommended to the
shareholders of the affected feeder fund for approval; or v) recommend such
other action as may be considered appropriate.
Financial Statements
The financial statements contained in the Annual Report to Shareholders of
Institutional Fiduciary Trust and The Money Market Portfolios dated June 30,
1995, are incorporated herein by reference.
Appendix
A-1, A-2 and Prime-1, Prime-2
Commercial Paper Ratings
Commercial paper rated by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is rated "A" or better. The issuer has access to at least
two additional channels of borrowing. Basic earnings and cash flow have an
upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. The reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determines whether the
issuer's commercial paper is rated A-1 or A-2.
The ratings Prime-1 and Prime-2 are the two highest commercial paper ratings
assigned by Moody's Investor Services, Inc. ("Moody's"). Among the factors
considered by Moody's in assigning ratings are the following: (1) evaluation of
the management of the issuer; (2) economic evaluation of the issuer's industry
or industries and an appraisal of speculative-type risks which may be inherent
in certain areas; (3) evaluation of the issuer's products in relation to
competition and customer acceptance; (4) liquidity; (5) amount and quality of
long-term debt; (6) trend of earnings over a period of ten years; (7) financial
strength of a parent company and the relationships which exist with the issuer;
and (8) recognition by the management of obligations, and preparations to meet
such obligations, which may be present or may arise as a result of public
interest questions. Relative strength or weakness of the above factors
determines whether the issuer's commercial paper is rated Prime-1 or Prime-2.
Description of Moody's corporate
and municipal bond ratings
Aaa - Bonds which are 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 by an 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 - Bonds which are rated Aa are judged to be of 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 as in Aaa securities or 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 than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as 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 - Bonds which are 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.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond ratings. The modifier 1
indicates that the security ranks in the higher end of its generic rating
category. The modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
Description of S&P corporate and municipal bond ratings
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong and, in the majority of instances,
they differ from AAA issues only in small degree.
A - 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.
Municipal Notes
Moody's
Moody's ratings for state and 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, while various 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.
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 usually will 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.
