As filed with the Securities and Exchange Commission on October 31, 1996.
File Nos.
2-96634
811-4267
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 25 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 26 (X)
INSTITUTIONAL FIDUCIARY TRUST
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404 (Address of
Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
HARMON E. BURNS 777 MARINERS ISLAND BLVD. SAN MATEO, CA 94404
(Name and Address of Agent for Service of Process)
Approximate Date of Proposed Public offering:
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on November 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Money Market Portfolios and Adjustable Rate Securities Portfolios (the
Master Funds) have executed this registration statement.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
Title of Proposed Amount
Securities Amount Maximum Proposed of
Being Being Offering Price Aggregate Offering
Registered Registered* Per Share Price* Fee*
- -------------------------------------------------------------------------
Beneficial 164,991,621 $9.83 $289,994 $100
Interest Shares
- -------------------------------------------------------------------------
*Registrant elects to calculate the maximum aggregate offering price pursuant to
Rule 24e-2. 5,843,685,025 shares were redeemed during the fiscal year ended June
30, 1996. 5,678,722,905 shares were used for reductions pursuant to Paragraph
(d) of Rule 24f-2 during the current year. 164,962,120 shares is the amount of
redeemed shares used for reduction in this amendment. Pursuant to 457(d) under
the Securities Act of 1933, the maximum public offering price of $9.83 per share
on October 17, 1996, is the price used as the basis for these calculations. The
maximum public offering price per share varies and, thus, may be higher or lower
than $9.83 in the future. While no fee is required for the 164,962,120 shares,
the registrant has elected to register, for $100, an additional $289,994 of
shares (approximately 29,501 shares at $9.83 per share).
As part of its initial registration statement, the registrant has elected to
register an indefinite number of shares pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended, and hereby continues such election.
The registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on August 29, 1996.
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Franklin Cash Reserves Fund)
N-1A Location in Registration
Item No. Item Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights"; "How
Does the Fund Measure
Performance?"
4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?"; "What Are the Fund's
Potential Risks?";
5. Management of the Fund "Who Administers the Fund?"
5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"; "Who Administers
the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Franklin U.S. Treasury Money Market Portfolio)
N-1A Item Location in Registration
Item No. Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights"; "How
Does the Fund Measure
Performance?"
4. General Description of the "How Is the Trust Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Fund's
Potential Risks?";
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"; "Who Manages the
Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Franklin U.S. Government Agency Money Market Fund)
N-1A Location in Registration
Item No. Item Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights"; "How
Does the Fund Measure
Performance?"
4. General Description of the "How Is the Fund Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Fund's
Potential Risks?";
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"; "Who Manages the
Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Money Market Portfolio and
Franklin U.S. Government Securities Money Market Portfolio)
N-1A Location in Registration
Item No. Item Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights"; "How
Does the Fund Measure
Performance?"
4. General Description of the "How Is the Fund Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Fund's
Potential Risks?";
5. Management of the Fund "Who Administers the Fund?"
5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"; "Who Administers
the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Legal Proceedings Not Applicable
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN PROSPECTUS
(Franklin Institutional Adjustable U.S. Government Securities Fund and Franklin
Institutional Adjustable Rate Securities Fund)
N-1A Location in Registration
Item No. Item Statement
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial Information "Financial Highlights"; "How
Does the Fund Measure
Performance?"
4. General Description of the "How Is the Fund Organized?";
Registrant "How Does the Fund Invest Its
Assets?" "What Are the Fund's
Potential Risks?";
5. Management of the Fund "Who Administers the Fund?"
5A. Management's Discussion of Fund Contained in Registrant's
Performance Annual Report to Shareholders
6. Capital Stock and Other "How Is the Trust Organized?";
Securities "Services to Help You Manage
Your Account"; "What
Distributions Might I Receive
From the Fund?"; "How Taxation
Affects You and the Fund"
7. Purchase of Securities Being "How Do I Buy Shares?"; "May I
Offered Exchange Shares for Shares of
Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"; "Who Administers
the Fund?"; "Useful Terms and
Definitions"
8. Redemption or Repurchase "May I Exchange Shares for
Shares of Another Fund?";
"Transaction Procedures and
Special Requirements";
"Services to Help You Manage
Your Account"
9. Legal Proceedings Not Applicable
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
(Franklin Cash Reserves Fund)
N-1A Location in Registration
Item No. Item Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History See Prospectus "How is the
Trust Organized?"
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Management and
Other Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and
Other Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and
Services Other Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Portfolio Buy
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the
Securities Trust Organized?"
19. Purchase, Redemption and Pricing "How Do I Buy, Sell and
of Securities Being Offered Exchange Shares?"; "How Are
Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
(Franklin U.S. Treasury Money Market Portfolio)
N-1A Location in Registration
Item No. Item Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History See Prospectus "How is the
Trust Organized?"
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Advisory and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Advisory and Other
Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Fund Buy
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the
Securities Trust Organized?"
19. Purchase, Redemption and Pricing "How Do I Buy, Sell and
of Securities Being Offered Exchange Shares?"; "How Are
Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
(Franklin U.S. Government Agency Money Market Fund)
N-1A Location in Registration
Item No. Item Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History See Prospectus "How is the
Trust Organized?"
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Advisory and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Advisory and Other
Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Fund Buy
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the
Securities Trust Organized?"
19. Purchase, Redemption and Pricing "How Do I Buy, Sell and
of Securities Being Offered Exchange Shares?"; "How Are
Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
(Money Market Portfolio and Franklin U.S. Government Securities Money Market
Portfolio)
N-1A Location in Registration
Item No. Item Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History See Prospectus "How is the
Trust Organized?"
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Management and
Other Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Management and
Other Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Management and
Services Other Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Portfolio Buy
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the
Securities Trust Organized?"
19. Purchase, Redemption and Pricing "How Do I Buy, Sell and
of Securities Being Offered Exchange Shares?"; "How Are
Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in
STATEMENT OF ADDITIONAL INFORMATION
(Franklin Institutional Adjustable U.S. Government Securities Fund and Franklin
Institutional Adjustable Rate Securities Fund)
N-1A Location in Registration
Item No. Item Statement
10. Cover Page Cover Page
11. Table of Contents Contents
12. General Information and History See Prospectus "How is the
Trust Organized?"
13. Investment Objectives and "How Does the Fund Invest Its
Policies Assets?"; "Investment
Restrictions"
14. Management of the Registrant "Officers and Trustees";
"Investment Advisory and Other
Services"
15. Control Persons and Principal "Officers and Trustees";
Holders of Securities "Investment Advisory and Other
Services"; "Miscellaneous
Information"
16. Investment Advisory and Other "Investment Advisory and Other
Services Services"; "The Fund's
Underwriter"
17. Brokerage Allocation "How Does the Portfolio Buy
Securities for Its Portfolio?"
18. Capital Stock and Other See Prospectus "How Is the
Securities Trust Organized?"
19. Purchase, Redemption and Pricing "How Do I Buy, Sell and
of Securities Being Offered Exchange Shares?"; "How Are
Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of Performance Data "How Does the Fund Measure
Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS
Franklin Cash Reserves Fund
INVESTMENT STRATEGY
INCOME
NOVEMBER 1, 1996
Institutional Fiduciary Trust
This prospectus describes the Franklin Cash Reserves Fund (the "Fund"), a
no-load diversified series of the Institutional Fiduciary Trust (the "Trust").
It contains information you should know before investing in the Fund. Please
keep it for future reference.
The Fund's SAI, dated November 1, 1996, as may be amended from time to time,
includes more infor-
mation about the Fund's procedures and policies. It has been filed with the SEC
and is incorporated by reference into this prospectus. For a free copy, call
1-800/321-8563 or write the Fund at the address shown.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Shares of the Fund involve investment risks, including the possible
loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Unlike most funds that invest directly in securities, the Fund seeks to achieve
its investment objective by investing all of its assets in shares of The Money
Market Portfolio (the "Portfolio"), a series of The Money Market Portfolios
("Money Market").
This prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
The Portfolio may invest in both domestic and foreign short-term securities.
Franklin Cash Reserves Fund
November 1, 1996
When reading this prospectus, you will see certain terms that are capitalized.
This means the term is explained in our glossary section.
Table of Contents
About the Fund
Expense Summary............................. 2
Financial Highlights........................ 3
How does the Fund Invest its Assets?........ 4
What are the Fund's Potential Risks?........ 9
Who Administers the Fund?................... 10
How does the Fund Measure Performance?...... 11
How is the Trust Organized?................. 12
How Taxation Affects You and the Fund....... 12
About Your Account
How do I Buy Shares?........................ 14
May I Exchange Shares for Shares of Another Fund? 15
How do I Sell Shares?....................... 17
What Distributions Might I Receive from the Fund? 19
Transaction Procedures and Special Requirements 20
Services to Help You Manage Your Account.... 23
Glossary
Useful Terms and Definitions................ 24
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/321-8563
Franklin Cash Reserves Fund
About the Fund
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended June 30, 1996. Your
actual expenses may vary.
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) $5.00*
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management and Administration Fees 0.16%**
12b-1 Fees 0.21%***
Other Expenses of the Fund and the Portfolio 0.12%
Total Fund Operating Expenses 0.49%**
C. Example
The following example assumes the Fund's annual return is 5% and its
operating expenses are as described above. For each $1,000 investment, you
would pay the following projected expenses if you sold after the number of
years shown.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$5 $16 $27 $62
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown.
The Fund pays its operating expenses. The effects of these expenses are
reflected in its Net Asset Value or dividends and are not directly charged to
your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**Advisers has agreed in advance to limit its management and/or administration
fees in order to reduce Fund expenses for the current fiscal year. Absent this
fee reduction, management and administration fees and total operating expenses
would have been 0.40% and 0.73%, respectively.
***Maximum 12b-1 fees allowed under the plan is 0.25%.
The Board considered whether the total fees and expenses of the Fund and the
Portfolio would be more or less than if the Fund invested directly in the types
of securities held by the Portfolio. By investing all of its assets in shares of
the Portfolio, the Fund and other investment companies and institutional
investors are able to pool their assets. This may result in a variety of
operating economies. Accordingly, the Board concluded that the total expenses of
the Fund and the Portfolio were expected to be lower than if the Fund invested
directly in various types of money market instruments. Of course, there is no
guarantee that asset growth and lower expenses will be achieved. Advisers,
however, has agreed in advance to limit expenses so that they will not be higher
than if the Fund invested directly in the types of securities held by the
Portfolio. For more information on the fees and expenses of the Fund and the
Portfolio, please see "Who Administers the Fund?"
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report for each of the two fiscal years ended on June 30, 1996 appears in
the financial statements in the Trust's Annual Report to Shareholders for the
fiscal year ended June 30, 1996. The Annual Report to Shareholders also includes
more information about the Fund's performance. For a free copy, please call Fund
Information.
Year Ended June 30 1996 1995
Per Share Operating Performance
Net asset value at beginning of year $1.00 $1.00
Net investment income 0.052 0.052
Distributions From Net Investment Income (0.052) (0.052)
Net asset value at end of year $1.00 $1.00
Total Return* 5.35% 5.34%
Ratios/Supplemental Data
Net assets at end of year (in 000's) $30,381 $14,545
Ratio of expenses to average net assets1,2 0.49% 0.40%
Ratio of net investment income to average net assets 5.10% 5.69%
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at net asset value.
1Includes the Fund's share of the Portfolio's allocated expenses.
2Advisers agreed in advance to waive a portion of its administration fees and
the management fees of the Portfolio. Had such action not been taken the ratio
of expenses to average net assets would have been 0.79% and 0.73% for the fiscal
years ended June 30, 1995 and 1996, respectively.
How does the Fund Invest its Assets?
The Fund is a mutual fund that is commonly known as a "money market fund." The
Fund attempts to maintain a share value of $1, but there is no guarantee that
this can be accomplished.
The Fund's Investment Objectives
The investment objectives of the Fund are high current income consistent with
capital preservation and liquidity. The Fund seeks to achieve its objectives by
investing all of its assets in the Portfolio. The investment objectives of the
Portfolio are the same as the Fund's. The investment policies of the Fund are
also substantially similar to the Portfolio's except, in all cases, the Fund may
pursue its policies by investing in an open-end management investment company
with the same investment objective and substantially similar policies and
restrictions as the Fund. Any additional exceptions are noted below.
The Fund acquires shares of the Portfolio at Net Asset Value. An investment in
the Fund is an indirect investment in the Portfolio. The investment objectives
of both the Fund and the Portfolio are fundamental and may not be changed
without shareholder approval. Of course, there is no assurance that the Fund's
objectives will be achieved.
The Fund's Master/Feeder Fund Structure
An investment in the Fund may be subject to certain risks due to the Fund's
structure. These risks include the potential that if other future shareholders
in the Portfolio sell their shares, the Fund's expenses may increase or the
economies of scale that have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could also have effective
voting control over the operation of the Portfolio. Furthermore, if shareholders
of the Fund do not approve a proposed future change in the Fund's 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 it to be in the best interest of the Fund, the Fund may
withdraw its investment in the Portfolio at any time. In that event, the Board
would consider what action to take, including the investment of all of the
assets of the Fund in another pooled investment entity with the same investment
objectives and substantially similar policies as the Fund or the hiring of an
investment advisor to manage the Fund's investments. Either circumstance may
cause an increase in Fund expenses.
The Fund's structure is a relatively new format that often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement this structure, and the
Board does not believe the additional complexities outweigh the potential
benefits to be gained by shareholders.
The Fund's investment of all of its assets in the Portfolio was previously
approved by shareholders of the Fund. Whenever the Fund, as an investor in the
Portfolio, is asked to vote on a matter relating to the Portfolio, the Fund will
hold a meeting of Fund shareholders and will cast its votes in the same
proportion as the Fund's shareholders have voted.
The Franklin Funds have three other funds that invest in the Portfolio, one of
which, the Franklin Templeton Money Fund II, is available only to Class II
shareholders in the Franklin Templeton Funds pursuant to that fund's exchange
privilege. In the future, other funds may be created that may likewise invest in
the Portfolio or existing funds may be restructured so that they may invest in
the Portfolio. If requested, we will forward additional information to you about
other funds through which you may invest in the Portfolio. If you would like to
receive this information, please call our Institutional Services Department at
1-800/321-8563.
Money Market is an open-end management investment company organized as a
Delaware business trust on June 16, 1992, and is registered with the SEC under
the 1940 Act. Money Market currently issues shares in two separate series. In
the future, additional series may be added by the Board of Trustees of Money
Market.
For information on the Fund's administrator and its expenses, please see "Who
Administers the Fund?"
What Investments does the Portfolio make?
The Portfolio follows certain procedures required by federal securities laws
with respect to the quality, maturity and diversification of its investments and
thus only invests in Eligible Securities. The Portfolio maintains a dollar
weighted average maturity of the securities in its portfolio of 90 days or less.
The Portfolio may invest in various types of money market instruments, that
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).
U.S. Government Securities. The Portfolio may invest in U.S. government
securities that consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government ("U.S. government securities"). Certain of these obligations,
including U.S. Treasury bills, notes, and bonds and securities of the Government
National Mortgage Association (popularly called "GNMAs" or "Ginnie Maes") and
the Federal Housing Administration, are issued or guaranteed by the U.S.
government or carry a guarantee supported by the full faith and credit of the
U.S. government. Other U.S. government securities are issued or guaranteed by
federal agencies or government-sponsored enterprises and are not direct
obligations of the U.S. government but involve sponsorship or guarantees by
government agencies or enterprises. These obligations include securities
supported by the right of the issuer to borrow from the U.S. Treasury, such as
obligations of the Federal Home Loan Bank, and securities supported by the
credit of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds. Bank Obligations. The Portfolio may invest in bank obligations
or instruments secured by bank obligations. These instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as "Yankee Dollar
Investments") and foreign branches of foreign banks ("Foreign Bank
Investments"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars. The Portfolio may
invest no more than 25% of its assets in obligations of foreign branches of U.S.
or foreign banks. The Portfolio may, however, invest more than 25% of its assets
in certain domestic bank obligations. Investments in obligations of U.S.
branches of foreign banks, that are considered domestic banks, may only be made
if such branches have a federal or state charter to do business in the U.S. and
are subject to U.S. regulatory authorities. See "What are the Fund's Potential
Risks?" below for more information regarding these investments.
Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The Portfolio may not invest more than 10% of its assets in time
deposits with maturities in excess of seven calendar days.
Commercial Paper. The Portfolio may also invest in commercial paper of domestic
or foreign issuers. Commercial paper obligations may include variable amount
master demand notes that are obligations that permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Portfolio may increase the amount provided
by the note agreement, or decrease the amount, and the borrower may repay up to
the full amount of the note without penalty. The borrower is often a large
industrial or finance company that also issues commercial paper. Typically,
these notes provide that the interest rate is set daily by the borrower; the
rate is usually the same or similar to the interest on other commercial paper
being issued by the borrower. Because variable amount master demand notes are
direct lending arrangements between the lender and the borrower, it is not
generally contemplated that these instruments will be traded, and there is no
secondary market for these notes, although they are redeemable (and thus
immediately repayable by the borrower) at face value plus accrued interest at
any time. Accordingly, the Portfolio's right to redeem depends on the ability of
the borrower to pay principal and interest on demand. Advisers will consider
earning power, cash flow and other liquidity ratios of the issuer. The Portfolio
has no specific limits on aggregate investments in master demand notes and will
invest in notes of only U.S. issuers considered Eligible Securities.
Corporate Obligations. The corporate obligations that the Portfolio may buy are
fixed, floating and variable rate bonds, debentures or notes that are considered
by the Portfolio to be Eligible Securities.
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 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.
Other Investment Policies of the Portfolio
The Portfolio may not invest more than 5% of its total assets in the securities
of companies (including predecessors) which have been in continuous operation
for less than three years, nor invest more than 25% of its total assets in any
particular industry. The Portfolio may, however, invest more than 25% of its
assets in certain domestic bank obligations. The foregoing limitations do not
apply to U.S. government securities and federal agency obligations, or to
repurchase agreements fully collateralized by these government securities or
obligations, although certain tax diversification requirements apply to
investments in repurchase agreements and other securities that are not treated
as U.S. government obligations under the Code.
Because the Portfolio limits its investments to high quality securities, the
Portfolio, and thus the Fund, will generally earn lower yields than if the
Portfolio purchased securities with a lower rating and correspondingly higher
expected rate of return.
When-Issued or Delayed Delivery Transactions. The Portfolio may also buy and
sell securities on a "when-issued" and "delayed delivery" basis. The price is
subject to market fluctuation and the value at delivery may be more or less than
the purchase price.
Repurchase Agreements. The Portfolio may engage in repurchase transactions in
which the Portfolio buys a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating the collateral.
The Portfolio, however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are deemed
creditworthy by Advisers. A repurchase agreement is deemed to be a loan by the
Portfolio under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of the Portfolio by a custodian approved
by Money Market Board of Trustees and will be held pursuant to a written
agreement.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees of Money Market and subject to the following conditions, the
Portfolio may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 25% of the
value of the Portfolio's total assets at the time of the most recent loan. The
borrower must deposit with the Portfolio's custodian bank collateral with an
initial market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 100%. This collateral shall consist of cash, securities
issued by the U.S. government, its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Portfolio may engage in security loan arrangements with
the primary objective of increasing the Portfolio's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Portfolio continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
Illiquid Investments. The Portfolio may not invest more than 10% of its net
assets in securities subject to legal or contractual restrictions on resale,
securities that are not readily marketable, or enter into repurchase agreements
or master demand notes with more than seven days to maturity. These securities
are generally securities that cannot be sold within seven days in the normal
course of business at approximately the amount at which the Portfolio has valued
them.
Borrowing: As a fundamental policy the Portfolio may borrow from banks for
temporary or emergency purposes only and pledge its assets for such loans in
amounts up to 5% of the Portfolio's total assets. No new investments will be
made by the Portfolio while any outstanding loans exceed 5% of its total assets.
Active Trading. Whenever the Portfolio believes market conditions are such that
yields could be increased by actively trading the portfolio securities to take
advantage of short-term market variations, the Portfolio may do so without
restriction or limitation (subject to the tax requirements for qualification as
a regulated investment company). Typically, this trading involves additional
risks of loss to the extent the 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 Portfolio invests.
Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
Other Policies and Restrictions. The Fund and the Portfolio have a number of
additional investment restrictions that limit their activities to some extent.
Some of these restrictions may only be changed with shareholder approval. For a
list of these restrictions and more information about the Fund's and the
Portfolio's investment policies, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.
What are the Fund's Potential Risks?
Foreign Securities Risk. Any of the Portfolio's Eurodollar Investments, Yankee
Dollar Investments, Foreign Bank Investments or investments in commercial paper
of foreign issuers involve risks that are different from investments in
obligations of domestic entities. These risks may include seizure of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions that may affect the payment of principal or interest on securities
the Portfolio holds. There may also be less publicly available information about
foreign banks or foreign issuers of commercial paper.
When-Issued and Delayed Delivery Transactions Risk. These transactions are
subject to market fluctuation and the value at delivery may be more or less than
the purchase price. In when-issued and delayed delivery transactions, the
Portfolio relies on the seller to complete the transaction. The seller's failure
to complete the transaction may cause the Portfolio to miss a price or yield
considered to be advantageous. Securities bought on a when-issued or delayed
delivery basis do not generally earn interest until their scheduled delivery
date.
Credit and Market Risk. Credit risk is a function of the ability of an issuer of
a security to make timely interest payments and to pay the principal of a
security upon maturity. It is generally reflected in a security's underlying
credit rating and its stated interest rate (normally, the coupon rate). A change
in the credit risk associated with a security may cause a corresponding change
in the security's price. Market risk is the risk of price fluctuation of a
security caused by changes in general economic and interest rate conditions
generally affecting the market as a whole. A security's maturity length also
affects its price. Generally, when interest rates rise the value of a security
will fall, and vice versa. The short duration of the Eligible Securities in
which the Fund invests generally reduces this price fluctuation.
Who Administers the Fund?
The Board. The Board oversees the management of the Trust and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the Trust and Money Market having substantially the same
boards. These procedures call for an annual review of the Fund's relationship
with the Portfolio. If a conflict exists, the boards may take action, which may
include the establishment of a new board. The Board has determined that there
are no conflicts of interest at the present time. For more information, please
see "Summary of Procedures to Monitor Conflicts of Interest" and "Officers and
Trustees" in the SAI.
Investment Manager and Administrator. Advisers is the investment manager of the
Portfolio and other funds with aggregate assets of over $82 billion. Advisers is
also the administrator of the Fund. It is wholly owned by Resources, a publicly
owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources.
Services Provided by Advisers. Advisers manages the Portfolio's assets and makes
its investment decisions. Advisers also provides certain administrative services
and facilities for the Fund and performs similar services for other funds.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
Management Fees. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the Fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the Fund depends on the Fund's proportionate share of the Portfolio's
net assets.
During the fiscal year ended June 30, 1996, the Fund's proportionate share of
the Portfolio's management fee and its administration fee, absent a fee waiver,
would have been 0.15% and 0.25%, respectively, of the average daily net assets
of the Fund, with total operating expenses of 0.73%. Advisers has agreed in
advance, however, to waive or limit its fees and pay other expenses of the Fund
in order to keep total expenses to a maximum of 0.49% until at least June 30,
1997. This arrangement may be terminated at any time after June 30, 1997, upon
notice to the Board.
Portfolio Transactions. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How does the
Portfolio Buy Securities for its Portfolio?" in the SAI for more information.
The Fund's Rule 12b-1 Plan
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for activities primarily intended to sell
shares of the Fund. Covered expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.25% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. For more information, please see "The
Fund's Underwriter" in the SAI.
How does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
How is the Trust Organized?
The Fund is a no-load, diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on January 15, 1985 and is registered with the SEC
under the 1940 Act. Shares of each series of the Trust have equal and exclusive
rights to dividends and distributions declared by that series and the net assets
of the series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes. In the
future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends you receive from the Fund,
as well as any distributions derived from the excess of net short-term capital
gain over net long-term capital loss, are treated as ordinary income whether you
have elected to receive them in cash or in additional shares.
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 59 1/2 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, you 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 the
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes.
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 liable 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 need to be paid over to the U.S. Treasury as rebatable arbitrage earnings in
accordance with the provisions of the Code.
You should consult your tax advisor with respect to the applicability of state
and local intangible property or income taxes to your Fund shares and
distributions and redemption proceeds you receive from the Fund.
If you are not considered a U.S. person for federal income tax purposes you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions you receive from the Fund and
the application of foreign tax laws to these distributions.
About Your Account
How do I Buy Shares?
Opening Your Account
You may buy shares of the Fund without a sales charge. The Fund is available
exclusively to retirement plan participants and other institutional investors,
including corporations, banks, savings and loan associations and government
entities. Shares of the Fund may not otherwise be bought by individuals. In the
case of retirement plans, there is no required minimum initial investment amount
and shares of the Fund bought 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
the limitations. Shares of the Fund may also be bought 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.
METHOD STEPS TO FOLLOW
By Wire
See "Holiday Schedule" under "Transactions Procedures and Special Requirements"
1. Call us at 1-800/321-8563 or 1-415/312-3600 by 11:15
a.m. Pacific time, except on holidays or the day before
or the day after a holiday, to receive that day's
credit and be eligible to receive that day's dividend.
You will receive a wire control number. A new number is
needed every time you wire money into your account. If
you do not have a currently effective wire control
number, we will return the money to the sending bank
and it will not be credited to your account. If we do
not receive your call by 11:15 a.m. Pacific time you
will not be given credit until the following business
day and you will be eligible to receive the dividend on
that day.
2. Wire the funds to Bank of America, ABA routing number
21000358, for credit to Franklin Cash Reserves Fund,
A/C 149304779. Your name and wire control number must
be included. Wire orders called in by the above
deadline and received by the close of the Federal
Reserve Wire System (3:00 p.m. Pacific time currently)
will receive that day's credit. Wires received after
3:00 p.m. Pacific time will receive credit the
following business day.
METHOD STEPS TO FOLLOW
By Wire 3. For initial investments, you must also complete
and sign a shareholder account application and return
it to the Fund.
*If your order is for more than $50,000, you must first
file with the Fund an Institutional Telephone
Privileges Agreement.
By Mail 1. Complete and sign a shareholder account application.
2. Return the application to the Fund with your check,
Federal Reserve draft or negotiable bank draft made
payable to the Fund. Instruments drawn on other
investment companies may not be accepted.
Through Your Dealer Call your investment representative
The investment authority of certain institutional investors may be restricted by
law. If you are such an investor, you should consult with expert counsel to
determine whether and to what extent shares of the Fund would be legal
investments for you. If you are a municipal investor, you should also consult
with expert counsel to determine the effect, if any, of payments by the Fund on
arbitrage rate calculations if you are considering investing proceeds of bond
offerings.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange").
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
METHOD STEPS TO FOLLOW
By Mail Send us written instructions signed by all account
owners of record or previously designated signers
By Phone Call our Institutional Services Department at
1-800/321-8563
*If you wish to exchange shares in excess of $50,000
please be sure a completed Institutional Telephone
Privilege Agreement is on file with the Fund.
METHOD STEPS TO FOLLOW
Through Your Dealer Call your investment representative
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
Will Sales Charges Apply to My Exchange?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors are allowed to
purchase all Franklin Templeton Funds at Net Asset Value. These include
government entities, employee benefit plans, trust companies and bank trust
departments.
How We Process Your Exchange
o If you are exchanging from the Fund to another series of the Trust, the
exchange will be processed the day your request is received prior to 11:15 a.m.
Pacific time, except on holidays or the day before or the day after a holiday,
with payment for the shares bought processed on the following business day. See
also "Holiday Schedule" under "Transactions Procedures and Special
Requirements."
o If you are exchanging from the Fund into another Franklin Templeton Fund
within the same class, the exchange will be processed at the respective Net
Asset Value or Offering Price of the funds involved on the day your request is
received prior to the above deadline. If your request is received after the
deadline, you will get the next day's price.
o If you are exchanging into the Fund from another Franklin Templeton Fund
within the same class the transaction will be processed as a liquidation from
the other fund on the day the exchange is received in proper form prior to the
time of valuation for that fund (as noted in that fund's prospectus) and shares
of the Fund will be bought on the following business day when the money for
purchase is available and your request is considered to be in proper form.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered. Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o Retirement plan participants may be able to use the exchange privilege if the
option is available under, and by following the requirements of, their plan and
plan administrator. Your plan administrator may charge a fee for this service.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
Limited Class II Exchanges
If retirement plan assets are only temporarily invested in the Fund pending
final allocation or investment instructions involving Class II shares, Fund
shares may be exchanged for Class II shares of another Franklin Templeton Fund.
The time the shares are held in the Fund will not count, however, towards the
Contingency Period for purposes of the Contingent Deferred Sales Charge on Class
II shares. This privilege is not available to retirement plan assets that were
previously subject to a sales charge in another Franklin Templeton Fund.
How do I Sell Shares?
You may sell (redeem) your shares at any time.
METHOD STEPS TO FOLLOW
By Wire
See "Holiday Schedule" under "Transactions Procedures and Special Requirements"
1. Call your redemption request to our Institutional
Services Department at 1-800/321-8563 as early as
possible but before 11:15 a.m. Pacific time, except on
holidays or the day before or the day after a holiday,
if you want the money wired the same business day. If
we receive your order after 11:15 a.m. Pacific time,
the funds will generally be wired on the following
business day.
METHOD STEPS TO FOLLOW
By Wire 2. If you anticipate requiring funds in excess of
$5 million you should notify the Fund the day before.
o You may redeem shares up to $50,000. If you wish to
redeem in excess of $50,000 you need to have on file an
Institutional Telephone Privileges Agreement.
o You cannot use redemption orders to send funds to
another person or to an account which you have not
previously designated in writing.
By Mail 1. Send us written instructions signed by all account
owners or previously designated signers
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may need
to send additional documents. Accounts under court
jurisdiction may have additional requirements.
Through Your Dealer Call your investment representative
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive from the Fund?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day we receive your
money or settlement of a wire order trade, as noted in "How Do I Buy Shares?"
and continues to accrue through the day we receive your request to sell your
shares or the settlement of a wire order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. The Fund does not pay
"interest" or guarantee any amount of dividends or return on an investment in
its shares.
Dividend Options
Dividends are declared daily and 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. Daily allocation will begin on the day your
purchase order is processed as noted under "How do I Buy Shares?"
If you complete the "Special Payment Instructions for Dividends" section of the
shareholder application included with this prospectus, you may direct your
dividends to buy the same class of shares of another Franklin Templeton Fund
(without a sales charge or imposition of a Contingent Deferred Sales Charge).
Many shareholders find this a convenient way to diversify their investments.
You may also choose to receive dividends in cash. If you send the money to a
checking account, please see "Electronic Fund Transfers" under "Services to Help
You Manage Your Account."
Retirement Plan participants need to check their individual plans for available
options.
Transaction Procedures and Special Requirements
How and When Shares Are Priced
The Fund is open for business and its Net Asset Value is calculated every day
that both the San Francisco Fed and the Exchange are open for trading.
We determine the Net Asset Value per share at 12:30 p.m. Pacific time. To
calculate Net Asset Value per share, the Fund's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets, is divided by
the number of shares outstanding. The Fund's assets are valued as described
under "How are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund.
Holiday Schedule
The deadline to call in your request to buy, exchange or redeem shares for the
Fund is 11:15 a.m. Pacific time, except on holidays, the day before or the day
after a holiday.
The following holiday closings have been scheduled for 1997: New Year's Day, Dr.
Martin Luther King, Jr. Day , Presidents' Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day (observed), Veterans' Day,
Thanksgiving Day and Christmas Day. Although the Funds expect the same holiday
schedule to be observed in the future, the San Francisco Fed or the Exchange may
modify its holiday schedule at any time. On any day before or following an
Exchange or San Francisco Fed holiday, or on any day in which the Public
Securities Association recommends an early closing, the Fund reserves the right
to advance the time on that day by which notice of wire order purchase and wire
order redemption orders must be received in order to receive same day credit or
redemption. You are urged to place your order as early in the day as possible on
a day before or following a holiday. If securities in the Fund's portfolio are
traded in other markets on days the San Francisco Fed or the Exchange is closed,
the Fund's Net Asset Value may be affected at a time when you do not have access
to the Fund to buy or redeem shares. Other Franklin Templeton Funds may follow
different holiday closing schedules.
Proper Form
An order to buy shares is in proper form when we receive your signed shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
account owners of record or previously designated signers, with a signature
guarantee if necessary.
Many of the Fund's investments, through the Portfolio, must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the San Francisco Fed and elsewhere. The Fund generally cannot invest money
received from you until it is converted into and is available to the Fund in
federal funds. Therefore, your purchase order may not be considered in proper
form until the money received from you is available in federal funds, which may
take up to two days. If the Fund is able to make investments immediately (within
one business day), it may accept your order with payment in other than federal
funds. Written Instructions
Written instructions must be signed by all account owners of record or
previously designated signers. To avoid any delay in processing your
transaction, they should include:
o Your name as shown on the account,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Confirmations
PLEASE NOTE THAT WE WILL CREDIT YOUR SHARES TO YOUR FUND ACCOUNT. WE DO NOT
ISSUE SHARE CERTIFICATES. YOU MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF
CERTIFICATES.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call our
Institutional Services Department at 1-800/321-8563.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal, corporate or
other identifying information, and will also record calls. For your protection,
we may delay a transaction or not implement one if we are not reasonably
satisfied that telephone instructions are genuine. If this occurs, we will not
be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Trust Company Retirement Plan Accounts. You may not sell shares or change
distribution options on Trust Company retirement plans by phone. While you may
exchange shares of Trust Company IRA and 403(b) retirement accounts by phone,
certain restrictions may be imposed on other retirement plans.
To obtain any required forms or more information about distribution or transfer
procedures, please call our Retirement Plans Department at 1-800/527-2020.
Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Services to Help You Manage Your Account
Rights of Accumulation
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
Electronic Fund Transfers
You may choose to have distributions from the Fund sent directly to a checking
account. If the checking account is with a bank that is a member of the
Automated Clearing House, the payments may be made automatically by electronic
funds transfer. If you choose this option, please allow at least fifteen days
for initial processing. We will send any payments made during that time to the
address of record on your account.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call us if you would like an additional free
copy of the Fund's financial reports or an interim quarterly report.
Telephone Transactions
All requirements for telephone transactions cover the ones transmitted by
facsimile or computer. Please refer to the sections of this prospectus that
discuss the transactions you would like to make or call our Institutional
Services Department at 1-800/321-8563.
Availability of These Services
The services above are available to most shareholders. The Fund may, however,
not be able to offer these services directly to you if the shares are held by a
financial institution, in a street name account, or if you are a participant in
a retirement plan 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 receive
detailed instructions on how to access or make use of the various options
offered by the Fund.
What If I Have Questions About My Account?
If you have any questions about your account, you may call our Institutional
Services Department at 1-800/321-8563, Monday through Friday, from 6:00 a.m to
5:00 p.m. Pacific time.
If you are a ValuSelect plan participant you may obtain current price, yield and
performance information regarding the Franklin Templeton Funds included in the
plan by calling KeyFACTSSM at 1-800/KEY-2110.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
Glossary
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Eligible Securities - Investments are limited to U.S. dollar denominated
instruments that:
o The Board of Trustees of Money Market determines present minimal credit risks.
o Are rated in one of the two highest rating categories by nationally recognized
statistical rating organizations, or that are unrated but of comparable quality.
o Have remaining maturities of 397 calendar days or less.
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
San Francisco Fed - Federal Reserve Bank of San Francisco
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
Trust Company - Franklin Templeton Trust Company. Trust Company is an affiliate
of Distributors and both are wholly owned subsidiaries of Resources.
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or another wholly owned
subsidiary of Resources.
Institutional
Fiduciary Trust
Prospectus
November 1, 1996
Franklin U.S. Treasury
Money Market Portfolio
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777
1-800/321-8563
This prospectus describes the Franklin U.S. Treasury Money Market Portfolio (the
"Fund") a series of Institutional Fiduciary Trust (the "Trust"). It contains
information you should know before investing in the Fund. Please keep it for
future reference.
The Fund's SAI, dated November 1, 1996, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/321-8563 or
write the Fund at the address shown.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Shares of the Fund involve investment risks, including the possible
loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.
TABLE OF CONTENTS
About the Fund
Expense Summary 3
Financial Highlights 4
How does the Fund Invest its Assets? 4
Who Manages the Fund? 5
How does the Fund
Measure Performance? 6
How is the Trust Organized? 6
How Taxation Affects
You and the Fund 7
About Your Account
How Do I Buy Shares? 8
May I Exchange Shares
for Shares of Another Fund? 9
How Do I Sell Shares? 10
What Distributions Might I
Receive from the Fund? 12
Transaction Procedures
and Special Requirements 12
Services to Help You
Manage Your Account 14
Glossary
Useful Terms and Definitions 15
- --------------------------------------------------------------------------------
When reading this prospectus, you will see certain terms that are capitalized.
This means the term is explained in our glossary section.
ABOUT THE FUND
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
June 30, 1996. Your actual expenses may vary.
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) $5.00*
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.25%**
Rule 12b-1 Fees 0.00%***
Other Expenses 0.05%
Total Fund Operating Expenses 0.30%**
C. Example
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
1 Year 3 Years 5 Years 10 Years
$3 $10 $17 $38
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, management fees and
total Fund operating expenses were 0.14% and 0.19% respectively.
***The Board has adopted a distribution plan or Rule 12b-1 plan under which it
may reimburse Distributors or others for distribution expenses up to 0.15%
annually of the Fund's average daily net assets. The Fund has not been required
to make payments for these expenses.
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report appears in the financial statements in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996. The Annual Report to
Shareholders also includes more information about the Fund's performance. For a
free copy, please call 1-800/321-8563.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended June 30 1996 1995 1994 1993 1992+
Per Share Operating Performance
Net asset value at beginning of year $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.052 0.051 0.032 0.031 0.035
Distributions From Net Investment Income (0.052) (0.051) (0.032) (0.031) (0.035)
Net asset value at end of year $1.00 $1.00 $1.00 $1.00 $1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total Return** 5.29% 5.17% 3.23% 3.14% 3.59%
Ratios/Supplemental Data
Net assets at end of year (in 000's) $123,157 $200,935 $195,135 $179,232 $194,223
Ratio of expenses to average net assets++ 0.19% 0.10% 0.05% 0.05% 0.02%*
Ratio of net investment income to average net assets 5.20% 5.05% 3.17% 3.12% 4.38%*
</TABLE>
*Annualized
**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at Net Asset Value.
+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 of
the Fund. Had such action not been taken, the ratios of expenses to average net
assets would have been as follows:
1996 1995 1994 1993 1992+
Ratio of expense to
average net assets 0.30% 0.30% 0.30% 0.35% 0.31%*
How does the Fund Invest its Assets?
The Fund's Investment Objective
The investment objective of the Fund is to seek as high a level of current
income as is consistent with capital preservation and liquidity. The objective
is a fundamental policy of the Fund and may not be changed without shareholder
approval. Of course, there is no assurance that the Fund's objective will be
achieved. The Fund also attempts to maintain a stable Net Asset Value of $1.00
per share, although there is no assurance that this will be achieved.
Types of Securities the Fund May Invest In
The Fund follows certain procedures required by federal securities laws with
respect to the quality, maturity and diversification of its investments and thus
only invests in Eligible Securities. These procedures are designed to help
maintain a stable $1.00 share price. The Fund maintains a dollar weighted
average maturity of the securities in its portfolio of 90 days or less.
The Fund invests only in U.S. Treasury securities. By itself, the Fund does not
constitute a balanced investment plan. You 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.
U.S. Treasury Securities. These securities are supported by the full faith and
credit of the U.S. 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 more 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. The 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 Fund may purchase short-term securities on a when-issued or delayed delivery
basis. These transactions are arrangements in which the Fund buys securities
with payment and delivery scheduled for a future time. The price is 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 its investment objective and policies, and 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 bought on a when-issued or delayed delivery basis do not generally
earn interest until their scheduled delivery date.
Other Investment Policies of the Fund
Borrowing. The Fund may borrow from banks, for temporary emergency purposes
only, and pledge its assets for these loans, up to 5% of its 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.
Active Trading. 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, this trading involves additional
risks of loss to the extent the 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 Fund invests.
Credit Union Investors. The Fund believes that its investment policy makes 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 October 31, 1996. CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Please see "How does the Fund Invest its
Assets? - Credit Union Investment Regulations" in the SAI for details.
Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
Other Policies and Restrictions. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
Who Manages the Fund?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
Investment Manager. Advisers is the investment manager of the Fund and other
funds with aggregate assets of over $82 billion. It is wholly owned by
Resources, a publicly owned company engaged in the financial services industry
through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal shareholders of Resources.
Services Provided by Advisers. Advisers manages the Fund's assets and makes its
investment decisions. FT Services, the Fund's administrator, provides certain
administrative facilities and services for the Fund pursuant to a subcontract
with Advisers. Advisers also provides certain administrative services and
facilities for the Fund and performs similar services for other funds. Please
see "Investment Advisory and Other Services" and "Miscellaneous Information" in
the SAI for more information on securities transactions and a summary of the
Fund's Code of Ethics.
Management Fees. During the fiscal year ended June 30, 1996, management fees and
total operating expenses, before any advance waiver, totaled 0.25% and 0.30%,
respectively, of the average net assets of the Fund. Under an agreement by
Advisers to limit its fees, the Fund paid management fees and total operating
expenses totaling 0.14% and 0.19%. Advisers may end this arrangement at any time
upon notice to the Board.
Portfolio Transactions. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How does the Fund
Buy Securities for its Portfolio?" in the SAI for more information.
The Fund's Rule 12b-1 Plan
The Fund has a distribution plan or Rule 12b-1 plan under which it may reimburse
Distributors or others for activities primarily intended to sell shares of the
Fund. Covered expenses may include, among others, distribution or service fees
paid to Securities Dealers or others who have executed a servicing agreement
with the Fund, Distributors or its affiliates, printing prospectuses and reports
used for sales purposes, preparing and distributing sales literature and
advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.15% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. For more information, please see "The
Fund's Underwriter" in the SAI.
How does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
How is the Trust Organized?
The Fund is a no-load, diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on January 15, 1985, and is registered with the SEC
under the 1940 Act. Shares of each series of the Trust have equal and exclusive
rights to dividends and distributions declared by that series and the net assets
of the series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes. In the
future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
Each series in the Trust is treated as a separate entity for federal income tax
purposes. The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends received 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 received
in cash or in additional shares.
Since the Fund seeks to maintain a stable $1.00 per share price for both
purchases and redemptions, you 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 you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of those 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.
You should consult with your tax advisor with respect to the applicability of
state and local intangible property or income taxes to your shares of the Fund
and to distributions and redemption proceeds received from the Fund.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions you receive from the Fund and
the application of foreign tax laws to these distributions.
ABOUT YOUR ACCOUNT
How Do I Buy Shares?
Opening Your Account
The Fund is designed for institutional investors, 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
these entities. Individuals may not buy shares of the Fund. Fund shares are
offered without a sales charge.
MINIMUM
INVESTMENTS*
- -------------------------------------------------------------------------------
To Open Your Account............... $100,000
To Add to Your Account............. no minimum
*Except for states, counties, cities, and their instrumentalities, departments,
agencies and authorities who may open an account in the Fund with a minimum
initial investment of $1,000. We may refuse any order to buy shares or waive the
minimum investment requirement.
Method Steps to Follow
- --------------------------------------------------------------------------------
By Mail 1. For an initial investment, complete an application.
2. Return the application, if applicable, to the Fund with
your check, Federal Reserve draft or negotiable bank
draft made payable to the Fund. Instruments drawn on
other investment companies may not be accepted.
- --------------------------------------------------------------------------------
By Wire
See "Holiday Schedule" under "Transaction Procedures and Special Requirements"
1. Call the Fund at 1-800/321-8563 to receive a wire
control number. A new number is needed every time you
wire money into your account. If you do not have a
currently effective wire control number, we will return
the money to the bank and it will not be credited to
your account. You must make your request to begin the
wire order process no later than 11:15 a.m. Pacific
time.
2. Wire the funds to Bank of America, ABA routing number
121000358, for credit to Institutional Fiduciary
Trust-Franklin U.S. Treasury Money Market Portfolio,
A/C 1493-3-04779. Your account number, account
registration and wire control number must be included.
3. For initial investments, complete an application and
return it to the Fund. For investments over $50,000,
you also need to complete the Institutional Telephone
Privileges Agreement.
- --------------------------------------------------------------------------------
Through Your Dealer Call your investment representative
- -------------------------------------------------------------------------------
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
If you are a municipal investor, you should consult with expert counsel to
determine the effect, if any, of payments by the Fund on arbitrage rebate
calculations if you are considering investing proceeds of bond offerings, and
whether and to what extent shares of the Fund are legal investments for you.
More Information About Buying Shares by Wire
Wire trades placed by the above deadlines will receive same day credit so long
as funds are received as described above. In order to maximize efficient Fund
management, please place your order and wire your investment as early in the day
as possible. Prior business day notification of a 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.
If the Fund receives your wired funds before 3:00 p.m. Pacific time, they will
be credited to your account that day. Later wires are credited the following
business day.
Payments to Securities Dealers
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
May I Exchange Shares
for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
Method Steps to Follow
- -------------------------------------------------------------------------------
By Mail Send us written instructions signed by all account owners
- -------------------------------------------------------------------------------
By Phone 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement. Call
Institutional Services to receive a copy.
- --------------------------------------------------------------------------------
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
Will Sales Charges Apply to My Exchange?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, certain retirement plans, trust companies and bank trust departments,
may buy Class I shares of other Franklin Templeton Funds without a sales charge.
How We Process Your Exchange
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.
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 before 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.
From another fund in the Franklin Templeton Funds into the Fund. In order to
avoid dilution of the Funds, these 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.
Retirement Plans
Retirement plan participants may exchange shares 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.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the
same class.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How Do I Sell Shares?
You may sell (redeem) your shares at any time.
Method Steps to Follow
- --------------------------------------------------------------------------------
By Mail 1. Send us written instructions signed by
all account owners
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts
may need to send additional documents.
Accounts under court jurisdiction may have additional requirements.
- --------------------------------------------------------------------------------
By Phone
See "Holiday Schedule" under "Transaction Procedures and Special Requirements"
1. Call Institutional Services at
1-800/321-8563
2. For requests over $50,000, you must
complete an Institutional Telephone
Privileges Agreement. Call Institutional
Services to receive a copy.
3. Telephone requests will be accepted
unless the address on your account was
changed by phone within the last 30 days.
- --------------------------------------------------------------------------------
We will send your redemption check within seven days after we receive your
request in proper form. We are not able to receive or pay out cash in the form
of currency. If you sell your shares by phone, the check may only be made
payable to all registered owners on the account and sent to the address of
record. If requested, redemption proceeds may also be wired directly to a
commercial bank previously designated by you on an application, or in a
signature guaranteed letter of instruction.
A payment may be transmitted by wire the same business day if the phone request
is received before 11:15 a.m. Pacific time that day. For later requests,
payments will be transmitted by wire on the following business day. If you
anticipate requesting a same day wire redemption over $5 million, please notify
the Fund about this on the prior business day. In order to maximize efficient
fund management, please request your same day wire redemption of any size as
early in the day as possible. Prior business day notification of the trade may
be required.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive from the Fund?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. The Fund does not pay
"interest" or guarantee any amount of dividend or return on an investment in its
shares.
Dividend Options
Dividends will automatically be reinvested monthly in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may, however, choose to receive
dividends in cash. To do so, please notify the Fund or Institutional Services.
Certain restrictions may apply 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 is expected to
remain at $1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of your investment in the Fund,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in your account.
Transaction Procedures
and Special Requirements
How and When Shares are Priced
The Fund is open for business each day that both the Exchange and the San
Francisco Fed are open. We determine the Net Asset Value per share at 12:30 p.m.
Pacific time. To calculate Net Asset Value per share, the Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form.
Holiday Schedule
In order to receive same day credit for transactions, you need to transmit your
request to buy, sell or exchange shares to the Fund by 11:15 a.m. Pacific time,
except on holidays or the day before or after a holiday.
The Fund is informed that the Exchange and/or the San Francisco Fed observe the
following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day (observed), Veterans' Day, Thanksgiving Day and Christmas Day. Although the
Fund expects the same holiday schedule to be observed in the future, the San
Francisco Fed or the Exchange may modify its holiday schedule at any time. On
any day before or after an Exchange or San Francisco Fed holiday, or on any day
when the Public Securities Association recommends an early closing, the Fund
reserves the right to set an earlier time for notice and receipt of wire order
purchase and redemption orders submitted for same day credit or redemption.
Please place your trades as early in the day as possible on a day before or
after a holiday. To the extent that the Fund's portfolio securities are traded
in other markets on days the San Francisco Fed or the Exchange is closed, the
Fund's Net Asset Value may be affected when investors do not have access to the
Fund to buy or sell shares. Other Franklin Templeton Funds may follow different
holiday closing schedules.
Proper Form
An order to buy shares is in proper form when we receive your signed application
and check or wired funds. Many of the Fund's investments must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the of San Francisco Fed and elsewhere. The Fund generally cannot invest money
received from you until it is converted into and is available to the Fund in
federal funds. Therefore, your purchase order may not be considered in proper
form until the money received from you is available in federal funds, which may
take up to two days. If the Fund is able to make investments immediately (within
one business day), it may accept your order with payment in other than federal
funds.
Written requests to sell or exchange shares are in proper form when we receive
written instructions signed by all registered owners, with a signature guarantee
if necessary.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm
account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
Telephone Transactions
You may initiate many transactions by phone, including by facsimile or computer.
Please refer to the sections of this prospectus that discuss the transaction you
would like to make or call Institutional Services at 1-800/321-8563.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal, corporate or
other identifying information, and will also record calls. For your protection,
we may delay a transaction or not implement one if we are not reasonably
satisfied that telephone instructions are genuine. If this occurs, we will not
be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Retirement Plans. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan. Required Documents
For corporate, partnership and trust accounts, please send us the following
documents when you open your account. This will help avoid delays in processing
your transactions while we verify who may sign on the account.
Type of Account Documents Required
- -------------------------------------------------------------------------------
Corporation Corporate Resolution
- -------------------------------------------------------------------------------
Partnership 1. The pages from the partnership agreement that identify the
general partners, or
2. A certification for a partnership agreement
- -------------------------------------------------------------------------------
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
- -------------------------------------------------------------------------------
Tax Identification Number
For tax reasons, we must have your correct tax identification number on a signed
application or applicable tax form. Federal law requires us to withhold 31% of
your taxable distributions and sale proceeds if (i) you have not furnished a
certified correct taxpayer identification number, (ii) you have not certified
that withholding does not apply, (iii) the IRS or a Securities Dealer notifies
the Fund that the number you gave us is incorrect, or (iv) you are subject to
backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $20,000 (or one-half the
minimum required investment, whichever is less). We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to the
minimum amount.
Services to Help You Manage Your Account
Rights of Accumulation
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares toward the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
For additional information regarding these programs, please call Institutional
Services at 1-800/321-8563.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o request duplicate statements, and deposit slips.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 043.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. Call
Institutional Services if you would like an additional free copy of the Fund's
financial reports or an interim quarterly report.
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.
Availability of These Services
Certain of the programs and privileges described in this prospectus may not be
available directly from the Fund if your shares are held by a financial
institution or in a street name account.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The Fund, Distributors, and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563, Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
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.
GLOSSARY
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940,
as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - The 12 month period during which a Contingent Deferred
Sales Charge may apply. Regardless of when during the month you purchased
shares, they will age one month on the last day of that month and each following
month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Eligible Securities - Investments limited to U.S. dollar denominated instruments
that:
o the Board determines present minimal credit risks,
o are rated in one of the two highest rating categories by nationally recognized
statistical rating organizations, or are unrated but of comparable quality, and
o that have remaining maturities of 397 calendar days or less
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FT Services - Franklin Templeton Services, Inc., administrator of the Fund
Institutional Services - Franklin Templeton Institutional Services Department
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
San Francisco Fed - Federal Reserve Bank of San Francisco
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
Institutional
Fiduciary Trust
Prospectus
November 1, 1996
Franklin U.S. Government Agency
Money Market Fund
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/321-8563
This prospectus describes the Franklin U.S. Government Agency Money Market Fund
(the "Fund"), a series of Institutional Fiduciary Trust (the "Trust"). It
contains information you should know before investing in the Fund. Please keep
it for future reference.
The Fund's SAI, dated November 1, 1996, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/321-8563 or
write the Fund at the address shown.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Shares of the Fund involve investment risks, including the possible
loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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.
TABLE OF CONTENTS
About the Fund Page
Expense Summary 3
Financial Highlights 4
How does the Fund Invest its Assets? 4
Who Manages the Fund? 6
How does the Fund Measure Performance? 6
How is the Trust Organized? 7
How Taxation Affects You and the Fund 7
About Your Account
How Do I Buy Shares? 8
May I Exchange Shares for Shares
of Another Fund? 9
How Do I Sell Shares? 11
What Distributions Might I
Receive from the Fund? 12
Transaction Procedures and
Special Requirements 13
Services to Help You Manage Your Account 15
Glossary
Useful Terms and Definitions 16
When reading this prospectus, you will see certain terms that are capitalized.
This means the term is explained in our glossary section.
ABOUT THE FUND
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses for the fiscal year ended
June 30, 1996. Your actual expenses may vary.
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) $5.00*
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fees 0.15%**
Rule 12b-1 Fees 0.27%***
Other Expenses .O5%
Total Fund Operating Expenses 0.47%**
C. Example
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
1 Year 3 Years 5 Years 10 Years
$5 $15 $26 $59
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without a
fee.
**Advisers has agreed in advance to limit its management fees and make certain
payments to reduce the Fund's expenses. With this reduction, management fees and
total Fund operating expenses were 0.12% and 0.44% respectively.
***The Board has adopted a distribution plan or Rule 12b-1 plan under which it
may reimburse Distributors or others for distribution expenses up to 0.30%
annually of the Fund's average daily net assets.
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report appears in the financial statements in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996. The Annual Report to
Shareholders also includes more information about the Fund's performance. For a
free copy, please call 1-800/321-8563.
Year Ended June 30 1996 1995 1994+
PER SHARE OPERATING PERFORMANCE
Net asset value at
beginning of year $1.00 $1.00 $1.00
Net investment income 0.051 0.051 0.013
Distributions From Net
Investment Income (0.051) (0.051) (0.013)
Net asset value at end of year $1.00 $1.00 $1.00
Total Return** 5.23% 5.22% 1.31%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of year (in 000's) $71,694 $34,285 $5,065
Ratio of expenses to average
net assets++ 0.44% 0.30% 0.40%*
Ratio of net investment income
to average net assets 5.04% 5.39% 3.32%*
*Annualized
**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at Net Asset Value.
+For the period February 8, 1994 (effective date) to June 30, 1994.
++During the periods indicated, the investment manager agreed in advance to
waive a portion of its management fees and made payments of other expenses of
the Fund. Had such action not been taken, the ratios of expenses to average net
assets would have been 1.43% (annualized), 0.47% and 0.47%, for 1994, 1995 and
1996, respectively.
How does the Fund Invest its Assets?
The Fund's Investment Objective
The Fund's investment objectives are capital preservation and liquidity, while
seeking high current income consistent with capital preservation and liquidity.
The objectives are fundamental policies of the Fund and may not be changed
without shareholder approval. Of course, there is no assurance that the Fund's
objectives will be achieved. The Fund also attempts to maintain a stable Net
Asset Value of $1.00 per share, although there is no assurance that this will be
achieved.
Types of Securities the Fund May Invest In
The Fund follows certain procedures required by federal securities laws with
respect to the quality, maturity and diversification of its investments and thus
only invests in Eligible Securities. These procedures are designed to help
maintain a stable $1.00 share price. The Fund maintains a dollar weighted
average maturity of the securities in its portfolio of 90 days or less.
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. 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 more 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 buys securities with payment and delivery
scheduled for a future time. The price is 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 its investment objective and
policies, and 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 bought on a when-issued or
delayed delivery basis do not generally earn interest until their scheduled
delivery date.
Other Investment Policies of the Fund
Borrowing. The Fund may borrow from banks, under certain circumstances, and
pledge up to 5% of its net assets for such loans. Illiquid Investments. 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.
Active Trading. 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, this trading involves additional
risks of loss to the extent the 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 Fund invests.
Credit Union Investors. 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 October 31, 1996. CREDIT UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN
LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND
CONSTITUTE LEGAL INVESTMENTS FOR THEM. Please see "How does the Fund Invest its
Assets? Credit Union Investment Regulations" in the SAI for details.
Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
Other Policies and Restrictions. The Fund has a number of additional investment
restrictions that limit its activities to some extent. Some of these
restrictions may only be changed with shareholder approval. For a list of these
restrictions and more information about the Fund's investment policies, please
see "How does the Fund Invest its Assets?" and "Investment Restrictions" in the
SAI.
Who Manages the Fund?
The Board. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
Investment Manager. Advisers is the investment manager of the Fund and other
funds with aggregate assets of over $82 billion. It is wholly owned by
Resources, a publicly owned company engaged in the financial services industry
through its subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the
principal shareholders of Resources.
Services Provided by Advisers. Advisers manages the Fund's assets and makes its
investment decisions. FT Services, the Fund's administrator, provides certain
administrative facilities and services for the Fund pursuant to a subcontract
with Advisers. Please see "Investment Advisory and Other Services" and
"Miscellaneous Information" in the SAI for more information on securities
transactions and a summary of the Fund's Code of Ethics.
Management Fees. During the fiscal year ended June 30, 1996, management fees and
total operating expenses, before any advance waiver, totaled 0.15% and 0.47%,
respectively, of the average daily net assets of the Fund. Under an agreement by
Advisers to limit its fees, the Fund paid management fees and total operating
expenses totaling 0.12% and 0.44%. Advisers may end this arrangement at any time
upon notice to the Board.
Portfolio Transactions. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How does the Fund
Buy Securities For its Portfolio?" in the SAI for more information.
The Fund's Rule 12b-1 Plan
The Fund has a distribution plan or Rule 12b-1 plan under which it may reimburse
Distributors or others for activities primarily intended to sell shares of the
Fund. These expenses may include, among others, distribution or service fees
paid to Securities Dealers or others who have executed a servicing agreement
with the Fund, Distributors or its affiliates, printing prospectuses and reports
used for sales purposes, preparing and distributing sales literature and
advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.15% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. For more information, please see "The
Fund's Underwriter" in the SAI.
How does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
How is the Trust Organized?
The Fund is a no-load, diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on January 15, 1985, and is registered with the SEC
under the 1940 Act. Shares of each series of the Trust have equal and exclusive
rights to dividends and distributions declared by that series and the net assets
of the series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes. In the
future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
Conversion to a Master/Feeder Structure
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 this approval is not required, shareholders will be deemed to have
consented to the 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.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
Each series in the Trust is treated as a separate entity for federal income tax
purposes. The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends received 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 received
in cash or in additional shares.
Since the Fund seeks to maintain a stable $1.00 per share price for both
purchases and redemptions, you 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 you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of those 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.
You should consult with your tax advisor with respect to the applicability of
state and local intangible property or income taxes to your shares of the Fund
and to distributions and redemption proceeds received from the Fund.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisors regarding the applicability
of U.S. withholding or other taxes to distributions you receive from the Fund
and the application of foreign tax laws to these distributions.
ABOUT YOUR ACCOUNT
How Do I Buy Shares?
Opening Your Account
The Fund is designed for institutional investors, 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
these entities. Individuals may not buy shares of the Fund. Fund shares are
offered without a sales charge.
MINIMUM
INVESTMENTS*
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To Open Your Account............... $100,000
To Add to Your Account............. no minimum
*Except for states, counties, cities, and their instrumentalities, departments,
agencies and authorities who may open an account in the Fund with no minimum
initial investment. We may refuse any order to buy shares or waive the minimum
investment requirement.
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Method Steps to Follow
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By Mail 1. For an initial investment, complete an application.
2. Return the application, if applicable, to the Fund with your check, Federal Reserve
draft or negotiable bank draft made payable to the Fund. Instruments drawn on other
investment companies may not be accepted.
See "Holiday Schedule" under "Transaction Procedures and Special Requirements"
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By Wire 1. Call the Fund at 1-800/321-8563 to receive a wire control number. A
new number is needed every time you wire money into your account. If you do not
have a currently effective wire control number, we will return the money to the
bank and it will not be credited to your account. You must make your request to
begin the wire order process no later than 11:15 a.m. Pacific time.
2. Wire the funds to Bank of America, ABA routing number 121000358, for credit to
Institutional Fiduciary Trust-Franklin U.S. Government Agency Money Market Fund,
A/C 1493-3-04779. Your name, account registration and wire control number must be included.
3. For initial investments, complete an application and return it to the Fund. For
investments over $50,000 you also need to complete the Institutional Telephone Privileges
Agreement. Please call for a copy.
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Through Your Dealer Call your investment representative
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When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
If you are a municipal investor, you should consult with expert counsel to
determine the effect, if any, of payments by the Fund on arbitrage rebate
calculations if you are considering investing proceeds of bond offerings, and
whether and to what extent shares of the Fund are legal investments for you.
More Information About Buying Shares by Wire
Wire trades placed by the above deadlines will receive same day credit so long
as funds are received as described above. In order to maximize efficient Fund
management, please place your order and wire your investment as early in the day
as possible. Prior business day notification of a 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.
If the Fund receives your wired funds before 3:00 p.m. Pacific time, they will
be credited to your account that day. Later wires are credited the following
business day.
Payments to Securities Dealers
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
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Method Steps to Follow
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By Mail Send us written instructions signed by all account owners
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By Phone 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete an Institutional Telephone Privileges Agreement.
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Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
Will Sales Charges Apply to My Exchange?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, certain retirement plans, trust companies and bank trust departments,
may buy Class I shares of other Franklin Templeton Funds without a sales charge.
How We Process Your Exchange
From the Fund into any other series of the Trust. The exchange will be effected
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 Fund.
From the Fund into Class I shares of other Franklin Templeton Funds. The
exchange will be effected at the respective Net Asset Value or offering price of
the funds involved next computed on the day on which the request is received in
proper form before 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.
From another fund in the Franklin Templeton Funds into the Fund. In order to
avoid dilution of the Fund, these 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.
Retirement Plans
Retirement plan participants may exchange shares 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.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange
out of the Fund within two weeks of an earlier exchange request, (ii)
exchange shares out of the Fund more than twice in a calendar quarter, or
(iii) exchange shares equal to at least $5 million, or more than 1% of the
Fund's net assets. Shares under common ownership or control are combined
for these limits. If you exchange shares as described in this paragraph,
you will be considered a Market Timer. Each exchange by a Market Timer, if
accepted, will be charged $5.00. Some of our funds do not allow investments
by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How Do I Sell Shares?
You may sell (redeem) your shares at any time.
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Method Steps to Follow
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By Mail 1. Send us written instructions signed by all account owners
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may need to send additional documents.
Accounts under court jurisdiction may have additional requirements.
See "Holiday Schedule" under "Transaction Procedures and Special Requirements"
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By Phone 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete an Institutional Telephone Privileges
Agreement. Call Institutional Services to receive a copy.
3. Telephone requests will be accepted unless the address on your account was changed
by phone within the last 30 days.
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We will send your redemption check within seven days after we receive your
request in proper form. We are not able to receive or pay out cash in the form
of currency. If you sell your shares by phone, the check may only be made
payable to all registered owners on the account and sent to the address of
record. If requested, redemption proceeds may also be wired directly to a
commercial bank previously designated by you on an application, or in a
signature guaranteed letter of instruction.
A payment may be transmitted by wire the same business day if the phone request
is received before 11:15 a.m. Pacific time that day. For later requests,
payments will be transmitted by wire on the following business day. If you
anticipate requesting a same day wire redemption over $5 million, please notify
the Fund about this on the prior business day. In order to maximize efficient
fund management, please request your same day wire redemption of any size as
early in the day as possible. Prior business day notification of the trade may
be required.
Telephone redemption orders may not be used to direct payments to another party
or non-designated account. Written instructions will be required.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive from the Fund?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day after we receive
your money or settlement of a wire order trade and continues to accrue through
the day we receive your request to sell your shares or the settlement of a wire
order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. The Fund does not pay
"interest" or guarantee any amount of dividends or return on an investment in
its shares.
Dividend Options
Dividends will automatically be reinvested monthly in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may, however, choose to receive
dividends in cash. To do so, please notify the Fund or Institutional Services.
Certain restrictions may apply 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 is expected to
remain at $1.00 per share immediately after each such determination and dividend
declaration. Any increase in the value of your investment in the Fund,
representing the reinvestment of dividend income, is reflected by an increase in
the number of shares in your account.
Transaction Procedures
and Special Requirements
How and When Shares are Priced
The Fund is open for business each day that both the Exchange and the San
Francisco Fed are open. We determine the Net Asset Value per share at 12:30 p.m.
Pacific time. To calculate Net Asset Value per share, the Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund's assets are
valued as described under "How are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form.
Holiday Schedule
In order to receive same day credit for transactions, you need to transmit your
request to buy, sell or exchange shares to the Fund by 11:15 a.m. Pacific time,
except on holidays or the day before or after a holiday.
The Fund is informed that the Exchange and/or the San Francisco Fed observe the
following holidays: New Year's Day, Dr. Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day (observed), Independence Day, Labor Day, Columbus
Day (observed), Veterans' Day, Thanksgiving Day and Christmas Day. Although the
Fund expects the same holiday schedule to be observed in the future, the San
Francisco Fed or the Exchange may modify its holiday schedule at any time. On
any day before or after an Exchange or San Francisco Fed holiday, or on any day
when the Public Securities Association recommends an early closing, the Fund
reserves the right to set an earlier time for notice and receipt of wire order
purchase and redemption orders submitted for same day credit or redemption.
Please place your trades as early in the day as possible on a day before or
after a holiday. To the extent that the Fund's portfolio securities are traded
in other markets on days the San Francisco Fed or the Exchange is closed, the
Fund's Net Asset Value may be affected when investors do not have access to the
Fund to buy or sell shares. Other Franklin Templeton Funds may follow different
holiday closing schedules.
Proper Form
An order to buy shares is in proper form when we receive your signed application
and check or wired funds. Many of the Fund's investments must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the San Francisco Fed and elsewhere. The Fund generally cannot invest money
received from you until it is converted into and is available to the Fund in
federal funds. Therefore, your purchase order may not be considered in proper
form until the money received from you is available in federal funds, which may
take up to two days. If the Fund is able to make investments immediately (within
one business day), it may accept your order with payment in other than federal
funds.
Written requests to sell or exchange shares are in proper form when we receive
written instructions signed by all registered owners, with a signature guarantee
if necessary.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening
if preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
Telephone Transactions
You may initiate many transactions by phone, including by facsimile or computer.
Please refer to the sections of this prospectus that discuss the transaction you
would like to make or call Institutional Services at 1-800/321-8563.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify
the identity of the caller. When you call, we will request personal, corporate
or other identifying information, and will also record calls. For your
protection, we may delay a transaction or not implement one if we are not
reasonably satisfied that telephone instructions are genuine. If this occurs, we
will not be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Retirement Plans. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan.
Required Documents
For corporate, partnership and trust accounts, please send us the following
documents when you open your account. This will help avoid delays in processing
your transactions while we verify who may sign on the account.
<TABLE>
<CAPTION>
Type of Account Documents Required
- -----------------------------------------------------------------------------------------------------
<S> <C>
Corporation Corporate Resolution
- -----------------------------------------------------------------------------------------------------
Partnership 1. The pages from the partnership agreement that identify the general partners, or
2. A certification for a partnership agreement
- -----------------------------------------------------------------------------------------------------
Trust 1. The pages from the trust document that identify the trustees, or
2. A certification for trust
- -----------------------------------------------------------------------------------------------------
</TABLE>
Tax Identification Number
For tax reasons, we must have your correct tax identification number on a signed
application or applicable tax form. Federal law requires us to withhold 31% of
your taxable distributions and sale proceeds if (i) you have not furnished a
certified correct taxpayer identification number, (ii) you have not certified
that withholding does not apply, (iii) the IRS or a Securities Dealer notifies
the Fund that the number you gave us is incorrect, or (iv) you are subject to
backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
Due to the relatively high cost of maintaining a small account, we may close
your account if the value of your shares is less than $20,000 (or one-half the
minimum required investment, whichever is less). We will only do this if the
value of your account fell below this amount because you voluntarily sold your
shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to the
minimum amount.
Services to Help You Manage Your Account
Rights of Accumulation
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares toward the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
For additional information regarding these programs, please call Institutional
Services at 1-800/321-8563.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
and
o request duplicate statements, and deposit slips.
You will need the Fund's code number to use TeleFACTS. The Fund's code is 046.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your
account, including additional purchases and dividend reinvestments. Please
verify the accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. Call
Institutional Services if you would like an additional free copy of the
Fund's financial reports or an interim quarterly report.
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.
Availability of These Services
Certain of the programs and privileges described in this prospectus may not be
available directly from the Fund if your shares are held by a financial
institution or in a street name account.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The Fund, Distributors and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563 Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
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.
GLOSSARY
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - The 12 month period during which a Contingent Deferred
Sales Charge may apply. Regardless of when during the month you purchased
shares, they will age one month on the last day of that month and each following
month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Eligible Securities - Investments limited to U.S. dollar denominated instruments
that:
o the Board determines present minimal credit risks,
o are rated in one of the two highest rating categories by nationally
recognized statistical rating organizations, or are unrated but of
comparable quality, and
o that have remaining maturities of 397 calendar days or less
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FT Services - Franklin Templeton Services, Inc., administrator of the Fund
Institutional Services - Franklin Templeton Institutional Services Department
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
San Francisco Fed - Federal Reserve Bank of San Francisco
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
Institutional Fiduciary Trust
Prospectus
November 1, 1996
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
This prospectus describes the Money Market Portfolio (the "Money Fund") and the
Franklin U.S. Government Securities Money Market Portfolio (the "U.S. Securities
Fund"), two no-load diversified series of the Institutional Fiduciary Trust (the
"Trust"). References in the prospectus to the "Fund," unless the context
indicates that an individual fund is being referenced, are to both the Money
Fund and the U.S. Securities Fund. The prospectus contains information you
should know before investing in the Fund. Please keep it for future reference.
The Fund's SAI, dated November 1, 1996, as may be amended from time to time,
includes more information about the Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy, call 1-800/321-8563 or write the Fund at the address shown.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will be able to maintain a
stable net asset value of $1.00 per share.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Shares of the Fund involve investment risks, including the possible
loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Unlike most funds that invest directly in securities, the Money Fund seeks to
achieve its investment objective by investing all of its assets in shares of The
Money Market Portfolio (the "Money Portfolio") and the U.S. Securities Fund by
investing in The U.S. Government Securities Money Market Portfolio (the "U.S.
Securities Portfolio"), two diversified series of The Money Market Portfolios
("Money Market"). References in the prospectus to the "Portfolio," unless the
context indicates that an individual portfolio is being referenced, are to both
the Money Portfolio and the U.S.
Securities Portfolio.
This prospectus is not an offering of the securities herein described in any
state in which the offering is not authorized. No sales representative, dealer,
or other person is authorized to give any information or make any
representations other than those contained in this prospectus. Further
information may be obtained from Distributors.
The Money Portfolio may invest in both domestic and foreign short-term
securities.
TABLE OF CONTENTS
About the Fund
Expense Summary 3
Financial Highlights 4
How does the Fund Invest its Assets? 5
What are the Fund's Potential Risks? 10
Who Administers the Fund? 11
How does the Fund Measure Performance? 12
How is the Trust Organized? 12
How Taxation Affects You and the Fund 13
About Your Account
How do I Buy Shares? 14
May I Exchange Shares for Shares of Another Fund? 15
How do I Sell Shares? 16
What Distributions Might I Receive From the Fund? 18
Transaction Procedures and Special Requirements 18
Services to Help You Manage Your Account 21
Glossary
Useful Terms and Definitions 23
When reading this prospectus, you will see certain terms that are capitalized.
This means the term is explained in our glossary section.
ABOUT THE FUND
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended June 30, 1996. Your
actual expenses may vary.
<TABLE>
<CAPTION>
<S> <C> <C>
Money U.S. Securities
Fund Fund
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) 5.00* $5.00*
B. Annual Fund Operating Expenses
(as a percentage of average net assets)
Management and Administration Fees 0.15%** 0.13%**
12b-1 Fees 0.00%*** 0.00%*
Other Expenses of the Fund and the Portfolio 0.05% 0.07%
Total Fund Operating Expenses 0.20%** 0.20**
</TABLE>
C. Example
The following example assumes the Fund's annual return is 5% and its
operating expenses are as described above. For each $1,000 investment, you would
pay the following projected expenses if you sold your shares after the number of
years shown.
Fund 1 Year 3 Years 5 Years 10 Years
Money Fund $2 $6 $11 $26
U.S. Securities Fund $2 $7 $12 $26
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may
be charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges
without a fee.
**Advisers has agreed in advance to waive or limit the Portfolio's
management and the Fund's administration fee so that total operating
expenses will not exceed 0.20%. Absent this reduction, the Money Fund's
proportionate share of the Portfolio's management fee and its
administration fee and total operating expenses would have totaled 0.19%
and 0.24%, respectively and the U.S. Securities Fund would have totaled
0.19% and 0.26%, respectively.
***The Fund has not been required to make payments for 12b-1 expenses.
The Board considered whether the total fees and expenses of the Fund and the
Portfolio would be more or less than if the Fund invested directly in the types
of securities held by the Portfolio. By investing all of its assets in shares of
the Portfolio, the Fund and other investment companies and institutional
investors are able to pool their assets. This may result in a variety of
operating economies. Accordingly, the Board concluded that the total expenses of
the Fund and the Portfolio were expected to be lower than if the Fund invested
directly in various types of money market instruments. Of course, there is no
guarantee that asset growth and lower expenses will be achieved. Advisers,
however, has agreed in advance to limit expenses so that they will not be higher
than if the Fund invested directly in the types of securities held by the
Portfolio. For more information on the fees and expenses of the Fund and the
Portfolio, please see "Who Administers the Fund?"
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report for each of the most recent five years appears in the financial
statements in the Trust's Annual Report to Shareholders for the fiscal year
ended June 30, 1996. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call Fund
Information.
Money Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended June 30 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
Per Share Operating Performance
Net asset value at
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income 0.055 0.053 0.033 0.033 0.046 0.071 0.083 0.086 0.070 0.061
Distributions From Net
Investment Income (0.055) (0.053) (0.033) (0.033) (0.046) (0.071) (0.083) (0.086) (0.070) (0.061)
Net asset value at end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return** 5.61% 5.46% 3.35% 3.30% 4.72% 7.28% 8.65% 8.97% 7.23% 6.30%
Ratios/Supplemental Data
Net assets at end of year $341,295 $272,147 $218,254 $222,282 $188,846 $231,655 $236,199 $122,216 $101,660 $45,141
(in 000's)
Ratio of expenses to
average net assets3 0.19%2 0.15%2 0.15%2 0.20%2 0.25% 0.25% 0.25% 0.25% 0.05% -
Ratio of net investment
income to average net
assets 5.45% 5.40% 3.24% 3.25% 4.69% 7.11% 8.27% 8.68% 7.00% 6.21%
U.S. Securities Fund
Year Ended June 30 1996 1995 1994 1993 1992 1991 1990 1989 19881
Per Share Operating Performance
Net asset value at
beginning of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net investment income 0.054 0.052 0.032 0.031 0.045 0.070 0.084 0.080 0.024
Distributions From Net
Investment Income (0.054) (0.052) (0.032) (0.031) (0.045) (0.070) (0.084) (0.080) (0.024)
Net asset value at
end of year $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Total Return** 5.50% 5.32% 3.25% 3.18% 4.55% 7.13% 8.68% 8.28% 5.40%
Ratios/Supplemental Data
Net assets at end of year
(in 000's) $152,173 $334,830 $218,547 $310,382 $195,286 $373,371 $203,153 $54,003 $22,080
Ratio of expenses to
average net assets2, 3 0.19% 0.15% 0.15% 0.19%3 0.25% 0.25% 0.21% - -
Ratio of net investment
income to average net assets 5.44% 5.26% 3.20% 3.12% 4.59% 6.79% 8.27% 8.37% 6.32%*
</TABLE>
*Annualized
**Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at net asset value.
1For the period January 19, 1988 (effective date) to June 30, 1988.
2Includes the Fund's share of the Portfolio's allocated expenses.
3During the periods indicated, Advisers agreed in advance to waive a portion of
its administration and management fees of the Portfolios and made payments of
other expenses incurred by the Fund. Had such action not been taken, the ratios
of expenses to average net assets would have been as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992 1991 1990 1989 1988
Ratio of Expenses to
Average Net Assets
Money Market Portfolio 0.24% 0.24% 0.25% 0.49% 0.74% 0.71% 0.074% 0.078% 0.079%
Franklin U.S. Government Securities
Money Market Portfolio 0.26 0.23 0.25 0.45 0.59 0.56 0.62 0.70 0.57*
</TABLE>
How does the Fund Invest its Assets?
The Fund is a mutual fund that is commonly known as a "money market fund." The
Fund attempts to maintain a share value of $1, but there is no guarantee that
this can be accomplished.
The Fund's Investment Objectives
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. The Money
Fund seeks to achieve its objectives by investing all of its assets in the Money
Portfolio and the U.S. Securities Fund by investing all of its assets in the
U.S. Securities Portfolio. The investment objectives of the Portfolio are the
same as the Fund's. The investment policies of the Fund are also substantially
similar to the Portfolio's except, in all cases, the Fund may pursue its
policies by investing in an open-end management investment company with the same
investment objective and substantially similar policies and restrictions as the
Fund. Any additional exceptions are noted below.
The Fund acquires shares of the Portfolio at Net Asset Value. An investment in
the Fund is an indirect investment in the Portfolio. The investment objectives
of both the Fund and the Portfolio are fundamental and may not be changed
without shareholder approval. Of course, there is no assurance that the Fund's
objectives will be achieved.
The Fund's Master/Feeder Fund Structure
An investment in the Fund may be subject to certain risks due to the Fund's
structure. These risks include the potential that if other future shareholders
in the Portfolio sell their shares, the Fund's expenses may increase or the
economies of scale that have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could also have effective
voting control over the operation of the Portfolio. Furthermore, if shareholders
of the Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objective and policies.
If the Board considers it to be in the best interest of the Fund, the Fund may
withdraw its investment in the Portfolio at any time. In that event, the Board
would consider what action to take, including the investment of all of the
assets of the Fund in another pooled investment entity with the same investment
objectives and substantially similar policies as the Fund or the hiring of an
investment advisor to manage the Fund's investments. Either circumstance may
cause an increase in Fund expenses.
The Fund's structure is a relatively new format that often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement this structure, and the
Board does not believe the additional complexities outweigh the potential
benefits to be gained by shareholders.
The Fund's investment of all of its assets in the Portfolio was previously
approved by shareholders of the Fund. Whenever the Fund, as an investor in the
Portfolio, is asked to vote on a matter relating to the Portfolio, the Fund will
hold a meeting of Fund shareholders and will cast its votes in the same
proportion as the Fund's shareholders have voted.
The Franklin Funds have three other funds that invest in the Money Portfolio and
one other that invests in the U.S. Securities Portfolio. The Franklin Templeton
Money Fund II, which invests in the Money Portfolio, is available only to Class
II shareholders in the Franklin Templeton Funds pursuant to that fund's exchange
privilege. In the future, other funds may be created that may likewise invest in
the Portfolio or existing funds may be restructured so that they may invest in
the Portfolio. If requested, we will forward additional information to you about
other funds through which you may invest in the Portfolio. If you would like to
receive this information, please call our Institutional Services Department at
1-800/321-8563.
The Money Market is an open-end management investment company organized as a
Delaware business trust on June 16, 1992, and is registered with the SEC under
the 1940 Act. Money Market currently issues shares in two separate series. In
the future, additional series may be added by the Board of Trustees of Money
Market.
For information on the Fund's administrator and its expenses, please see
"Who Administers the Fund?"
What Investments does the Portfolio make?
The Portfolio follows certain procedures required by federal securities laws
with respect to the quality, maturity and diversification of its investments and
thus only invests in Eligible Securities. These procedures are designed to help
maintain a stable $1.00 share price. The Portfolio maintains a dollar weighted
average maturity of the securities in its portfolio of 90 days or less.
The Money Portfolio
The Money Portfolio may invest in various types of money market instruments,
that 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 corpo-
rate obligations, taxable municipal securities and repurchase agreements
(secured by U.S. government securities).
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 that 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 issued or
guaranteed by the U.S. government or that carry a guarantee supported by the
full faith and credit of the U.S. government. Repurchase agreements on
obligations issued or guaranteed by the U.S. government and supported by the
full faith and credit of the U.S. government are included within this
fundamental 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 are specifically
permitted for investment through mutual funds by California local agencies under
California Government Code Sections 53601 and 53635. The California Government
Code requires each investment decision made by or on behalf of a California
local agency to be made consistently with the directives of the local agency's
legislative body and any other statutory or contractual limitations applicable
to the moneys being invested. Therefore, any person making such a decision
should first consult with expert counsel to assure the decision is being made in
compliance with those directives and limitations.
U.S. Government Securities. The Money Portfolio may invest in U.S. government
securities that consist of marketable fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government ("U.S. government securities"). Certain of these obligations,
including U.S. Treasury bills, notes, and bonds and securities of the Government
National Mortgage Association (popularly called "GNMAs" or "Ginnie Maes") and
the Federal Housing Administration, are issued or guaranteed by the U.S.
government or carry a guarantee supported by the full faith and credit of the
U.S. government. Other U.S. government securities are issued or guaranteed by
federal agencies or government-sponsored enterprises and are not direct
obligations of the U.S. government but involve sponsorship or guarantees by
government agencies or enterprises. These obligations include securities
supported by the right of the issuer to borrow from the U.S. Treasury, such as
obligations of the Federal Home Loan Bank, and securities supported by the
credit of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds.
Bank Obligations. The Money Portfolio may invest in bank obligations or
instruments secured by bank obligations. These instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits and bankers' acceptances issued by banks and savings institutions with
assets of at least one billion dollars. Bank obligations may be obligations of
U.S. banks, foreign branches of U.S. banks (referred to as "Eurodollar
Investments"), U.S. branches of foreign banks (referred to as "Yankee Dollar
Investments") and foreign branches of foreign banks ("Foreign Bank
Investments"). When investing in a bank obligation issued by a branch, the
parent bank must have assets of at least five billion dollars. The Money
Portfolio may invest no more than 25% of its assets in obligations of foreign
branches of U.S. or foreign banks. The Portfolio may, however, invest more than
25% of its assets in certain domestic bank obligations. Investments in
obligations of U.S. branches of foreign banks, 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. See "What
are the Fund's Potential Risks" below for more information regarding these
investments.
Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a stated
interest rate. The 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 also invest in commercial paper of
domestic or foreign issuers. Commercial paper obligations may include variable
amount master demand notes that are obligations that permit the investment of
fluctuating amounts at varying rates of interest pursuant to direct arrangements
between the Money Portfolio, as lender, and the borrower. These notes permit
daily changes in the amounts borrowed. The Money Portfolio may increase the
amount provided by the note agreement, or decrease the amount, and the borrower
may repay up to the full amount of the note without penalty. The borrower is
often a large industrial or finance company that also issues commercial paper.
Typically, these notes provide that the interest rate is set daily by the
borrower; the rate is usually the same or similar to the interest on other
commercial paper being issued by the borrower. Because variable amount master
demand notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that these instruments will be
traded, and there is no secondary market for these notes, although they are
redeemable (and thus immediately repayable by the borrower) at face value plus
accrued interest at any time. Accordingly, the Money Portfolio's right to redeem
depends on the ability of the borrower to pay principal and interest on demand.
Advisers will consider earning power, cash flow and other liquidity ratios of
the issuer. The Money Portfolio has no specific limits on aggregate investments
in master demand notes and will invest in notes of only U.S. issuers that are
Eligible Securities.
Corporate Obligations. The corporate obligations that the Money Portfolio may
buy are fixed, floating and variable rate bonds, debentures or notes that are
considered by the Money Portfolio to be Eligible Securities.
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.
Other Investment Policies of the Portfolio
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 Portfolio may, however, invest more than
25% of its assets in certain domestic bank obligations. The foregoing
limitations do not apply to U.S. government securities and federal agency
obligations, or to repurchase agreements fully collateralized by these
government securities or obligations, although certain tax diversification
requirements apply to investments in repurchase agreements and other securities
that are not treated as U.S. government obligations under the Code.
Because the Portfolio limits its investments to high quality securities, the
Portfolio, and thus the Fund, will generally earn lower yields than if the
Portfolio purchased securities with a lower rating and correspondingly higher
expected rate of return.
When-Issued or Delayed Delivery Transactions. The Money Portfolio may also buy
and sell securities on a "when-issued" and "delayed delivery" basis. The price
is subject to market fluctuation and the value at delivery may be more or less
than the purchase price.
Repurchase Agreements. The Portfolio may engage in repurchase transactions in
which the Portfolio buys a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating the collateral.
The Portfolio, however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks which are deemed
creditworthy by Advisers and which are primary dealers of the Federal Reserve
Bank of New York. A repurchase agreement is deemed to be a loan by the Portfolio
under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Portfolio by a custodian approved by
the Money Market Board of Trustees and will be held pursuant to a written
agreement.
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.
Loans of Portfolio Securities. Consistent with procedures approved by the Board
of Trustees of Money Market and subject to the following conditions, the
Portfolio may lend its portfolio securities to qualified securities dealers or
other institutional investors, provided that such loans do not exceed 25% of the
value of the Money Portfolio's total assets and 10% of the value the U.S.
Securities Portfolio total assets, valued at the time of the most recent loan.
The borrower must deposit with the Portfolio's custodian bank collateral with an
initial market value of at least 102% of the initial market value of the
securities loaned, including any accrued interest, with the value of the
collateral and loaned securities marked-to-market daily to maintain collateral
coverage of at least 100%. This collateral shall consist of cash, securities
issued by the U.S. government, its agencies or instrumentalities, or irrevocable
letters of credit. The lending of securities is a common practice in the
securities industry. The Portfolio may engage in security loan arrangements with
the primary objective of increasing the Portfolio's income either through
investing the cash collateral in short-term interest bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan agreement,
the Portfolio continues to be entitled to all dividends or interest on any
loaned securities. As with any extension of credit, there are risks of delay in
recovery and loss of rights in the collateral should the borrower of the
security fail financially.
Illiquid Investments. The Portfolio may not invest more than 10% of its net
assets in securities subject to legal or contractual restrictions on resale,
securities that are not readily marketable, or enter into repurchase agreements
or master demand notes with more than seven days to maturity. These securities
are generally securities that cannot be sold within seven days in the normal
course of business at approximately the amount at which the Portfolio has valued
them.
Borrowing. As a fundamental policy the Money Portfolio may borrow from banks for
temporary or emergency purposes only and pledge its assets for such loans in
amounts up to 5% of the Portfolio's total assets. The maximum amount the U.S.
Securities Portfolio may borrow is 10% of its total assets. No new investments
will be made by the Portfolio while any outstanding loans exceed 5% of its total
assets.
Active Trading. Whenever the Portfolio believes market conditions are such that
yields could be increased by actively trading the portfolio securities to take
advantage of short-term market variations, the Portfolio may do so without
restriction or limitation (subject to the tax requirements for qualification as
a regulated investment company). Typically, this trading involves additional
risks of loss to the extent the 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 Portfolio invests.
Credit Union Investors. The U.S. Securities 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 October 31, 1996. CREDIT UNION INVESTORS ARE ADVISED TO
CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE WHETHER AND TO WHAT EXTENT THE
SHARES OF THE U.S. SECURITIES FUND CONSTITUTE LEGAL INVESTMENTS FOR THEM. Please
see "How does the Fund Invest its Assets? - Credit Union Investment Regulations"
in the SAI for details.
Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
Other Policies and Restrictions. The Fund and the Portfolio have a number of
additional investment restrictions that limit their activities to some extent.
Some of these restrictions may only be changed with shareholder approval. For a
list of these restrictions and more information about the Fund's and the
Portfolio's investment policies, please see "How does the Fund Invest its
Assets?" and "Investment Restrictions" in the SAI.
What Are the Fund's Potential Risks?
Foreign Securities Risk. Any of the Money Portfolio's Eurodollar Investments,
Yankee Dollar Investments, Foreign Bank Investments or investments in commercial
paper of foreign issuers involve risks that are different from investments in
obligations of domestic entities. These risks may include seizure of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions that may affect the payment of principal or interest on securities
the Money Portfolio holds. There may also be less publicly available information
about foreign banks or foreign issuers of commercial paper.
When-Issued and Delayed Delivery Transactions Risk. These transactions are
subject to market fluctuation and the value at delivery may be more or less than
the purchase price. In when-issued and delayed delivery transactions, the Money
Portfolio relies on the seller to complete the transaction. The seller's failure
to complete the transaction may cause the Portfolio to miss a price or yield
considered to be advantageous. Securities bought on a when-issued or delayed
delivery basis do not generally earn interest until their scheduled delivery
date.
Credit and Market Risk. Credit risk is a function of the ability of an issuer of
a security to make timely interest payments and to pay the principal of a
security upon maturity. It is generally reflected in a security's underlying
credit rating and its stated interest rate (normally, the coupon rate). A change
in the credit risk associated with a security may cause a corresponding change
in the security's price. Market risk is the risk of price fluctuation of a
security caused by changes in general economic and interest rate conditions
generally affecting the market as a whole. A security's maturity length also
affects its price. Generally, when interest rates rise the value of a security
will fall, and vice versa. The short duration of the Eligible Securities in
which the Fund invests generally reduces this price fluctuation.
Who Administers the Fund?
The Board. The Board oversees the management of the Trust and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the Trust and Money Market having substantially the same
boards. These procedures call for an annual review of the Fund's relationship
with the Portfolio. If a conflict exists, the boards may take action, which may
include the establishment of a new board. The Board has determined that there
are no conflicts of interest at the present time. For more information, please
see "Summary of Procedures To Monitor Conflicts of Interest" and "Officers and
Trustees" in the SAI.
Investment Manager and Administrator. Advisers is the investment manager of the
Portfolio and other funds with aggregate assets of over $82 billion. Advisers is
also the administrator of the Fund. It is wholly owned by Resources, a publicly
owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H.
Johnson, Jr. are the principal shareholders of Resources.
Services Provided by Advisers. Advisers manages the Portfolio's assets and makes
its investment decisions. Advisers also provides certain administrative services
and facilities for the Fund and performs similar services for other funds.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for information on securities transactions and a summary
of the Fund's Code of Ethics.
Management Fees. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the Fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the Fund depends on the Fund's proportionate share of the Portfolio's
net assets.
During the fiscal year ended June 30, 1996, the Money Fund's proportionate share
of the Money Portfolio's management fees and its administration fees, absent a
fee waiver would have been 0.15% and 0.05%, respectively, of the average daily
net assets of the Money Fund, with total operating expenses of 0.24%. The U.S.
Securities Fund's share of the U.S. Securities Portfolio management fee and its
administration fee would have been 0.13% and 0.05%, respectively, of the average
daily net assets of the U.S. Securities Fund, with total operating expenses of
0.26%. Advisers has agreed in advance, however, to waive or limit its fees and
pay other expenses of the Fund in order to keep total expenses to a maximum of
0.20% until at least June 30, 1997. This arrangement may be terminated at any
time after June 30, 1997, upon notice to the Board. Portfolio Transactions.
Advisers tries to obtain the best execution on all transactions. If Advisers
believes more than one broker or dealer can provide the best execution, it may
consider research and related services and the sale of Fund shares when
selecting a broker or dealer. Please see "How does the Portfolio Buy Securities
for its Portfolio?" in the SAI for more information.
The Fund's Rule 12b-1 Plan
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for activities primarily intended to sell
shares of the Fund. Covered expenses may include, among others, distribution or
service fees paid to Securities Dealers or others who have executed a servicing
agreement with the Fund, Distributors or its affiliates, printing prospectuses
and reports used for sales purposes, preparing and distributing sales literature
and advertisements, and a prorated portion of Distributors' overhead expenses.
Payments by the Fund under the plan may not exceed 0.15% per year of the Fund's
average daily net assets. All distribution expenses over this amount will be
borne by those who have incurred them. There have been no payments made under
the plan since its inception. For more information, please see "The Fund's
Underwriter" in the SAI.
How does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are current and effective yield.
Current yield shows the income per share earned by the Fund. When the yield is
calculated assuming that income earned is reinvested, it is called an effective
yield.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
How is the Trust Organized?
The Fund is a no-load, diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on January 15, 1985 and is registered with the SEC
under the 1940 Act. Shares of each series of the Trust have equal and exclusive
rights to dividends and distributions declared by that series and the net assets
of the series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes. In the
future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends you receive from the Fund,
as well as any distributions derived from the excess of net short-term capital
gain over net long-term capital loss, are treated as ordinary income whether you
have elected to receive them in cash or in additional shares.
Since the Fund seeks to maintain a constant $1.00 per share price for both
purchases and redemptions, you 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 the
Fund's distributions will generally be eligible for the corporate
dividends-received deduction.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes.
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 liable 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 need to be paid over to the U.S. Treasury as rebatable arbitrage earnings in
accordance with the provisions of the Code.
You should consult your tax advisor with respect to the applicability of state
and local intangible property or income taxes to your Fund shares and
distributions and redemption proceeds you receive from the Fund.
If you are not considered a U.S. person for federal income tax purposes you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions you receive from the Fund and
the application of foreign tax laws to these distributions.
ABOUT YOUR ACCOUNT
How do I Buy Shares?
Opening Your Account
You may buy shares of the Fund without a sales charge. The Fund is available for
investment 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 the Fund may not be purchased by individuals, with the exception of
those individuals who owned shares of the U.S. Securities Fund as of August 1,
1991, in which case they can continue to invest in that Fund.
MINIMUM INVESTMENTS*
To Open Your Account $100,000
To Add to Your Account No minimum
*we reduce the minimum to $1,000 for states, counties, cities, and their
instrumentalities, departments, agencies and authorities. We may also refuse any
order to buy shares.
Method Steps to Follow
By Wire
See "Holiday Schedule" under "Transactions Procedures and Special Requirements"
1. Call us at 1-800/321-8563 or 1-415/312-3600 by 11:15
a.m. Pacific time for the Money Fund and by 1:30 p.m.
Pacific time for the U.S. Securities Fund, except on
holidays or the day before or the day after a holiday,
to receive that day's credit and be eligible to receive
that day's dividend. You will receive a wire control
number. A new number is needed every time you wire
money into your account. If you do not have a currently
effective wire control number, we will return the money
to the sending bank and it will not be credited to your
account. If we do not receive your call by the above
deadlines, you will not be given credit until the
following business day and you will be eligible to
receive the dividend on that day.
2. Wire the funds to Bank of America, ABA routing number
121000358, for credit to Money Market Portfolio or
Franklin U.S. Government Securities Money Market
Portfolio, A/C 1493304779. Your name and wire control
number must be included. Wire orders called in by the
above deadlines and received by the close of the
Federal Reserve Wire System (3:00 p.m. Pacific time
currently) will receive that day's credit. Wires
received after 3:00 p.m. Pacific time will receive
credit the following business day.
3. For initial investments, you must also complete and
sign a shareholder account application and return it to
the Fund.
*If your order is for more than $50,000, you must first
file with the Fund an Institutional Telephone
Privileges Agreement. Method Steps to Follow
By Mail 1. Complete and sign a shareholder account application.
2. Return the application to the Fund with your check,
Federal Reserve draft or negotiable bank draft made
payable to the Fund. Instruments drawn on other
investment companies may not be accepted.
Through Your Dealer Call your investment representative
The investment authority of certain institutional investors may be restricted by
law. If you are such an investor, you should consult with expert counsel to
determine whether and to what extent shares of the Fund would be legal
investments for you. If you are a municipal investor, you should also consult
with expert counsel to determine the effect, if any, of payments by the Fund on
arbitrage rate calculations if you are considering investing proceeds of bond
offerings.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange").
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
Method Steps to Follow
By Mail Send us written instructions signed by all account owners of
record
By Phone Call our Institutional Services Department at 1-800/321/8563
By Phone *If you wish to exchange shares in excess of $50,000 please be
sure a completed Institutional Telephone Privilege Agreement
is on file with the Fund.
Through Call your investment representative
Your Dealer
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
Will Sales Charges Apply to My Exchange?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors are allowed to
purchase all Franklin Templeton Funds at Net Asset Value. These include
government entities, employee benefit plans, trust companies and bank trust
departments.
How We Process Your Exchange
o If you are exchanging from the Fund to another series of the Trust, the
exchange will be processed the day your request is received prior to 11:15 a.m.
Pacific time for the Money Fund and 1:30 p.m. Pacific time for the U.S.
Securities Fund, except on holidays or the day before or the day after a
holiday, with payment for the shares bought processed on the following business
day.
See also "Holiday Schedule" under "Transactions Procedures and Special
Requirements."
o If you are exchanging from the Fund into another Franklin Templeton Fund
within the same class, the exchange will be processed at the respective Net
Asset Value or Offering Price of the funds involved on the day your request is
received prior to the above deadlines. If your request is received after the
deadlines you will get the next day's price.
o If you are exchanging into the Fund from another Franklin Templeton Fund
within the same class, the transaction will be processed as a liquidation from
the other fund on the day the exchange is received in proper form prior to the
time of valuation for that fund (as noted in that fund's prospectus) and shares
of the Fund will be bought on the following business day when the money for
purchase is available and your request is considered to be in proper form.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class
o The accounts must be identically registered. Additional procedures may apply.
Please see "Transaction Procedures and Special Requirements."
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How do I Sell Shares?
You may sell (redeem) your shares at any time.
Method Steps to Follow
By Wire
See "Holiday Schedule" under "Transactions Procedures and Special Requirements"
1. Call your redemption request to our Institutional
Services Department at 1-800/321-8563 as early as
possible but before 11:15 a.m Pacific time for the
Money Fund and 1:30 p.m. Pacific time for the U.S.
Securities Fund, except on holidays or the day before
or the day after a holiday, if you want the money wired
the same business day. If we receive your order after
the above deadlines, the funds will generally be wired
on the following business day.
Method Steps to Follow
By Wire 2. If you anticipate requiring funds in excess of $5
million you should notify the Fund the day before.
o You may redeem shares up to $50,000. If you wish to
redeem in excess of $50,000 you need to have on file an
Institutional Telephone Privileges Agreement.
o You cannot use redemption orders to send funds to
another person or to an account which you have not
previously designated in writing.
By Mail 1. Send us written instructions signed by all account
owners or previously designated signers
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may need to
send additional documents.
Accounts under court jurisdiction may have additional requirements.
Through Your Dealer Call your investment representative
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends and capital gain distributions,
and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive From the Fund?
The Fund declares dividends each day that its Net Asset Value is calculated and
pays them to shareholders of record as of the close of business that day. The
daily allocation of net investment income begins on the day we receive your
money or settlement of a wire order trade, as noted in "How Do I Buy Shares?"
and continues to accrue through the day we receive your request to sell your
shares or the settlement of a wire order trade.
Dividend payments may vary from day to day and may be omitted on some days,
depending on changes in the Fund's net investment income. The Fund does not pay
"interest" or guarantee any amount of dividends or return on an investment in
its shares.
Dividend Options
Dividends are declared daily and 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.
If you complete the "Special Payment Instructions for Dividends" section of the
shareholder application, you may direct your dividends to buy the same class of
shares of another Franklin Templeton Fund (without a sales charge or imposition
of a Contingent Deferred Sales Charge). Many shareholders find this a convenient
way to diversify their investments.
You may also choose to receive dividends in cash. If you send the money to a
checking account, please see "Electronic Fund Transfers" under "Services to Help
You Manage Your Account."
Transaction Procedures and Special Requirements
How and When Shares Are Priced
The Fund is open for business and its Net Asset Value is calculated every day
that both the San Francisco Fed and the Exchange are open for trading.
We determine the Net Asset Value per share at 12:30 p.m. Pacific time for the
Money Fund and 3.00 p.m. for the U.S. Securities Fund. To calculate Net Asset
Value per share, the Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. The Fund's assets are valued as described under "How Are
Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form. If you buy
or sell shares through your Securities Dealer, however, we will use the Net
Asset Value next calculated after your Securities Dealer receives your request,
which is promptly transmitted to the Fund.
Holiday Schedule
The deadline to call in your request to buy, exchange or redeem shares for the
Money Fund is 11:15 a.m. Pacific time and 1:30 p.m. Pacific time for the U.S.
Securities Fund, except on holidays or the day before or the day after a
holiday.
The following holiday closings have been scheduled for 1997: New Year's Day, Dr.
Martin Luther King, Jr. Day , Presidents' Day, Good Friday, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day (observed), Veterans' Day,
Thanksgiving Day and Christmas Day. Although the Funds expect the same holiday
schedule to be observed in the future, the San Francisco Fed or the Exchange may
modify its holiday schedule at any time. On any day before or following an
Exchange or San Francisco Fed holiday, or on any day in which the Public
Securities Association recommends an early closing, the Fund reserves the right
to advance the time on that day by which notice of wire order purchase and wire
order redemption orders must be received in order to receive same day credit or
redemption. You are urged to place your order as early in the day as possible on
a day before or following a holiday. If securities in the Fund's portfolio are
traded in other markets on days the San Francisco Fed or the Exchange is closed,
the Fund's Net Asset Value may be affected at a time when you do not have access
to the Fund to buy or redeem shares. Other Franklin Templeton Funds may follow
different holiday closing schedules.
Proper Form
An order to buy shares is in proper form when we receive your signed shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
account owners of record or previously designated signers, with a signature
guarantee if necessary.
Many of the Fund's investments, through the Portfolio, must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the San Francisco Fed and elsewhere. The Fund generally cannot invest money
received from you until it is converted into and is available to the Fund in
federal funds. Therefore, your purchase order may not be considered in proper
form until the money received from you is available in federal funds, which may
take up to two days. If the Fund is able to make investments immediately (within
one business day), it may accept your order with payment in other than federal
funds. Written Instructions
Written instructions must be signed by all account owners of record or
previously designated signers. To avoid any delay in processing your
transaction, they should include:
o Your name as shown on the account,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Confirmations
PLEASE NOTE THAT WE WILL CREDIT YOUR SHARES TO YOUR FUND ACCOUNT. WE DO NOT
ISSUE SHARE CERTIFICATES. YOU MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF
CERTIFICATES.
Telephone Transactions
You may initiate many transactions by phone. Please refer to the sections of
this prospectus that discuss the transaction you would like to make or call our
Institutional Services Department at 1-800/321-8563.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal, corporate or
other identifying information, and will also record calls. For your protection,
we may delay a transaction or not implement one if we are not reasonably
satisfied that telephone instructions are genuine. If this occurs, we will not
be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Account Registrations and Required Documents
When you open an account, you need to tell us how you want your shares
registered. How you register your account will affect your ownership rights and
ability to make certain transactions. If you have questions about how to
register your account, you should consult your investment representative or
legal advisor. Please keep the following information in mind when registering
your account.
Joint Ownership. If you open an account with two or more owners, we register the
account as "joint tenants with rights of survivorship" unless you tell us
otherwise. An account registered as "joint tenants with rights of survivorship"
is shown as "Jt Ten" on your account statement. For any account with two or more
owners, all owners must sign instructions to process transactions and changes to
the account. Even if the law in your state says otherwise, you will not be able
to change owners on the account unless all owners agree in writing. If you would
like another person or owner to sign for you, please send us a current power of
attorney.
Gifts and Transfers to Minors. You may set up a custodial account for a minor
under your state's Uniform Gifts/Transfers to Minors Act. Other than this form
of registration, a minor may not be named as an account owner.
Trusts. If you register your account as a trust, you should have a valid written
trust document to avoid future disputes or possible court action over who owns
the account.
Required Documents. For corporate, partnership and trust accounts, please send
us the following documents when you open your account. This will help avoid
delays in processing your transactions while we verify who may sign on the
account.
Type of Account Documents Required
Corporation Corporate Resolution
Partnership 1. The pages from the partnership agreement that
identify the general partners, or
2. A certification for a partnership agreement
Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
Street or Nominee Accounts. If you have Fund shares held in a "street" or
"nominee" name account with your Securities Dealer, you may transfer the shares
to the street or nominee name account of another Securities Dealer. Both dealers
must have an agreement with Distributors or we will not process the transfer.
Contact your Securities Dealer to initiate the transfer. We will process the
transfer after we receive authorization in proper form from your delivering
Securities Dealer. Accounts may be transferred electronically through the NSCC.
For accounts registered in street or nominee name, we may take instructions
directly from the Securities Dealer or your nominee.
Electronic Instructions. If there is a Securities Dealer or other representative
of record on your account, we are authorized to use and execute electronic
instructions. We can accept electronic instructions directly from your dealer or
representative without further inquiry. Electronic instructions may be processed
through the services of the NSCC, which currently include the NSCC's
"Networking," "Fund/SERV," and "ACATS" systems, or through Franklin/Templeton's
PCTrades II(TM) System.
Tax Identification Number
For tax reasons, we must have your correct Social Security or tax identification
number on a signed shareholder application or applicable tax form. Federal law
requires us to withhold 31% of your taxable distributions and sale proceeds if
(i) you have not furnished a certified correct taxpayer identification number,
(ii) you have not certified that withholding does not apply, (iii) the IRS or a
Securities Dealer notifies the Fund that the number you gave us is incorrect, or
(iv) you are subject to backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
We may close your account if the value of your shares is less than $20,000 ($500
for states, counties, cities and their instrumentalities, departments, agencies
and authorities). We will only do this if the value of your account fell below
the above minimums because you voluntarily sold your shares and your account has
been inactive (except for the reinvestment of distributions) for at least six
months. Before we close your account, we will notify you and give you 30 days to
increase the value of your account to the above minimums.
Services to Help You Manage Your Account
Automatic Investment Plan
Our automatic investment plan offers a convenient way to invest in the Fund.
Under the plan, you can have money transferred automatically from your checking
account to the Fund each month to buy additional shares. If you are interested
in this program, please contact our Institutional Services Department. You may
discontinue the program at any time by notifying us by mail or phone.
Automatic Payroll Deduction
You may have money transferred from your paycheck to the Fund to buy additional
shares. Your investments will continue automatically until you instruct the Fund
and your employer to discontinue the plan. To process your investment, we must
receive both the check and payroll deduction information in required form. Due
to different procedures used by employers to handle payroll deductions, there
may be a delay between the time of the payroll deduction and the time we receive
the money.
Rights of Accumulation
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
Electronic Fund Transfers
You may choose to have distributions from the Fund sent directly to a checking
account. If the checking account is with a bank that is a member of the
Automated Clearing House, the payments may be made automatically by electronic
funds transfer. If you choose this option, please allow at least fifteen days
for initial processing. We will send any payments made during that time to the
address of record on your account.
TeleFACTS(R)
From a touch-tone phone, you may call our TeleFACTS system (day or night) at
1-800/247-1753 to:
o obtain yield information about your account;
o obtain price and performance information about any Franklin Templeton Fund;
o request duplicate statements.
You will need the Fund's code number to use TeleFACTS. The Money Fund's code is
140 and the U.S. Securities Fund's code is 142.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. To reduce Fund
expenses, we attempt to identify related shareholders within a household and
send only one copy of a report. Call us if you would like an additional free
copy of the Fund's financial reports or an interim quarterly report.
Telephone Transactions
All requirements for telephone transactions cover the ones transmitted by
facsimile or computer. Please refer to the sections of this prospectus that
discuss the transactions you would like to make or call our Institutional
Services Department at 1-800/321-8563.
Availability of These Services
The services above are available to most shareholders. If, however, your shares
are held by a financial institution, in a street name account, or networked
through the NSCC, the Fund may not be able to offer these services directly to
you.
Please contact your investment representative.
What If I Have Questions About My Account?
If you have any questions about your account, you may call our Institutional
Services Department at 1-800/321-8563, Monday through Friday, from 6:00 a.m to
5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - For Class I shares, the 12 month period during which a
Contingent Deferred Sales Charge may apply. For Class II shares, the contingency
period is 18 months. Regardless of when during the month you purchased shares,
they will age one month on the last day of that month and each following month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Eligible Securities - Investments are limited to U.S. dollar denominated
instruments that:
o The Board of Trustees of Money Market determines present minimal credit risks.
o Are rated in one of the two highest rating categories by nationally recognized
statistical rating organizations, or that are unrated but of comparable quality.
o Have remaining maturities of 397 calendar days or less.
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
NASD - National Association of Securities Dealers, Inc.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
NSCC - National Securities Clearing Corporation
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
San Francisco Fed - Federal Reserve Bank of San Francisco
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
TeleFACTS(R) - Franklin Templeton's automated customer servicing system
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Investor Services, Distributors, or other wholly owned
subsidiaries of Resources.
Institutional
Fiduciary Trust
Prospectus
November 1, 1996
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
This prospectus describes the Franklin Institutional Adjustable U.S. Government
Securities Fund (the "Adjustable U.S. Government Fund") and the Franklin
Institutional Adjustable Rate Securities Fund (the "Adjustable Rate Securities
Fund"), each a series of Institutional Fiduciary Trust (the "Trust"). References
to the "Fund" in this prospectus refer to each fund individually, unless the
context indicates otherwise. This prospectus contains information you should
know before investing in the Fund. Please keep it for future reference.
The Funds' SAI, dated November 1, 1996, as may be amended from time to time,
includes more information about each Fund's procedures and policies. It has been
filed with the SEC and is incorporated by reference into this prospectus. For a
free copy or a larger print version of this prospectus, call 1-800/321-8563 or
write the Fund at the address shown.
Shares of the Fund are not deposits or obligations of, or guaranteed or endorsed
by, any bank, and are not federally insured by the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other agency of the U.S.
government. Shares of the Fund involve investment risks, including the possible
loss of principal.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SEC OR ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Unlike most funds that invest directly in securities, the Adjustable U.S.
Government Fund and the Adjustable Rate Securities Fund seek to achieve their
investment objective by investing all of their assets in shares of the U.S.
Government Adjustable Rate Mortgage Portfolio (the "Mortgage Portfolio") and the
Adjustable Rate Securities Portfolio (the "Securities Portfolio"), respectively,
each a series of the Adjustable Rate Securities Portfolios. The investment
objective of each Fund is the same as the investment objective of the Portfolio
in which it invests. References to the "Portfolio" in this prospectus refer to
each Portfolio individually, unless the context indicates otherwise.
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 Fund at the address shown.
The Funds are designed for institutional investors that are prohibited by law,
regulation, charter or stated policy from investing in a fund with a
distribution plan or "Rule 12b-1 Plan" under the 1940 Act. Institutional
investors include corporations, banks, thrifts, credit unions, government
authorities and agencies, and trust companies investing their own capital and
monies held in accounts for which they act in a fiduciary, advisory, agency,
custodial, or other similar capacity.
TABLE OF CONTENTS
About the Fund
Expense Summary 4
Financial Highlights 5
How does the Fund Invest its Assets? 6
What are the Fund's Potential Risks? 16
Who Administers the Fund? 18
How does the Fund
Measure Performance? 20
How is the Trust Organized? 20
How Taxation Affects
You and the Fund 20
About Your Account
How Do I Buy Shares? 21
May I Exchange Shares
for Shares of Another Fund? 22
How Do I Sell Shares? 24
What Distributions Might I
Receive from the Fund? 25
Transaction Procedures and
Special Requirements 25
Services to Help You
Manage Your Account 27
Glossary
Useful Terms and Definitions 28
When reading this prospectus, you will see certain terms that are capitalized.
This means the term is explained in our glossary section.
ABOUT THE FUND
Expense Summary
This table is designed to help you understand the costs of investing in the
Fund. It is based on the Fund's historical expenses, including its proportionate
share of the Portfolio's expenses, for the fiscal year ended June 30, 1996. The
Portfolio's expenses are based on its expenses for the eight months ended June
30, 1996, and are annualized. Your actual expenses may vary.
<TABLE>
<CAPTION>
<S> <C> <C>
Adjustable U.S. Adjustable Rate
Government Fund Securities Fund
A. Shareholder Transaction Expenses+
Exchange Fee (per transaction) $5.00* $5.00*
B. Annual Fund Operating Expenses (as a percentage of average net assets)
Management and Administration Fees 0.46%** 0.45%**
Other Expenses of the Fund and the Portfolio 0.09% 0.16%
Total Fund Operating Expenses 0.55%** 0.61%**
C. Example
Assume the Fund's annual return is 5% and its operating expenses are as
described above. For each $1,000 investment, you would pay the following
projected expenses if you sold your shares after the number of years shown.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 year 3 years 5 years 10 years
Adjustable U.S. Government Fund $6 $18 $31 $69
Adjustable Rate Securities Fund $6 $20 $34 $76
</TABLE>
This is just an example. It does not represent past or future expenses or
returns. Actual expenses and returns may be more or less than those shown. The
Fund pays its operating expenses. The effects of these expenses are reflected in
its Net Asset Value or dividends and are not directly charged to your account.
+If your transaction is processed through your Securities Dealer, you may be
charged a fee by your Securities Dealer for this service.
*$5.00 fee is only for Market Timers. We process all other exchanges without
a fee.
**The management fees of the Mortgage Portfolio and administration fees of the
Adjustable U.S. Government Fund were 0.41% and 0.05%, respectively. The
management fees of the Securities Portfolio and administration fees of the
Adjustable Rate Securities Fund were 0.40% and 0.05%, respectively. Advisers has
agreed in advance, however, to limit its management and administration fees and
make certain payments to reduce the Fund's and Portfolio's expenses so their
total operating expenses are not more than if the Fund were to invest directly
in the securities held by the Portfolio. With this reduction, management and
administration fees of the Adjustable U.S. Government Fund and the Adjustable
Rate Securities Fund were 0.29% and 0.20%, respectively. Total operating
expenses of the Adjustable U.S. Government Fund and the Adjustable Rate
Securities Fund were 0.38% and 0.36%, respectively.
The Board considered whether the total fees and expenses of the Fund and the
Portfolio would be more or less than if the Fund invested directly in the types
of securities held by the Portfolio. By investing all of its assets in shares of
the Portfolio, the Fund and other investment companies and institutional
investors are able to pool their assets. This may result in a variety of
operating economies. Accordingly, the Board concluded that the total expenses of
the Fund and the Portfolio were expected to be lower than if the Fund invested
directly in various types of securities. Of course, there is no guarantee that
asset growth and lower expenses will be achieved. Advisers, however, has agreed
in advance to limit expenses so that they will not be higher than if the Fund
invested directly in the types of securities held by the Portfolio. For more
information on the fees and expenses of the Fund and the Portfolio, please see
"Who Administers the Fund?"
Financial Highlights
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report appears in the financial statements in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996. The Annual Report to
Shareholders also includes more information about the Fund's performance. For a
free copy, please call 1-800/321-8563.
Adjustable U.S. Government Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended June 30 1996 1995 1994 1993 19921
Per Share Operating Performance
Net asset value at beginning of year $9.25 $9.40 $9.86 $9.99 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.600 0.551 0.360 0.480 0.373
Net realized & unrealized gain (loss) on securities 0.028 (0.155) (0.467) 0.130) (0.010)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.628 0.396 (0.107) 0.350 0.363
Distributions from net investment income (0.598) (0.546) (0.353) 0.480) (0.373)
Net asset value at end of year $9.28 $9.25 $9.40 $9.86 $9.99
Total Return* 6.98% 4.41% (1.11)% 4.01% 3.70%
Ratios/Supplemental Data
Net assets at end of year (in 000's) $9,448 $25,020 $51,738 $861,311 $1,265,392
Ratio of expenses to average net assets** 0.38% 0.23% 0.07% 0.35% 0.35%+
Ratio of net investment income to average net assets 5.90% 5.81% 3.49% 4.89% 6.24%+
Portfolio turnover rate 102.66% 14.86% 29.47% 66.55% 62.79%
Adjustable Rate Securities Fund
- ---------------------------------------------------------------------------------------------------------------------------
Year Ended June 30 1996 1995 1994 1993 19922
Per Share Operating Performance
Net asset value at beginning of year $9.78 $9.77 $10.04 $10.04 $10.00
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income 0.600 0.589 0.437 0.559 0.239
Net realized & unrealized gain (loss) on securities 0.011 0.010 (0.270) -- 0.040
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.611 0.599 0.167 0.559 0.279
- ---------------------------------------------------------------------------------------------------------------------------
Distributions from net investment income (0.601) (0.589) (0.437) (0.559) (0.239)
Net asset value at end of year $9.79 $9.78 $9.77 $10.04 $10.04
Total Return* 6.41% 6.35% 1.65% 5.72% 2.82%
Ratios/Supplemental Data
Net assets at end of year (in 000's) $4,453 $8,596 $31,198 $44,734 --
Ratio of expenses to average net assets** 0.36% 0.31% 0.25% -- --
Ratio of net investment income to average net assets 6.16% 5.84% 4.32% 5.56% 7.13%+
Portfolio turnover rate 45.98% 12.44% 197.22% 74.77% --
</TABLE>
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.
+Annualized.
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains, if any, at Net Asset Value.
**Includes the Fund's share of the Portfolio's allocated expenses. During the
periods indicated below, Advisers agreed in advance to waive a portion of its
management fees and made payments of other expenses of the Portfolio. Had such
action not been taken, the ratios of expenses to average net assets would have
been as follows:
Ratio of expense
to average net assets
- --------------------------------------------------------------------------------
Adjustable U.S. Government Fund
1996 0.55%
1995 0.54
1994 0.45
1993 0.46
19921 0.49+
Ratio of expense
to average net assets
Adjustable Rate Securities Fund
1996 0.61%
1995 0.59
1994 0.50
1993 0.60
19922 0.69+
How does the Fund Invest its Assets?
The Fund's Investment Objective
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
Fund and the Adjustable Rate Securities Fund seek to achieve their objective by
investing all of their assets in the Mortgage Portfolio and Securities
Portfolio, respectively. The investment objective of each Fund is the same as
the investment objective of the Portfolio in which it invests. The investment
polices of each Fund are also substantially similar to its respective
Portfolio's except, in all cases, the Fund may pursue its policies by investing
in an open-end management investment company with the same investment objective
and substantially similar policies and restrictions as the Fund. Any additional
exceptions are noted below.
The Fund acquires shares of the Portfolio at Net Asset Value. An investment in
the Fund is an indirect investment in its respective Portfolio. The investment
objective of each Fund and each Portfolio is fundamental and may not be changed
without shareholder approval. Of course, there is no assurance that the
objective will be achieved.
The Fund's Master/Feeder Fund Structure
An investment in the Fund may be subject to certain risks due to the Fund's
structure. These risks include the potential that if other future shareholders
in the Portfolio sell their shares, the Fund's expenses may increase or the
economies of scale that have been achieved as a result of the structure may be
diminished. Institutional investors in the Portfolio that have a greater pro
rata ownership interest in the Portfolio than the Fund could also have effective
voting control over the operation of the Portfolio. Furthermore, if shareholders
of the Fund do not approve a proposed future change in the Fund's objective or
fundamental policies, which has been approved for the Portfolio, the Fund may be
forced to withdraw its investment from the Portfolio and seek another investment
company with the same objective and policies.
If the Board considers it is in the best interest of the Fund, the Fund may
withdraw its investment in the Portfolio at any time. In that event, the Board
would consider what action to take, including the investment of all of the
assets of the Fund in another pooled investment entity with the same investment
objective and substantially similar policies as the Fund or the hiring of an
investment advisor to manage the Fund's investments. Either circumstance may
cause an increase in Fund expenses.
The Fund's structure is a relatively new format that often results in certain
operational and other complexities. The Franklin organization was one of the
first mutual fund complexes in the country to implement this structure, and the
Board does not believe the additional complexities outweigh the potential
benefits to be gained by shareholders.
Whenever the Fund, as an investor in the Portfolio, is asked to vote on a matter
relating to the Portfolio, the Fund will hold a meeting of Fund shareholders and
will cast its votes in the same proportion as the Fund's shareholders have
voted.
The Franklin Funds have one other fund that invests in the Mortgage Portfolio
and one other fund that invests in the Securities Portfolio. In the future,
other funds may be created that may likewise invest in the Portfolio or existing
funds may be restructured so that they may invest in the Portfolio. If
requested, we will forward additional information to you about other funds
through which you may invest in the Portfolio. If you would like to receive this
information, please call 1-800/321-8563.
The Portfolios are diversified series of the Adjustable Rate Securities
Portfolios, an open-end management investment company. The Adjustable Rate
Securities Portfolios was organized as a Delaware business trust on February 15,
1991, and is registered with the SEC under the 1940 Act. The Adjustable Rate
Securities Portfolios currently issues shares in two separate series. In the
future, additional series may be added by the Board of Trustees of the
Adjustable Rate Securities Portfolios.
For information on the Fund's administrator and its expenses, please see "Who
Administers the Fund?"
The Advantages of Investing in the Fund
The Adjustable U.S. Government Fund enables you to invest easily in mortgage
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities without paying a sales charge or Rule 12b-1 fees. Similarly,
the Adjustable Rate Securities Fund enables you to invest easily in adjustable
rate securities rated in the top two rating categories by nationally recognized
statistical rating agencies or issued or guaranteed by the U.S. government, its
agencies or instrumentalities without paying a sales charge or Rule 12b-1 fees.
Any guarantee will extend to the payment of interest and principal due on the
securities and will not provide any protection from fluctuations in the market
value of the securities. The Funds believe that by investing in their respective
Portfolio, which in turn invests primarily in securities that provide for
variable interest rates, they will achieve a more consistent and less volatile
Net Asset Value than is characteristic of mutual funds that invest primarily in
similar securities paying a fixed interest rate. Principal payments received on
a Portfolio's mortgage securities will be reinvested by the Portfolio in other
securities. These securities may have a higher or lower yield than the mortgage
securities already held by the Portfolio, depending on market conditions.
An investment in the Fund also provides liquidity since you may redeem shares of
the Fund at any time at the current Net Asset Value. Please see "How Do I Sell
Shares?"
An investment in the Adjustable U.S. Government Fund may be a permissible
investment for national banks, federal credit unions, federally chartered
savings and loan associations, and some state savings and loan associations. IF
YOU ARE AN INVESTOR WHOSE INVESTMENT AUTHORITY IS RESTRICTED BY APPLICABLE LAW
OR REGULATION YOU SHOULD CONSULT YOUR LEGAL ADVISOR TO DETERMINE WHETHER AND TO
WHAT EXTENT SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS FOR YOU. If you are
a municipal investor considering investment of proceeds of bond offerings into
the Fund, you should consult with expert counsel to determine the effect, if
any, of various payments made by the Fund, Advisers or Distributors on arbitrage
rebate calculations.
Types of Securities in which the Portfolio May Invest
The Mortgage Portfolio may invest at least 65% of its total assets in adjustable
rate mortgage securities ("ARMS") or other securities collateralized by or
representing an interest in mortgages and that have interest rates that reset at
periodic intervals. The Mortgage Portfolio will only invest in mortgage
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities.
The Securities Portfolio may invest at least 65% of its total assets in
adjustable rate securities collateralized by or representing an interest in
mortgages, including ARMS, issued or guaranteed by private institutions or by
the U.S. government, its agencies or instrumentalities, and other adjustable
rate asset-backed securities (collectively, "ARS"), which have interest rates
that reset at periodic intervals. The Securities Portfolio will only invest in
securities 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 agencies. The Securities Portfolio may also invest in unrated securities
if Advisers determines that they are of comparable quality to the ratings above.
The Portfolio may invest in ARMS issued by private institutions, such as
commercial banks, savings and loan institutions, insurance companies, private
mortgage insurance companies, mortgage bankers, mortgage conduits of investment
banks, finance companies, real estate companies, private corporations and
others, as long as they are consistent with the Portfolio's investment
objective. Privately issued mortgage securities are generally structured with
one or more types of credit enhancement.
Each Portfolio may also invest up to 35% of its total assets in (a) notes, bonds
and discount notes of the Federal Home Loan Banks, Federal National Mortgage
Association ("FNMA"), Government National Mortgage Association ("GNMA"), Federal
Home Loan Mortgage Corporation ("FHLMC"), 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) time and
savings deposits (including certificates of deposit) in commercial or savings
banks or in institutions whose accounts are insured by the FDIC, and (d) with
respect to the Securities Portfolio, asset-backed and mortgage-backed securities
issued by private and government entities. These securities may either be fixed
rate or adjustable rate securities. Each Portfolio's investments in time
deposits will not exceed 10% of its total assets.
For temporary defensive purposes, each Portfolio may invest up to 100% of its
assets in U.S. government securities, certificates of deposit of banks having
total assets in excess of $5 billion, and repurchase agreements.
Mortgage Securities - General Characteristics. A mortgage security is an
interest in a pool of mortgage loans. The primary issuers or guarantors of
mortgage securities are GNMA, FNMA, and 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. The principal and interest on GNMA securities are guaranteed by GNMA
and the guarantee is backed by the full faith and credit of the U.S. government.
Mortgage securities of FNMA and FHLMC are not backed by the full faith and
credit of the U.S. government. FNMA guarantees full and timely payment of all
interest and principal, and FHLMC guarantees timely payment of interest and the
ultimate collection of principal. Securities issued by FNMA are supported by the
agency's right to borrow money from the U.S. Treasury under certain
circumstances. Securities issued by FHLMC are supported only by the credit of
the agency. There is no guarantee that the government will support government
agency securities and, accordingly, they may involve a risk of non-payment of
principal and interest. Nonetheless, because FNMA and FHLMC are
instrumentalities of the U.S. government, securities issued by them are
generally considered to be high quality investments having minimal credit risks.
The yields on these mortgage securities have historically exceeded the yields on
other types of U.S. government securities with comparable maturities due largely
to their prepayment risk. (See "What are the Fund's Potential Risks?")
The Securities Portfolio may invest in private mortgage securities. Private
issuers of mortgage securities may be both the originators of the underlying
mortgage loans as well as the guarantors of the mortgage securities. Pools of
conventional residential mortgage loans created by private 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 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 companies or the mortgage poolers. The insurance and
guarantees and the creditworthiness of their issuers will be considered when
determining whether a mortgage security meets the Portfolio's quality standards.
The Portfolio may buy mortgage securities without insurance or guarantees if,
through an examination of the loan experience and practices of the poolers,
Advisers determines that the securities meet the Portfolio's quality standards.
Most mortgage securities are pass-through securities. This means that they
provide investors with payments consisting of a pro rata share of both regular
interest and principal payments, as well as unscheduled early prepayments, on
the underlying mortgage pool. Guarantees as to the timely payment of principal
and interest do not extend to the value or yield of mortgage securities nor do
they extend to the value of the Portfolio's or the Fund's shares.
Adjustable Rate Mortgage Securities. ARMS, like traditional mortgage securities,
are an interest in a pool of mortgage loans. The interest rates on the mortgages
underlying ARMS are reset periodically. As the interest rates are reset, the
yields of the securities will gradually align themselves to reflect changes in
market rates so that their market value will remain relatively stable compared
to fixed rate securities. As a result, the Net Asset Value of the Portfolio
should fluctuate less significantly than if the Portfolio invested in more
traditional long-term, fixed rate securities. During periods of extreme
fluctuation in interest rates, however, the Portfolio's and thus the Fund's Net
Asset Value will fluctuate.
Because the interest rates on the mortgages underlying ARMS are reset
periodically, the Portfolio may participate in increases in interest rates,
resulting in both higher current yields and lower price fluctuations. This
differs from fixed rate mortgages, which generally decline in value during
periods of rising interest rates. The Portfolio, however, will not benefit from
increases in interest rates to the extent that interest rates exceed the maximum
allowable annual or lifetime reset limits (or "cap rates") for a particular
mortgage security. Since most mortgage securities held by the Portfolio will
generally have annual reset limits or caps of 100 to 200 basis points,
short-term fluctuations in interest rates above these levels could cause these
mortgage securities to "cap out" and behave more like long-term, fixed rate debt
securities. If prepayments of principal are made on the underlying mortgages
during periods of rising interest rates, the Portfolio generally will be able to
reinvest these amounts in securities with a higher current rate of return.
Please keep in mind that during periods of rising interest rates, changes in the
interest rates on mortgages underlying ARMS lag behind changes in the market
rate. This may result in a lower Net Asset Value until the interest rate resets
to market rates. Thus, you could suffer some principal loss if you sell your
shares of the Fund before the interest rates on the underlying mortgages in the
Portfolio reset to 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 declining interest rates, the interest rates may reset
downward, resulting in lower yields to the Portfolio. As a result, the value of
ARMS is unlikely to rise during periods of declining interest rates to the same
extent as the value of fixed rate securities. As with other mortgage backed
securities, declining interest rates may result in accelerated prepayment of
mortgages and the proceeds from the prepayments may then have to be reinvested
at the lower prevailing interest rates.
The rate of amortization of principal, as well as interest payments, for certain
types of ARMS change in accordance with movements in a 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.
Mortgage loan pools offering pass-through investments in addition to those
described above may be created in the future. 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 securities are developed and offered to investors, the Portfolio may
invest in them if they are consistent with the Portfolio's objective, policies
and quality standards.
Adjustable Rate Securities. The Securities Portfolio will invest primarily in
ARS. ARS are debt securities with interest rates that are adjusted periodically
pursuant to a pre-set formula and interval. The interest paid on ARS and,
therefore, the current income earned by the Portfolio by investing in ARS, will
be a function primarily of the indices on which adjustments are based and the
applicable spread relating to the ARS. (Please see "Resets.")
The interest rates on ARS are generally readjusted periodically to an increment
over the chosen interest rate index. These 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's and thus the Fund's shares will be a function primarily of the
length of the adjustment period and the degree of volatility in the applicable
indices. 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 Advisers will consider caps
or floors in selecting ARS for the Portfolio.
While the Portfolio does not attempt to maintain a stable Net Asset Value per
share, during periods when 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 held by the Portfolio is expected to be relatively limited, since the
interest rate on the ARS will generally adjust to market rates within a short
period of time. In periods of substantial short-term volatility in 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 the interest rates during any one
adjustment period. In the event of dramatic increases in interest rates, the
lifetime caps on the ARS may prevent the securities from adjusting to prevailing
rates over the term of the loan. In this case, the market value of the ARS may
be substantially reduced with a corresponding decline in the Portfolio's and
thus the Fund's Net Asset Value.
Collateralized Mortgage Obligations ("CMO(s)"), Real Estate Mortgage Investment
Conduits ("REMICs") and Multi-Class Pass-Throughs. Each Portfolio may invest in
CMOs and REMICs issued and guaranteed by U.S. government agencies or
instrumentalities. The Securities Portfolio may also invest in CMOs and REMICs
issued by certain financial institutions and other mortgage lenders and in
multi-class pass-through securities. The Mortgage Portfolio will not invest in
privately issued CMOs and REMICs 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 that 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 the underlying collateral provides the funds to pay the debt service
on CMOs or REMICs or to make scheduled distributions on the multi-class
pass-through securities. Unless the context indicates otherwise, the discussion
of CMOs below may also apply to REMICs and multi-class pass-through securities.
A CMO is a mortgage-backed security that separates mortgage pools into short-,
medium- and long-term components. Each component pays a fixed rate of interest
at regular intervals. These components enable an investor, such as the
Portfolio, to more accurately predict the pace at which principal is returned.
The Mortgage Portfolio may buy CMOs that are:
(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.
CMOs are issued in multiple classes. Each class, often referred to as a
"tranche," is issued at a specified coupon rate or adjustable rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying CMOs may cause the CMOs to be retired substantially earlier than
their stated maturities or final distribution dates. Interest is paid or accrues
on all classes of a CMO on a monthly, quarterly or semiannual basis. The
principal and interest on the mortgages underlying CMOs may be allocated among
the several classes in many ways. In a common structure, payments of principal
on the underlying mortgages, including any principal prepayments, 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 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 that 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 treated as ARMS by the Portfolio. Floating rate CMOs may be backed by fixed
or adjustable rate mortgages. To date, fixed rate mortgages have been more
commonly used for this purpose. Floating rate CMOs are typically issued with
lifetime "caps" on the coupon rate. These caps, similar to the caps on ARMS,
represent a ceiling beyond which the coupon rate may not be increased,
regardless of increases in the underlying interest rate index.
Yields on privately issued CMOs have been historically higher than the yields on
CMOs issued and guaranteed by U.S. government agencies or instrumentalities. The
risk of loss due to default on privately issued CMOs, however, is higher since
they are not guaranteed by the U.S. government. The trustees of the Adjustable
Rate Securities Portfolios believe that the risk of loss to the Securities
Portfolio relating to its investments in privately issued CMOs is justified by
the higher yield the Portfolio will earn in light of the historic loss
experience on these instruments. The Securities Portfolio will not invest in
subordinated privately issued CMOs.
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 underlying mortgages include
those 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 and that are not guaranteed by any government agency.
Advisers currently intends to limit the Securities Portfolio's 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 Securities Portfolio currently intends to
buy sequential pay CMO securities in the class with the shortest remaining
average life.
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 those securities in a manner consistent
with the 1940 Act.
Resets. The interest rates paid on ARMS, ARS and CMOs generally are readjusted
at intervals of one year or less to an increment over some predetermined
interest rate index, although some securities in which the Securities Portfolio
may invest may have intervals as long as five years. There are three main
categories of indices: those based on LIBOR; those based on U.S. Treasury
securities; and those derived from a calculated measure such as a cost of funds
index or a moving average of mortgage rates. Commonly used indices include the
one-, three- and five-year constant maturity Treasury rates, the three-month
Treasury bill rate, the 180-day 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 Federal Home Loan
Bank Cost of Funds, tend to lag behind changes in market interest rate levels
and tend to be somewhat less volatile.
Caps and Floors. The underlying mortgages that collateralize ARMS and CMOs will
frequently have caps and floors that 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. The Securities Portfolio may invest in stripped
mortgage securities, which are derivative multi-class mortgage securities. The
stripped mortgage securities in which the Portfolio 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 Portfolio invests.
Stripped mortgage securities are usually structured with two classes, each
receiving different proportions of the interest and principal distributions on a
pool of mortgage assets. A common type of stripped mortgage security has one
class that receives some of the interest and most of the principal from the
mortgage assets, while the other class receives most of the interest and the
remainder of the principal. In the most extreme case, one class receives all of
the interest (the interest-only or "IO" class), while the other class receives
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
underlying mortgage assets. A rapid rate of principal payments may have a
material adverse effect on the yield to maturity of any IO class held by the
Portfolio. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Portfolio may fail to fully recoup its initial
investment, 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 Securities Portfolio, 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 stripped
mortgage securities. Accordingly, some of these securities may be illiquid. The
staff of the SEC has indicated that only government-issued IO or PO securities
that 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 of Trustees of the Adjustable Rate Securities Portfolios may,
in the future, adopt procedures that would permit the Securities Portfolio to
buy, 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 Securities Portfolio's net assets. This 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.
Floaters. Up to 5% of the Securities Portfolio's assets may be invested in
inverse floaters and super floaters. Please see the SAI for more information
about these investments.
Asset-Backed Securities. The Securities Portfolio may invest in asset-backed
securities, including adjustable rate asset-backed securities that have interest
rates that reset at periodic intervals. Asset-backed securities are similar to
mortgage-backed securities. The underlying assets, however, may include
receivables on home equity and credit card loans, and automobile, mobile home
and recreational vehicle loans and leases. Asset-backed securities are issued in
either a pass-through structure (similar to a mortgage pass-through structure)
or a pay-through structure (similar to a CMO structure). There may be other
types of asset-backed securities that are developed in the future in which the
Securities Portfolio may invest. In general, collateral supporting asset-backed
securities has shorter maturities than mortgage loans and historically has been
less likely to experience substantial prepayment.
Derivatives. Some of the types of investments discussed in this prospectus may
be considered "derivatives." Derivatives are broadly defined as financial
instruments whose performance is derived, at least in part, from the performance
of an underlying asset. To the extent indicated, each Portfolio may invest in
CMOs, REMICs, and uncovered mortgage dollar rolls, and the Securities Portfolio
may also invest in multi-class pass-throughs, stripped mortgage securities,
other asset-backed securities, and structured notes. Some, all or the component
parts of these instruments may be considered derivatives. The Portfolio may use
these instruments to help manage risks relating to interest rates and other
market factors, increase liquidity, and/or invest in a particular instrument in
a more efficient or less expensive way. The Portfolio will not necessarily use
these instruments or investment strategies to the full extent permitted unless
Advisers believes that doing so will help the Portfolio reach its objective, and
not all instruments or strategies will be used at all times.
Other Investment Policies of the Portfolio
Mortgage Dollar Rolls. The Portfolio may enter into mortgage "dollar rolls" in
which the 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 Portfolio is compensated by the difference
between the current sale price and the lower forward price for the future
purchase (often referred to as the "drop"), as well as 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.
Repurchase Agreements. The Portfolio may engage in repurchase transactions in
which the Portfolio buys a U.S. government security subject to resale to a bank
or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying security marked-to-market daily to maintain coverage of at least
100%. A default by the seller might cause the Portfolio to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement.
The Portfolio might also incur disposition costs in liquidating the collateral.
The Portfolio, however, intends to enter into repurchase agreements only with
financial institutions such as broker-dealers and banks that are deemed
creditworthy by Advisers. A repurchase agreement is deemed to be a loan by the
Portfolio under the 1940 Act. The U.S. government security subject to resale
(the collateral) will be held on behalf of the Portfolio by a custodian approved
by the Portfolio's Board of Trustees and will be held pursuant to a written
agreement.
When-Issued and Delayed Delivery Transactions. The Portfolio may buy U.S.
government obligations on a "when-issued" or "delayed delivery" basis. These
transactions are arrangements under which the Portfolio buys 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 the risk that the value or
yield at delivery may be more or less than the purchase price or the yield
available when the transaction was entered into. Although the Portfolio will
generally buy U.S. government securities on a when-issued basis with the
intention of holding the securities, it may sell the securities before the
settlement date if it is deemed advisable. When the Portfolio is the buyer, it
will maintain, in a segregated account with its custodian bank, cash or
high-grade marketable securities having an aggregate value equal to the amount
of its purchase commitments until payment is made. To the extent the Portfolio
engages in when-issued and delayed delivery transactions, it will do so only for
the purpose of acquiring portfolio securities 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 do so may cause the
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 Portfolio is not subject to any percentage
limit on the amount of its assets that may be invested in when-issued purchase
obligations.
Loans of Portfolio Securities. Consistent with procedures approved by the
Portfolio's Board of Trustees and subject to the following conditions, the
Portfolio may lend its portfolio securities to qualified securities dealers or
other institutional investors, if the loans do not exceed 10% of the value of
the Portfolio's total assets at the time of the most recent loan. The borrower
must deposit with the Portfolio's custodian bank collateral with an initial
market value of at least 102% of the initial market value of the securities
loaned, including any accrued interest, with the value of the collateral and
loaned securities marked-to-market daily to maintain collateral coverage of at
least 102%. This collateral shall consist of cash. The lending of securities is
a common practice in the securities industry. The Portfolio may engage in
security loan arrangements with the primary objective of increasing the
Portfolio's income either through investing the cash collateral in short-term
interest bearing obligations or by receiving a loan premium from the borrower.
Under the securities loan agreement, the Portfolio continues to be entitled to
all dividends or interest on any loaned securities. As with any extension of
credit, there are risks of delay in recovery and loss of rights in the
collateral should the borrower of the security fail financially.
Borrowing. The Securities Portfolio may borrow from banks from time to time to
increase its investments. Borrowings may be secured or unsecured and at fixed or
variable interest rates. The Portfolio will borrow only to the extent that the
value of its assets, less its liabilities (excluding borrowings), is equal to at
least 300% of its borrowings. If the Securities 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 the test. This may require the Portfolio to sell a
portion of its investments at a disadvantageous time.
Borrowing for investment purposes is a speculative investment technique known as
"leveraging." When the Securities Portfolio leverages its assets, the
Portfolio's Net Asset Value may increase or decrease at a greater rate than if
the Portfolio were not leveraged. The interest payable on the amount borrowed
increases the 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.
Neither Fund may borrow money nor mortgage nor 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 its total asset value.
The Adjustable U.S. Government Fund will not buy additional portfolio securities
(additional shares of the Mortgage Portfolio) while borrowings in excess of 5%
of its total assets are outstanding.
Illiquid Investments. The Portfolio may not invest more than 10% of its net
assets, at the time of purchase, in illiquid securities. Illiquid securities are
generally securities that cannot be sold within seven days in the normal course
of business at approximately the amount at which the Portfolio has valued them.
They include, among others, repurchase agreements and time and savings deposits
of more than seven days duration.
Percentage Restrictions. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
Other Policies and Restrictions. Each Portfolio and Fund has a number of
additional investment restrictions that limit its activities to some extent.
Some of these restrictions may only be changed with shareholder approval. For a
list of these restrictions and more information about the Portfolio's and the
Fund's policies, please see "How does the Fund Invest its Assets?" and
"Investment Restrictions" in the SAI.
What are the Fund's Potential Risks?
The value of your shares will increase as the value of the securities owned by
the Fund increases and will decrease as the value of the Fund's investments
decrease. In this way, you participate in any change in the value of the
securities owned by the Fund. Since each Fund invests its assets in shares of
its respective Portfolio, as the value of the securities owned by the Portfolio
fluctuates, the Portfolio's Net Asset Value per share, and thus the Fund's Net
Asset Value per share, will also fluctuate.
Mortgage Securities. The mortgage securities in which the Portfolio invests
differ from conventional bonds in that principal is paid over the life of the
mortgage security rather than at maturity. As a result, the holder of 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 that 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. Fixed rate
mortgage securities are generally more subject to this "prepayment risk" than
are ARMS.
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. ARMS, however,
have less risk of a decline in value during periods of rapidly rising rates but,
like other mortgage securities, 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 applicable caps or maximum
rates on ARMS or beyond the coupon rates of fixed rate mortgage securities, 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
that, when distributed to shareholders, will be taxable as ordinary income.
With respect to pass-through mortgage pools issued by private issuers, there is
no assurance that private insurers of the securities will be able to meet their
obligations. Although the market for privately issued mortgage securities is
becoming increasingly liquid, securities issued by certain private organizations
may not be readily marketable. These securities are subject to the Securities
Portfolio's limit with respect to illiquid investments.
Adjustable Rate Securities. ARS have several characteristics that should be
considered before you invest 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 Portfolio's Net Asset Value per share
caused by changes in market interest rates. The market value of ARS and,
therefore, the Portfolio's and the Fund's Net Asset Value may vary, however, to
the extent that the current interest rate on ARS differs from market interest
rates during periods between the interest reset dates. 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 and if market interest rates fall below the current
rate on the securities, the value of the securities will rise. The longer the
adjustment intervals on ARS held by the Portfolio, the greater the potential
will be for fluctuations in the Portfolio's and thus the Fund's Net Asset Value.
As an investor in the Fund, you 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 the rates rise to the
point where they cause the rates on ARS to reach their maximum adjustment rate,
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.
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 the loans on the basis of the original payment
amounts. The mortgagor's income may not be sufficient to enable the mortgagor to
continue making loan payments as the 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. The Fund, therefore, is not designed for
investors seeking capital appreciation.
Asset-Backed Securities. Asset-backed securities entail certain risks not
present with mortgage-backed securities as they do not have the benefit of the
same type of security interests in the underlying 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 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 the receivables due to
the large number of vehicles involved in a typical issuance and the technical
requirements imposed under state laws. Therefore, recoveries on repossessed
collateral may not always be available to support payments on securities backed
by these receivables. For more information about the risks of investing in
asset-backed securities, please see the SAI.
Interest Rate Risk. Changes in interest rates will affect the value of the
Portfolio's and thus the Fund's portfolio and their share price. Rising interest
rates, which often occur during times of inflation or a growing economy, are
likely to have a negative effect on the value of the Portfolio's and the Fund's
shares. Interest rates have increased and decreased in the past. These changes
are unpredictable and may happen again in the future.
Investments in fixed rate securities generally decline in value during periods
of rising interest rates and increase in value when interest rates fall. To the
extent the Portfolio invests in fixed rate securities, the value of the
Portfolio's and thus the Fund's shares will be more sensitive to interest rate
changes than if the Portfolio were fully invested in adjustable rate securities.
Who Administers the Fund?
The Board. The Board oversees the management of the Trust and elects its
officers. The officers are responsible for each Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the Trust and the Portfolios having substantially the same
boards. These procedures call for an annual review of each Fund's relationship
with its respective Portfolio. If a conflict exists, the boards may take action,
which may include the establishment of a new board. The Board has determined
that there are no conflicts of interest at the present time. For more
information, please see "Summary of Procedures to Monitor Conflicts of Interest"
and "Officers and Trustees" in the SAI.
Investment Manager and Administrator. Advisers is the investment manager of the
Portfolio and other funds with aggregate assets of over $82 billion. Advisers is
also the administrator of the Fund. Advisers is wholly owned by Resources, a
publicly owned company engaged in the financial services industry through its
subsidiaries. Charles B. Johnson and Rupert H. Johnson, Jr. are the principal
shareholders of Resources.
Management Team. The team responsible for the day-to-day management of the
Portfolio in which each Fund invests since inception is:
T. Anthony Coffey
Portfolio Manager of Advisers
Mr. Coffey is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned a Bachelor of Arts degree in applied mathematics and economics from
Harvard University. Mr. Coffey has been with the Franklin Templeton Group since
1989. He is a member of several securities industry-related associations.
Roger Bayston
Portfolio Manager of Advisers
Mr. Bayston is a Chartered Financial Analyst and holds a Master of Business
Administration degree from the University of California at Los Angeles. He
earned his Bachelor of Science degree from the University of Virginia. He has
been with the Franklin Templeton Group since earning his MBA degree in 1991.
Jack Lemein
Senior Vice President of Advisers
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 the
Franklin Templeton Group since 1984. He is a member of several securities
industry-related associations.
Services Provided by Advisers. Advisers manages the Portfolio's assets and makes
its investment decisions. Advisers also provides certain administrative services
and facilities for the Fund and performs similar services for other funds.
Please see "Investment Management and Other Services" and "Miscellaneous
Information" in the SAI for more information on securities transactions and a
summary of the Fund's Code of Ethics.
Management Fees. You will bear a portion of the Portfolio's operating expenses,
including its management fees, to the extent that the Fund, as a shareholder of
the Portfolio, bears these expenses. The portion of the Portfolio's expenses
borne by the Fund depends on the Fund's proportionate share of the Portfolio's
net assets.
During the fiscal year ended June 30, 1996, the Adjustable U.S. Government
Fund's proportionate share of the Mortgage Portfolio's management fees and the
Fund's administration fees, before any advance waiver, totaled 0.46% of the
average daily net assets of the Fund. The Adjustable Rate Securities Fund's
proportionate share of the Securities Portfolio's management fees and the Fund's
administration fees, before any advance waiver, totaled 0.45% of the average
daily net assets of the Fund. Total operating expenses, including fees paid to
Advisers before any advance waiver, totaled 0.55% for the Adjustable U.S.
Government Fund and 0.61% for the Adjustable Rate Securities Fund.
Under an agreement by Advisers to limit its fees and to make certain payments to
reduce expenses so that the Fund's and the Portfolio's total operating expenses
are not more than if the Fund invested directly in the securities held by the
Portfolio, the Adjustable U.S. Government Fund and the Adjustable Rate
Securities Fund paid a proportionate share of their respective Portfolio's
management fees and administration fees totaling 0.29% and 0.20%, respectively.
Total expenses of the Adjustable U.S. Government Fund and the Adjustable Rate
Securities Fund were 0.38% and 0.36%, respectively. Advisers may end this
arrangement at any time upon notice to the Board.
Portfolio Transactions. Advisers tries to obtain the best execution on all
transactions. If Advisers believes more than one broker or dealer can provide
the best execution, it may consider research and related services and the sale
of Fund shares when selecting a broker or dealer. Please see "How does the
Portfolio Buy Securities For its Portfolio?" in the SAI.
How does the Fund Measure Performance?
From time to time, the Fund advertises its performance. The more commonly used
measures of performance are total return, current yield and current distribution
rate.
Total return is the change in value of an investment over a given period. It
assumes any dividends and capital gains are reinvested. Current yield shows the
income per share earned by the Fund. The current distribution rate shows the
dividends or distributions paid to shareholders by the Fund. This rate is
usually computed by annualizing the dividends paid per share during a certain
period and dividing that amount by the current Net Asset Value. Unlike current
yield, the current distribution rate may include income distributions from
sources other than dividends and interest received by the Fund.
The Fund's investment results will vary. Performance figures are always based on
past performance and do not indicate future results. For a more detailed
description of how the Fund calculates its performance figures, please see "How
does the Fund Measure Performance?" in the SAI.
How is the Trust Organized?
Each Fund is a no-load, diversified series of the Trust, an open-end management
investment company, commonly called a mutual fund. It was organized as a
Massachusetts business trust on January 15, 1985, and is registered with the SEC
under the 1940 Act. Shares of each series of the Trust have equal and exclusive
rights to dividends and distributions declared by that series and the net assets
of the series in the event of liquidation or dissolution. Shares of the Fund are
considered Class I shares for redemption, exchange and other purposes. In the
future, additional series may be offered.
The Trust has noncumulative voting rights. This gives holders of more than 50%
of the shares voting the ability to elect all of the members of the Board. If
this happens, holders of the remaining shares voting will not be able to elect
anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold a
special meeting of a series, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its discretion
or by shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help you communicate with other shareholders in connection with
removing members of the Board.
How Taxation Affects You and the Fund
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders. For more information on tax matters
relating to the Fund and its shareholders, see "Additional Information on
Distributions and Taxes" in the SAI.
The Fund has elected and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. By distributing all of its
income and meeting certain other requirements relating to the sources of its
income and diversification of its assets, the Fund will not be liable for
federal income or excise taxes.
For federal income tax purposes, any income dividends received 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 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 you have owned Fund shares and
regardless of whether the distributions are received in cash or in additional
shares.
Under the Code, certain distributions that are declared in October, November or
December but which, for operational reasons, may not be paid to you until the
following January, will be treated for tax purposes as if paid by the Fund and
received by you on December 31 of the calendar year in which they are declared.
Redemptions and exchanges of Fund shares are taxable events on which you 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.
Since the 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 Fund will generally be eligible for the corporate
dividends-received deduction. None of the distributions paid by the Fund for the
fiscal year ended June 30, 1996, qualified for this deduction and it is not
anticipated that any of the current year's dividends will so qualify.
The Fund will inform you of the source of your dividends and distributions at
the time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of your dividends
and distributions.
You should consult with your tax advisor with respect to the applicability of
state and local intangible property or income taxes to your shares of the Fund
and distributions and redemption proceeds received from the Fund.
If you are not considered a U.S. person for federal income tax purposes, you
should consult with your financial or tax advisor regarding the applicability of
U.S. withholding or other taxes to distributions you receive from the Fund and
the application of foreign tax laws to these distributions.
ABOUT YOUR ACCOUNT
How Do I Buy Shares?
Opening Your Account
Shares of the Fund may be purchased without a sales charge by institutions such
as corporations, banks, thrifts, credit unions, government authorities or
agencies, trust companies and other institutional entities that are prohibited
by law, regulation, charter or stated policy from investing in a fund with a
sales charge or a "Rule 12b-1 Plan" under the 1940 Act. To be eligible to invest
in the Fund you must also have, or will have after the purchase of Fund shares,
at least $5,000,000 (valued at the higher of cost or current value) invested in
the Franklin Templeton Funds. For trust companies and bank trust departments
buying shares on behalf of accounts over which they exercise exclusive
investment discretion, the minimum amount is $1,000,000. We may waive or vary
these requirements on a case by case basis and may refuse any order to buy
shares.
To determine if you meet the minimum investment requirement, you may combine
investments in the following accounts:
o all accounts registered in the name of your institution, for its own account
or for accounts under exclusive investment discretion (such as trust or
custodial accounts)
o all accounts with substantially identical ownership; for example, accounts of
all 80% or more owned subsidiaries of a holding company.
You must notify us in writing of all accounts that you would like combined.
Method Steps to Follow
By Mail 1. For an initial investment, complete an application.
2. Return the application, if applicable, to the Fund
with your check, Federal Reserve draft or negotiable
bank draft made payable to the Fund.
By Wire 1. To receive a wire control number, call
1-800/321-8563 or 1-415/312-3600 before 1:00 p.m.
Pacific time to receive that day's price. A new
number is needed every time you wire money into your
account. If you do not have a currently effective wire
control number, we will return the money to the bank
and it will not be credited to your account.
2. On the next business day, wire the funds to Bank of
America, ABA routing number 121000358, for credit to
either Franklin Institutional Adjustable U.S.
Government Securities Fund or Franklin Institutional
Adjustable Rate Securities Fund, A/C 1493-3-04779.
Your account number, account registration, and the wire
control number must be included.
3. For initial investments, complete an application and
return it to the Fund. For investments over $50,000,
you also need to complete the Institutional Telephone
Privileges Agreement.
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Through Your Dealer Call your investment representative
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More Information About Buying Your Shares By Wire
In order to maximize efficient Fund management, please place your order and wire
your investments as early in the day as possible. 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.
Payments to Securities Dealers
If you buy shares through a Securities Dealer, Distributors may make a payment
to the Securities Dealer out of its own resources. Please contact Institutional
Services for more information.
May I Exchange Shares for Shares of Another Fund?
We offer a wide variety of funds. The shares of most of these funds are offered
to the public with a sales charge. If you would like, you can move your
investment from your Fund account to an existing or new account in another
Franklin Templeton Fund (an "exchange"). Because it is technically a sale and a
purchase of shares, an exchange is a taxable transaction.
Before making an exchange, please read the prospectus of the fund you are
interested in. This will help you learn about the fund and its rules and
requirements for exchanges. For example, some Franklin Templeton Funds do not
accept exchanges and others may have different investment minimums.
Method Steps to Follow
By Mail Send us written instructions signed by all account owners
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By Phone 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement. Call
Institutional Services to receive a copy.
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Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to exchange shares.
Will Sales Charges Apply to My Exchange?
You will generally pay the applicable front-end sales charge of the fund you are
exchanging into, unless you acquired your Fund shares under the exchange
privilege. These charges may not apply if you qualify to buy shares without a
sales charge. For example, certain institutional investors such as government
entities, employee benefit plans, trust companies and bank trust departments,
may buy Class I shares of other Franklin Templeton Funds without a sales charge.
Exchanging Shares Between Funds in the Trust
From the Fund into a money market series of the Trust. To avoid dilution of the
money market fund, your exchange will be treated as a sale of Fund shares at the
Net Asset Value next calculated after we receive your exchange request in proper
form before 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 proper form.
From a money market series of the Trust into the Fund. Shares of the Fund will
be purchased at the Net Asset Value next calculated after we receive your
exchange request in proper form before 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.
Retirement Plans
Retirement plan participants may exchange shares 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.
Exchange Restrictions
Please be aware that the following restrictions apply to exchanges:
o You may only exchange shares within the same class.
o The accounts must be identically registered.
o The fund you are exchanging into must be eligible for sale in your state.
o We may modify or discontinue our exchange policy if we give you 60 days'
written notice.
o Your exchange may be restricted or refused if you: (i) request an exchange out
of the Fund within two weeks of an earlier exchange request, (ii) exchange
shares out of the Fund more than twice in a calendar quarter, or (iii) exchange
shares equal to at least $5 million, or more than 1% of the Fund's net assets.
Shares under common ownership or control are combined for these limits. If you
exchange shares as described in this paragraph, you will be considered a Market
Timer. Each exchange by a Market Timer, if accepted, will be charged $5.00. Some
of our funds do not allow investments by Market Timers.
Because excessive trading can hurt Fund performance and shareholders, we may
refuse any exchange purchase if (i) we believe the Fund would be harmed or
unable to invest effectively, or (ii) the Fund receives or anticipates
simultaneous orders that may significantly affect the Fund.
How Do I Sell Shares?
You may sell (redeem) your shares at any time.
Method Steps to Follow
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By Mail 1. Send us written instructions signed by all account owners
2. Provide a signature guarantee if required
3. Corporate, partnership and trust accounts may need to send
additional documents. Accounts under court jurisdiction may
have additional requirements.
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By Phone 1. Call Institutional Services at 1-800/321-8563
2. For requests over $50,000, you must complete an
Institutional Telephone Privileges Agreement. Call
Institutional Services to receive a copy.
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We will send your redemption check within seven days after we receive your
request in proper form. We are not able to receive or pay out cash in the form
of currency. If you sell your shares by phone, the check may only be made
payable to all registered owners on the account and sent to the address of
record. If requested, redemption proceeds may also be wired to a preauthorized
bank account. If we receive your request by 1:00 p.m. Pacific time, the proceeds
may be wired on the following business day. If you anticipate requesting a wire
over $5 million, please notify us promptly.
The wiring of redemption proceeds is a special service that we make available
whenever possible. By offering this service to you, however, the Fund is not
bound to meet any redemption request in less than the seven day period
prescribed by law. Neither the Fund nor its agents shall be liable to you or any
other person if, for any reason, a redemption request by wire is not processed
as described in this section.
If you sell shares you just purchased with a check or draft, we may delay
sending you the proceeds for up to 15 days or more to allow the check or draft
to clear. A certified or cashier's check may clear in less time.
Under unusual circumstances, we may suspend redemptions or postpone payment for
more than seven days as permitted by federal securities law.
Please refer to "Transaction Procedures and Special Requirements" for other
important information on how to sell shares.
Contingent Deferred Sales Charge
The Fund does not impose a Contingent Deferred Sales Charge. If, however, you
sell shares that were exchanged into the Fund from another Franklin Templeton
Fund and those shares would have been assessed a Contingent Deferred Sales
Charge in the other fund, the Fund will impose the charge as described below.
Certain Franklin Templeton Funds impose a Contingent Deferred Sales Charge if
you sell all or a part of an investment of $1 million or more within the
Contingency Period. The Contingency Period is tolled (or stopped) during the
time the shares are held in the Fund. The charge is 1% of the value of the
shares sold or the Net Asset Value at the time of purchase, whichever is less.
We will first redeem shares not subject to the charge in the following order:
1) A calculated number of shares equal to the capital appreciation on shares
held less than the Contingency Period,
2) Shares purchased with reinvested dividends
and capital gain distributions, and
3) Shares held longer than the Contingency Period.
We then redeem shares subject to the charge in the order they were purchased.
Unless otherwise specified, when you request to sell a stated dollar amount, we
will redeem additional shares to cover any Contingent Deferred Sales Charge. For
requests to sell a stated number of shares, we will deduct the amount of the
Contingent Deferred Sales Charge, if any, from the sale proceeds.
What Distributions Might I Receive from the Fund?
The Fund ordinarily declares dividends each day that its Net Asset Value is
calculated and pays them monthly on or about the last day of the month. Shares
begin earning dividends on the day we receive the trade payment. For purchases
by wire, we must receive notification of the trade on the previous business day.
If you purchased shares with a check, your shares will begin earning dividends
on the day the check is converted into federal funds. This may take two or more
days depending on the banks involved.
Capital gains, if any, may be distributed annually, usually in December.
Dividend payments may vary from day to day depending on changes in the Fund's
net investment income. The Fund does not pay "interest" or guarantee any amount
of dividend or return on an investment in its shares.
Dividend Options
Dividends will automatically be reinvested monthly in the form of additional
shares of the Fund at the Net Asset Value per share at the close of business on
or about the last business day of the month. You may, however, choose to receive
dividends in cash. To do so, please notify the Fund or Institutional Services.
Certain restrictions may apply to retirement plans. If you sell all of your
shares at any time during the month, you will receive your dividends with your
redemption proceeds.
Transaction Procedures and Special Requirements
How and When Shares are Priced
The Fund is open for business each day the Exchange is open. We determine the
Net Asset Value per share as of the scheduled close of the Exchange, generally
1:00 p.m. Pacific time. To calculate Net Asset Value per share, the Fund's
assets are valued and totaled, liabilities are subtracted, and the balance,
called net assets, is divided by the number of shares outstanding. The Fund's
assets are valued as described under "How are Fund Shares Valued?" in the SAI.
The Price We Use When You Buy or Sell Shares
You buy and sell shares at Net Asset Value. We will use the Net Asset Value next
calculated after we receive your transaction request in proper form.
Proper Form
An order to buy shares is in proper form when we receive your signed application
and check or wired funds. If you purchase shares with a check, your purchase
order may not be considered in proper form until the money received from you is
available in federal funds, which may take up to two or more days from receipt.
Written requests to sell or exchange shares are in proper form when we receive
written instructions signed by all registered owners, with a signature guarantee
if necessary.
Written Instructions
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you're exchanging into,
o Your account number,
o The dollar amount or number of shares, and
o A telephone number where we may reach you during the day, or in the evening if
preferred.
Signature Guarantees
For our mutual protection, we require a signature guarantee in the following
situations:
1) You wish to sell over $50,000 worth of shares,
2) You want the proceeds to be paid to someone other than the registered owners,
3) The proceeds are not being sent to the address of record, preauthorized bank
account, or preauthorized brokerage firm account,
4) We receive instructions from an agent, not the registered owners,
5) We believe a signature guarantee would protect us against potential claims
based on the instructions received.
A signature guarantee verifies the authenticity of your signature and may be
obtained from certain banks, brokers or other eligible guarantors. You should
verify that the institution is an eligible guarantor prior to signing. A
notarized signature is not sufficient.
Share Certificates
We will credit your shares to your Fund account. We do not issue share
certificates. This eliminates the costly problem of replacing lost, stolen or
destroyed certificates.
Telephone Transactions
You may initiate many transactions by phone, including by facsimile or computer.
Please refer to the sections of this prospectus that discuss the transaction you
would like to make or call Institutional Services at 1-800/321-8563.
We may only be liable for losses resulting from unauthorized telephone
transactions if we do not follow reasonable procedures designed to verify the
identity of the caller. When you call, we will request personal, corporate or
other identifying information, and will also record calls. For your protection,
we may delay a transaction or not implement one if we are not reasonably
satisfied that telephone instructions are genuine. If this occurs, we will not
be liable for any loss.
If our lines are busy or you are otherwise unable to reach us by phone, you may
wish to ask your investment representative for assistance or send written
instructions to us, as described elsewhere in this prospectus. If you are unable
to execute a transaction by telephone, we will not be liable for any loss.
Retirement Plans. The telephone transaction options available to retirement
plans are limited to those that are provided under the plan.
Required Documents
For corporate, partnership and trust accounts, please send us the following
documents when you open your account. This will help avoid delays in processing
your transactions while we verify who may sign on the account.
Type of Account Documents Required
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Corporation Corporate Resolution
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Partnership 1. The pages from the partnership agreement that identify the
general partners, or
2. A certification for a partnership agreement
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Trust 1. The pages from the trust document that identify the
trustees, or
2. A certification for trust
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Tax Identification Number
For tax reasons, we must have your correct tax identification number on a signed
application or applicable tax form. Federal law requires us to withhold 31% of
your taxable distributions and sale proceeds if (i) you have not furnished a
certified correct taxpayer identification number, (ii) you have not certified
that withholding does not apply, (iii) the IRS or a Securities Dealer notifies
the Fund that the number you gave us is incorrect, or (iv) you are subject to
backup withholding.
We may refuse to open an account if you fail to provide the required tax
identification number and certifications. We may also close your account if the
IRS notifies us that your tax identification number is incorrect. If you
complete an "awaiting TIN" certification, we must receive a correct tax
identification number within 60 days of your initial purchase to keep your
account open.
Keeping Your Account Open
We may close your account if the value of your shares is less than $1,000,000
($500,000 for trust companies and bank trust departments). We will only do this
if the value of your account fell below this amount because you voluntarily sold
your shares and your account has been inactive (except for the reinvestment of
distributions) for at least six months. Before we close your account, we will
notify you and give you 30 days to increase the value of your account to the
minimum amount.
Services to Help You Manage Your Account
Rights of Accumulation
You may include the cost or current value (whichever is higher) of your Fund
shares when determining if you may buy shares of another Franklin Templeton Fund
at a discount. You may also include your Fund shares towards the completion of a
Letter of Intent established in connection with the purchase of shares of
another Franklin Templeton Fund.
Statements and Reports to Shareholders
We will send you the following statements and reports on a regular basis:
o Confirmation and account statements reflecting transactions in your account,
including additional purchases and dividend reinvestments. Please verify the
accuracy of your statements when you receive them.
o Financial reports of the Fund will be sent every six months. Call
Institutional Services if you would like an additional free copy of the Fund's
financial reports or an interim quarterly report.
Availability of These Services
Certain of the programs and privileges described in this prospectus may not be
available directly from the Fund if your shares are held by a financial
institution or in a street name account.
What If I Have Questions About My Account?
If you have any questions about your account, you may write to Institutional
Services at 777 Mariners Island Blvd., P.O. Box 7777, San Mateo, California
94403-7777. The Fund, Distributors, and Advisers are also located at this
address. You may also contact us by phone at 1-800/321-8563, Monday through
Friday, from 6:00 a.m. to 5:00 p.m. Pacific time.
Your phone call may be monitored or recorded to ensure we provide you with high
quality service. You will hear a regular beeping tone if your call is being
recorded.
GLOSSARY
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940,
as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
Class I and Class II - Certain funds in the Franklin Templeton Funds offer two
classes of shares, designated "Class I" and "Class II." The two classes have
proportionate interests in the same portfolio of investment securities. They
differ, however, primarily in their sales charge structures and Rule 12b-1
plans. Shares of the Fund are considered Class I shares for redemption, exchange
and other purposes.
Code - Internal Revenue Code of 1986, as amended
Contingency Period - The 12 month period during which a Contingent Deferred
Sales Charge may apply. Regardless of when during the month you purchased
shares, they will age one month on the last day of that month and each following
month.
Contingent Deferred Sales Charge (CDSC) - A sales charge of 1% that may apply if
you sell your shares within the Contingency Period.
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter. The SAI lists the officers and Board members who are affiliated
with Distributors. See "Officers and Trustees."
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin
Government Securities Trust
Franklin Templeton Funds - The Franklin Funds and the Templeton Funds
Franklin Templeton Group - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
Institutional Services - Franklin Templeton Institutional Services Department
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Market Timer(s) - Market Timers generally include market timing or allocation
services, accounts administered so as to buy, sell or exchange shares based on
predetermined market indicators, or any person or group whose transactions seem
to follow a timing pattern.
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution that, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
Templeton Funds - The U.S. registered mutual funds in the Templeton Group of
Funds except Templeton Capital Accumulator Fund, Inc., Templeton Variable
Annuity Fund, and Templeton Variable Products Series Fund
U.S. - United States
We/Our/Us - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Institutional Services, Distributors, or other wholly owned
subsidiaries of Resources.
FRANKLIN CASH
RESERVES FUND
INSTITUTIONAL FIDUCIARY TRUST
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1996
777 MARINERS ISLAND BLVD., P.O. BOX 7777
SAN MATEO, CA 94403-7777 1-800/321-8563
TABLE OF CONTENTS
How does the Fund Invest its Assets?..... 2
Investment Restrictions.................. 2
Officers and Trustees.................... 3
Investment Management and
Other Services.......................... 7
How does the Portfolio Buy
Securities for its Portfolio?........... 8
How do I Buy, Sell and Exchange Shares?.. 9
How are Fund Shares Valued?.............. 10
Additional Information on
Distributions and Taxes................. 11
The Fund's Underwriter................... 12
How does the Fund
Measure Performance?.................... 13
Miscellaneous Information................ 14
Financial Statements..................... 16
Useful Terms and Definitions............. 16
Appendices
Summary of Procedures to
Monitor Conflicts of Interest.......... 17
Description of Ratings.................. 18
When reading this SAI, you will see certain terms in capital letters. This means
the term is explained under "Useful Terms and Definitions."
The Franklin Cash Reserves Fund (the "Fund") is a no-load, diversified series of
Institutional Fiduciary Trust (the "Trust"), an open-end management investment
company. The Fund's investment objectives are current income consistent with
capital preservation and liquidity. The Fund seeks to achieve its investment
objectives by investing all of its assets in shares of the Money Market
Portfolio (the "Portfolio"). The Portfolio in turn invests primarily in various
types of money market instruments, such as U.S. government and federal agency
obligations, certificates of deposit, bankers' acceptances, time deposits of
major financial institutions, high grade commercial paper, high grade short-term
corporate obligations, taxable municipal securities and repurchase agreements
secured by U.S. government securities. The Portfolio is a series of The Money
Market Portfolios ("Money Market"). Its investment objective is the same as the
Fund's.
The Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/321-8563 or write the Fund at the address shown.
THIS SAI IS NOT A PROSPECTUS. IT CONTAINS INFORMATION IN ADDITION TO AND IN MORE
DETAIL THAN SET FORTH IN THE PROSPECTUS. THIS SAI IS INTENDED TO PROVIDE YOU
WITH ADDITIONAL INFORMATION REGARDING THE ACTIVITIES AND OPERATIONS OF THE FUND,
AND SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS.
MUTUAL FUNDS, ANNUITIES, AND OTHER INVESTMENT PRODUCTS:
* ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE U.S. GOVERNMENT;
* ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK;
* ARE SUBJECT TO INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
HOW DOES THE FUND INVEST ITS ASSETS?
The following provides more detailed information about some of the securities
the Portfolio may buy and its investment policies. You should read it together
with the section in the Prospectus entitled "How Does the Fund Invest Its
Assets?"
The investment policies of the Fund, fundamental and nonfundamental, are
identical to those described below for the Portfolio except, in all cases, the
Fund may pursue its policies by investing in an open-end management investment
company with the same investment objective and substantially similar policies
and restrictions as the Fund.
The achievement of the Portfolio's objective will depend on market conditions
generally and on Advisers' analytical and portfolio management skills. It should
also be noted that because the Portfolio is limiting its investments to high
quality securities, there will be a generally lower yield than if the Portfolio
purchased securities with a lower rating and correspondingly greater risk. The
value of the securities held will fluctuate inversely with interest rates, and
therefore there is no assurance that the Portfolio's, and thus the Fund's
objective will be achieved.
In addition, because of short-term variations in market or business conditions,
management's revised evaluation of a portfolio security, or the need to obtain
cash to meet redemptions, the Portfolio may sell portfolio securities prior to
maturity. The Portfolio may also invest in deposits fully insured by the U.S.
government or its agencies or instrumentalities. Such deposits may include
deposits in banking and savings institutions up to the limit (currently $100,000
per depository) of the insurance on principal provided by the Federal Deposit
Insurance Corporation. Such deposits are frequently combined in larger units by
an intermediate bank or other institution.
When-Issued or Delayed Delivery Transactions. When the Portfolio is the buyer in
the transaction, it will keep in a segregated account with its custodian bank,
cash or high-grade marketable securities having an aggregate value equal to the
amount of the purchase commitments until payment is made. To the extent the
Portfolio engages in when-issued and delayed-delivery transactions, it will do
so for the purpose of acquiring securities for its portfolio consistent with its
investment objective and policies and not for the purpose of investment
leverage.
Loans of Portfolio Securities. As stated in the Prospectus, the Portfolio may
make loans of its portfolio securities in accordance with guidelines adopted by
the Money Market's Board of Trustees. The lending of securities is a common
practice in the securities industry. The Portfolio will engage in security loan
arrangements with the primary objective of increasing the Portfolio's income
either through investing cash collateral in short-term, interest bearing
obligations or by receiving a loan premium from the borrower. The Portfolio will
continue to be entitled to all dividends or interest on any loaned securities.
As with any extension of credit, there are risks of delay in recovery and loss
of rights in the collateral should the borrower of the security fail
financially. The Portfolio will not lend its portfolio securities if such loans
are not permitted by the laws or regulations of any state in which its shares
are qualified for sale. Loans will be subject to termination by the Portfolio in
the normal settlement time, currently three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Portfolio and
its shareholders. The Portfolio may pay reasonable finders', borrowers',
administrative and custodial fees in connection with a loan of its securities.
Portfolio Turnover Rate. Because the Portfolio will not purchase any instrument
with a remaining maturity of greater than 397 calendar days, it is not expected
to have any reportable annual portfolio turnover rate.
INVESTMENT RESTRICTIONS
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
(1) Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) for temporary or emergency purposes
may be made from banks in any amount up to 5% of the 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 that 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.
As a matter of fundamental policy (that may not be changed without shareholder
approval), the Portfolio may not purchase any securities other than obligations
of the U.S. government, its agencies or instrumentalities, if, immediately after
such purchase, more than 5% of the value of the Portfolio's total assets would
be invested in securities of any one issuer with respect to 75% of the
Portfolio's total assets, or more than 10% of the outstanding voting securities
of any one issuer would be owned by the Portfolio, except to the extent that the
Fund invests all of its assets in another registered investment company having
substantially similar investment objectives and policies as the Fund. As stated
in the Prospectus, in accordance with procedures adopted pursuant to Rule 2a-7,
the Portfolio will not invest more than 5% of the Portfolio's total assets in
Eligible Securities of a single issuer, other than U.S. government securities.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
As noted in the Prospectus, Money Market's trustees have elected to value the
Portfolio's assets in accordance with Rule 2a-7 under the 1940 Act. This rule
also imposes various restrictions on the Portfolio which are, in some cases,
more restrictive than the Portfolio's other stated fundamental policies and
investment restrictions. The rule provides that any fund which holds itself out
as a money market fund must follow certain portfolio provisions of the rule
regarding the maturity and quality of each portfolio investment, and the
diversity of such investments. The Portfolio must comply with these provisions
unless its shareholders vote to change its policy of being a money market fund.
OFFICERS AND TRUSTEES
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Trust who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Trust under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupation During
Name, Age and Address with the Trust the Past Five Years
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial 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 (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Princiapal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Thomas J. Runkel (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
The officers and directors of the Trust are also officers and trustees of Money
Market, except as follows: Thomas J. Runkel, Vice President of the Trust is not
an officer or trustee of Money Market; and Edward V. McVey and R. Martin
Wiskemann are officers of the Money Market but not the Trust.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
Richard C. Stoker (59)
11615 Spring Ridge Rd.
Potomac, Maryland 20854
Vice President
Senior Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Management, Inc.; and officer of five of the funds in the Franklin
Group of Funds.
R. Martin Wiskemann (69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
The tables above show the officers and Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. Nonaffiliated Board
members are currently paid $200 per month plus $200 per meeting attended.
Nonaffiliated trustees of Money Market are currently paid $50 per month plus $50
per meeting attended. As shown above, some of the nonaffiliated Board members
and trustees of Money Market also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members and
trustees of Money Market by the Trust, by Money Market, and by other funds in
the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total Fees Number of Boards
Received from in the Franklin
Total Fees Total Fees the Franklin Templeton Group of
Received Received from Templeton Group Funds on Which
Name from the Trust Money Market* of Funds** Each Serves***
Frank H. Abbott, III.............. $4,800 $1,200 $162,420 31
Harris J. Ashton.................. 4,800 1,200 327,925 55
S. Joseph Fortunato............... 4,800 1,200 344,745 57
David W. Garbellano............... 4,800 1,200 146,100 30
Frank W.T. LaHaye................. 4,600 1,150 143,200 26
Gordon S. Macklin................. 4,800 1,200 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members and trustees of Money Market are responsible. The Franklin Templeton
Group of Funds currently includes 60 registered investment companies, with
approximately 166 U.S. based funds or series.
Nonaffiliated members of the Board and trustees of Money Market are reimbursed
for expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member or
trustee of Money Market received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund, Money Market or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of Money Market who are shareholders of Resources may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of October 3, 1996, no officers or Board members owned of record or
beneficially any shares of the Fund. Many of the Board members own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
INVESTMENT MANAGEMENT AND OTHER SERVICES
Investment Manager and Administrator and Services Provided. Advisers is the
investment manager of the Portfolio and is also the administrator of the Fund.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Portfolio to buy, hold or sell and
the selection of brokers through whom the Portfolio's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of Money Market to whom Advisers renders periodic reports of
the Portfolio's investment activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Portfolio. Advisers also
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services and provides certain telephone and other mechanical
services. Advisers is covered by fidelity insurance on its officers, directors
and employees for the protection of the Fund and the Portfolio.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the
Portfolio. Similarly, with respect to the Portfolio, Advisers is not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act, may
buy or sell for its or their own account or for the accounts of any other fund.
Advisers is not obligated to refrain from investing in securities held by the
Portfolio or other funds that it manages or administers. Of course, any
transactions for the accounts of Advisers and other access persons will be made
in compliance with the Portfolio's Code of Ethics.
Management and Administration Fees. The management fee will be reduced as
necessary to comply with the most stringent limits on Fund expenses of any state
where the Fund offers its shares. Currently, the most restrictive limitation on
a fund's allowable expenses for each fiscal year, as a percentage of its average
net assets, is 2.5% of the first $30 million in assets, 2% of the next $70
million, and 1.5% of assets over $100 million. Expense reductions have not been
necessary based on state requirements.
Advisers provides various administrative, statistical and other services to the
Fund. Under its administration agreement, the Fund pays Advisers an
administration fee equal to an annual rate of 25/100 of 1% of the Fund's average
daily net assets. The fee is computed at the close of business each day.
For the fiscal years ended June 30, 1995 and 1996, management fees of the
Portfolio, before any advance waiver, totaled $1,823,637 and $2,162,519,
respectively. Administration fees of the Fund, before any advance waiver, for
the fiscal years ended June 30, 1995 and 1996 totaled $23,461, and $61,531.
Under an agreement by Advisers to limit its fees so that the total operating
expenses of the Fund and the Portfolio are not higher than if the Fund were to
invest directly in the securities held by the Portfolio, the Portfolio paid
management fees totaling $1,730,028 and $2,034,014 for fiscal years ended June
30, 1995 and 1996, respectively. The Fund paid no administration fees in 1995
and $5,315 in 1996.
The management agreement for the Portfolio is in effect until February 28, 1997.
It may continue in effect for successive annual periods if its continuance is
specifically approved at least annually by a vote, cast in person at a meeting
called for that purpose, of the Board of Trustees of Money Market or by a vote
of the holders of a majority of the Portfolio's outstanding voting securities,
and in either event by a majority vote of the trustees of Money Market who are
not parties to the management agreement or interested persons of any such party
(other than as members of the Board of Trustees of Money Market). The management
agreement may be terminated without penalty by the Board of Trustees of Money
Market on 30 days' written notice to Advisers or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, or by Advisers on 60
days' written notice, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
HOW DOES THE PORTFOLIO BUY
SECURITIES FOR ITS PORTFOLIO?
The Fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the
special executions or on the research services received by Advisers from dealers
effecting transactions in portfolio securities. The allocation of transactions
in order to obtain additional research services permits Advisers to supplement
its own research and analysis activities and to receive the views and
information of individuals and research staff of other securities firms. As long
as it is lawful and appropriate to do so, Advisers and its affiliates may use
this research and data in their investment advisory capacities with other
clients.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Portfolio is concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may not
buy securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Portfolio may, however,
sell securities prior to maturity to meet redemptions or as a result of a
revised management evaluation of the issuer.
During the fiscal years ended June 30, 1995 and 1996, the Portfolio paid no
brokerage commissions.
As of June 30, 1996, neither the Fund nor the Portfolio owned securities of its
regular broker-dealers.
HOW DO I BUY, SELL AND EXCHANGE SHARES?
ADDITIONAL INFORMATION ON BUYING SHARES
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
The purchase price for shares of the Fund is the net asset value of the 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 your account on the effective
date of purchase and continue through the business day prior to the business day
you redeem the shares.
All purchases of Fund shares will be credited to you, in full and fractional
shares of the Fund (rounded to the nearest 1/1000 of a share), in an account
maintained for you by the Fund's transfer agent. No share certificates will be
issued.
The Fund reserves the right to reject any order for the purchase of shares of
the Fund and to waive any minimum investment requirements. The offering of
shares by the Fund may also be suspended at any time and resumed at any time
after suspension.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
SHAREHOLDER REDEMPTIONS
The Fund will attempt to make payment for all shares redeemed on the day your
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 your 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 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.
GENERAL INFORMATION
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All wires sent and received by the custodian bank and reported by the custodian
bank to the Fund prior to 3:00 p.m. Pacific time, except on holidays, the day
before a holiday or the day after a holiday, are normally effective on the same
day, provided the Fund is notified on time as provided in the Prospectus. All
wire payments received or reported by the custodian bank to the Fund after 3:00
p.m. will be effective on the next business day. All checks or other negotiable
bank drafts 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 U.S. funds.
Checks drawn in U.S. funds on foreign banks will not be credited to your account
and dividends will not begin accruing until the proceeds are collected, which
may take a long period of time. We may, in our sole discretion, either (a)
reject any order to buy or sell shares denominated in any other currency or (b)
honor the transaction or make adjustments to your account for the transaction as
of a date and with a foreign currency exchange factor determined by the drawee
bank.
HOW ARE FUND SHARES VALUED?
The valuation of the Portfolio's portfolio securities, including any securities
held in a separate account maintained for when-issued securities, is based on
the amortized cost of the securities, which does not take into account
unrealized capital gains or losses. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
calculation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument. During periods of declining interest rates, the daily
yield on shares of the Portfolio computed as described above may tend to be
higher than a like computation made by a fund with identical investments but
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by the Portfolio resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield than would result from an investment in a fund utilizing only
market values, and existing investors in the Portfolio would receive less
investment income. The opposite would be true in a period of rising interest
rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
Net Asset Value per share of $1.00, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and only buy instruments having remaining maturities of 397 calendar days or
less. The Portfolio must also invest only in those U.S. dollar-denominated
instruments that the Board of Trustees of Money Market determines present
minimal credit risks. This means that they must be rated in one of the two
highest rating categories by nationally recognized statistical rating agencies,
or if unrated be deemed comparable in quality, or be instruments issued by an
issuer that, with respect to an outstanding issue of short-term debt that is
comparable in priority and protection, has received a rating within the two
highest rating categories. Securities subject to floating or variable interest
rates with demand features that comply with applicable SEC rules may have stated
maturities in excess of one year.
The Board of Trustees of Money Market has agreed to establish procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share at $1.00, as computed for the purpose of sales and redemptions. These
procedures will include a review of the Portfolio's holdings by the Board of
Trustees of Money Market, at such intervals as it may deem appropriate, to
determine if the Portfolio's Net Asset Value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Board of Trustees of Money
Market. If a deviation exceeds 1/2 of 1%, the trustees will promptly consider
what action, if any, will be initiated. In the event the Board of Trustees of
Money Market determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, they
will take corrective action that they regard as necessary and appropriate, which
may include selling portfolio instruments prior to maturity to realize capital
gains or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a Net Asset Value per share by using
available market quotations.
ADDITIONAL INFORMATION ON
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Portfolio's daily dividend includes accrued interest and any original issue
and market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable Net Asset Value per
share), less amortization of any premium paid on the purchase of portfolio
securities and the estimated expenses of the Fund. The Fund's daily dividend
consists of the income dividends paid by the Portfolio less the estimated
expenses of the Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a
stable Net Asset Value of $1.00 and may result in under or over distributions of
investment company taxable income.
The Portfolio may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. However, because under normal
circumstances the Portfolio's portfolio is composed of short-term securities,
the Portfolio does not expect to realize any long-term capital gains or losses.
Any net short-term or long-term capital gains that are realized by the Portfolio
(adjusted for any daily amounts of unrealized appreciation or depreciation and
taking into account any capital loss carryforward) will generally be made once
each year and may be distributed more frequently if necessary to avoid federal
excise taxes. Any distributions of capital gain will be reinvested in additional
shares of the Fund at Net Asset Value, unless you have previously elected to
have them paid in cash.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in December but which, for operational reasons, may not be
paid to the shareholder until the following January, will be treated for tax
purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends, as a matter of
policy, to declare and pay these dividends in December to avoid the imposition
of this tax, but does not guarantee that its distributions will be sufficient to
avoid any or all federal excise taxes.
Distributions 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 you have owned Fund shares and whether you
receive the distributions in cash or in additional shares.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the Fund from direct obligations of the
U.S. government, subject in some states to minimum investment requirements that
must be met by the Fund. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by U.S.
government securities do not generally qualify for tax-free treatment. At the
end of each calendar year, the Fund will provide shareholders with the
percentage of any dividends paid which may qualify for such tax-free treatment.
You should then consult with your tax advisor about the application of your
state and local laws to these distributions.
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.
The federal income tax treatment of dividends and distributions is the same
whether you elect to receive them in cash or reinvest them in Fund shares.
THE FUND'S UNDERWRITER
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote, cast in
person at a meeting called for that purpose, of the Board or by a vote of the
holders of a majority of the Fund's outstanding voting securities, and in either
event by a majority vote of the Board members who are not parties to the
underwriting agreement or interested persons of any such party (other than as
members of the Board). The underwriting agreement terminates automatically in
the event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors may be entitled to reimbursement under the Fund's Rule 12b-1 plan,
as discussed below. Except as noted, Distributors received no other compensation
from the Fund for acting as underwriter.
THE FUND'S RULE 12B-1 PLAN
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act. Under the plan, the Fund may pay up to a maximum of 0.25%
per year of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be 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 under the rules of the
National Association of Securities Dealers, Inc.
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
later 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. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote of the Board, including a majority vote of
the Board members who are not interested persons of the Fund 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 Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members 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
management agreement with Advisers, or the underwriting agreement with
Distributors, 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 agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
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 members of
the Board, 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 at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, 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 plan should be continued.
For the fiscal year ended June 30, 1996, Distributors had eligible expenditures
of $50,909 for advertising, printing and payments to underwriters and
broker-dealers pursuant to the plan, of which the Fund paid Distributors
$48,186.
HOW DOES THE FUND MEASURE PERFORMANCE?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results.
YIELD
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The Fund's current yield for the seven day period ended June 30, 1996
was 4.90%.
Effective Yield. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended June 30, 1996 was 5.02%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
OTHER PERFORMANCE QUOTATIONS
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
COMPARISONS
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report(R) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
b) Bank Rate Monitor - A weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - A weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation published by Ibbotson Associates - a
historical measure of yield, price and total return for common and small company
stock, long term government bonds, Treasury bills and inflation.
g) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines - provide
performance statistics over specified time periods.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio. The indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
MISCELLANEOUS INFORMATION
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for
five of the past eight years.
Miscellaneous - The Fund may be used in shareholder newsletters as an example 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 $43 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.
SPECIAL SERVICES
You may utilize Franklin's IFT Hypothetical Illustrations Service as a useful
tool in considering investments. The service, which is free of charge, enables
you to make an actual, dollar-for-dollar performance comparison of any of the
Trust's series to any security, pool, or portfolio which you may currently be
using. It is based on historical information and covers any time period you may
wish to use, after February 4, 1988 (the beginning of dividend payments for two
series of the Trust). You would simply choose a series of the Trust to compare
and provide us 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 you can use to compare to that of
your own investment or portfolio.
Investor Services may charge you separate fees, to be negotiated directly with
you, for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. These special services provided to certain
shareholders will not increase the expenses borne by the Fund.
As of October 3, 1996, the principal shareholders of the Fund, beneficial or of
record, were as follows:
Name and Address Share Amount Percentage
FTTC Ttee For Valuselect 3,287,635.840 6.90%
Booth & Associates Inc
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Cust For Valuselect 3,713,175.510 8.92%
Users Inc
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Ttee For Valuselect-FRI 2,443,177.563 5.13%
P.O. Box 2438
Rancho Cordova, CA 95741-2438
Name and Address Share Amount Percentage
FTTC Ttee For Valuselect 3,477,342.550 7.30%
Mid-State Bank
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Ttee For Valuselect 7,581,124.980 15.91%
CACI-MMF
P.O. Box 2438
Rancho Cordova, CA 95741-2438
City National Bank Ttee 6,333,559.230 13.29%
BAC/Plan Member Services
1200 5th Ave., Ste. 600
Seattle, WA 98101
FTTC Ttee For Valuselect 2,463,357.180 5.17%
Experi-Metal Inc
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Ttee For Valuselect 7,040,747.480 14.78%
PAL Graphics Inc
P.O. Box 2438
Rancho Cordova, CA 95741-2438
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.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
FINANCIAL STATEMENTS
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the fiscal year ended June 30, 1996, including the auditors'
report, are incorporated herein by reference.
USEFUL TERMS AND DEFINITIONS
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996 as may be
amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or another
wholly-owned subsidiary of Resources.
APPENDICES
SUMMARY OF PROCEDURES TO
MONITOR CONFLICTS OF INTEREST
The Board of Trustees of Money Market, on behalf of its series ("master funds"),
and the Board of the Fund ("feeder fund"), (both of which are composed of the
same individuals) recognize that there is the potential for certain conflicts of
interest to arise between the master fund and the feeder fund in this format.
These potential conflicts of interest could include, among others: the creation
of additional feeder funds with different fee structures; the creation of
additional feeder funds that could have controlling voting interests in any
pass-through voting which could affect investment and other policies; a proposal
to increase fees at the master fund level; and any consideration of changes in
fundamental policies at the master fund level that may or may not be acceptable
to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
of Trustees of Money Market and the Board of the Fund have adopted certain
procedures under which i) management of the master fund and the feeder fund
will, on a yearly basis, report to each board, including the independent members
of each board, on the operation of the master/feeder fund structure; ii) the
independent members of each board will have ongoing responsibility for reviewing
all proposals at the master fund level to determine whether any proposal
presents a potential for a conflict of interest and to the extent any other
potential conflicts arise prior to the normal annual review, they will act
promptly to review the potential conflict; iii) if the independent members of
each board determine that a situation or proposal presents a potential conflict,
they will request a written analysis from the master fund management describing
whether the apparent potential conflict of interest will impede the operation of
the constituent feeder fund and the interests of the feeder fund's shareholders;
and iv) upon receipt of the analysis, the independent members of each board
shall review the analysis and present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
objectives and policies; iv) recommend to the full boards that a new board be
recommended to shareholders for approval; or v) recommend such other action as
may be considered appropriate.
DESCRIPTION OF RATINGS
MUNICIPAL BOND RATINGS
MOODY'S
Aaa: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa: Municipal bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Fitch
AAA: Municipal bonds rated AAA are considered to be of investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefor impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus are not
used for the AAA category.
MUNICIPAL NOTE RATINGS
Moody's
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER RATINGS
Moody's
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Fitch's
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
INSTITUTIONAL
FIDUCIARY TRUST
Franklin U.S. Treasury Money Market Portfolio
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/321-8563
Table of Contents
How does the Fund Invest its Assets?..... 2
Investment Restrictions.................. 2
Officers and Trustees.................... 3
Investment Management and
Other Services.......................... 6
How does the Fund Buy
Securities for its Portfolio?........... 7
How Do I Buy, Sell and
Exchange Shares?........................ 8
How are Fund Shares Valued?.............. 9
Additional Information on
Distributions and Taxes................. 10
The Fund's Underwriter................... 11
How does the Fund
Measure Performance?.................... 12
Miscellaneous Information................ 13
Financial Statements..................... 15
Useful Terms and Definitions............. 15
When reading this SAI, you will see certain terms in capital letters. This means
the term is explained under "Useful Terms and Definitions."
The Franklin U.S. Treasury Money Market Portfolio (the "Fund") is a no-load,
diversified series of the Institutional Fiduciary Trust (the "Trust"), an open
end management investment company. The Fund's investment objective is to seek as
high a level of current income as is consistent with capital preservation and
liquidity. It seeks to achieve its objective by investing only in U.S.
Treasury securities.
The Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/321-8563 or write the Fund at the address shown.
This SAI is not a prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to provide you
with additional information regarding the activities and operations of the Fund,
and should be read in conjunction with the Prospectus.
Mutual funds, annuities, and other investment products:
o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by any bank; o
are subject to investment risks, including the possible loss of principal.
How does the Fund Invest its Assets?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"
The Fund invests only in short-term U.S. Treasury securities. It does not invest
in repurchase agreements, securities issued by agencies or instrumentalities of
the federal government or any other type of money market instrument.
Credit Union Investment Regulations
This section summarizes the Fund's investment policies, under which, in the
opinion of the Trust and based on the Trust's understanding of laws and
regulations governing investments by federal credit unions on October 30, 1996,
the Fund would be a permissible investment for federal credit unions. CREDIT
UNION INVESTORS ARE ADVISED TO CONSULT THEIR OWN LEGAL ADVISORS TO DETERMINE
WHETHER AND TO WHAT EXTENT THE SHARES OF THE FUND CONSTITUTE LEGAL INVESTMENTS
FOR THEM.
All investments of the Fund will be subject to the following limitations:
(a) The Fund may invest only in obligations of, or securities guaranteed as to
principal and interest by, the U.S. Government.
(b) All purchases and sales of securities will be settled on a cash basis within
30 days of the trade date. However, the 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) The Fund will not engage in repurchase agreements or reverse repurchase
agreements.
(d) The Fund will not 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.
(e) The Fund will not invest in mortgage related securities.
Investment Restrictions
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objectives and policies of the Fund, or (b) by the loan of
its portfolio securities in accordance with the policies of the Fund.
3. Invest in any issuer for purposes of exercising control or management.
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, if, as a result, more than 10% of the total assets of the
Fund would be invested in such securities.
6. Purchase securities of other investment companies, except in connection with
a merger, consolidation, acquisition, or reorganization.
7. Invest more than 25% of its assets in securities of any industry. 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
the 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.
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.
In addition to these fundamental policies, it is the present policy of the Fund
(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.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
Officers and Trustees
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupations
Name, Age and Address with the Trust During the Past Five Years
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Truestee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81) Trustee
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
* Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
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, trustee or managing general
partner, as the case may be, of 26 of the investment companies in the Franklin
Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial 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 (36) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Thomas J. Runkel (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated Board members are currently paid $200
per month plus $200 per meeting attended. As shown above, some of the
nonaffiliated Board members also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members by
the Trust and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Number of Boards
Total Fees in the Franklin
Total Fees Received from the Templeton Group
Received from Franklin Templetonof Funds on Which
Name the Trust* Group of Funds** Each Serves***
Frank H. Abbott, III........................... $4,800 $162,420 31
Harris J. Ashton............................... 4,800 327,925 55
S. Joseph Fortunato............................ 4,800 344,745 57
David Garbellano............................... 4,800 146,100 30
Frank W.T. LaHaye.............................. 4,600 143,200 26
Gordon S. Macklin.............................. 4,800 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 60 registered investment companies, with approximately 166 U.S. based
funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or Board member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of October 3, 1996, the officers and Board members, as a group, did not own
any of the Fund's total outstanding shares. Many of the Board members own shares
in other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
Investment Management and Other Services
Investment Manager and Services Provided. Advisers is the investment manager of
the Fund. Advisers provides investment research and portfolio management
services, including the selection of securities for the Fund to buy, hold or
sell and the selection of brokers through whom the Fund's portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the Board to whom Advisers renders periodic reports of the Fund's investment
activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Fund. Advisers also maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services and provides certain telephone and other mechanical services. Advisers
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the Fund.
Similarly, with respect to the Fund, Advisers is not obligated to recommend, buy
or sell, or to refrain from recommending, buying or selling any security that
Advisers and access persons, as defined by the 1940 Act, may buy or sell for its
or their own account or for the accounts of any other fund. Advisers is not
obligated to refrain from investing in securities held by the Fund or other
funds that it manages or administers. Of course, any transactions for the
accounts of Advisers and other access persons will be made in compliance with
the Fund's Code of Ethics.
Management Fees. Under its management agreement, the Fund pays Advisers a
management fee equal to a daily rate (payable at the request of Advisers) of 1/4
of 1% per year of the Fund's average daily net assets. The fee is computed at
the close of business each day.
The management fee will be reduced as necessary to comply with the most
stringent limits on Fund expenses of any state where the Fund offers its shares.
Currently, the most restrictive limitation on a fund's allowable expenses for
each fiscal year, as a percentage of its average net assets, is 2.5% of the
first $30 million in assets, 2% of the next $70 million, and 1.5% of assets over
$100 million. Expense reductions have not been necessary based on state
requirements.
For the fiscal years ended June 30 1994, 1995, and 1996, management fees, before
any advance waiver, totaled $602,746, $554,196, and $393,481, respectively.
Under an agreement by Advisers to limit its fees, the Fund paid management fees
totaling $0, $127,141 and $227,079 for the same periods.
Management Agreement. The management agreement is in effect until February 28,
1997. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by Advisers on 30 days' written notice and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
Fund Administration. FT Services, a wholly owned subsidiary of Resources,
provides certain administrative services and facilities for the Fund, including
preparation and maintenance of books and records, preparation of tax and
financial reports, and monitoring compliance with regulatory requirements. FT
Services is employed through a subcontract with Advisers and receives a monthly
fee equivalent on an annual basis to 0.15% of the Fund's average daily net
assets up to $200 million, 0.135% of average daily net assets over $200 million
up to $700 million, 0.10% of average daily net assets over $700 million up to
$1.2 billion, and 0.075% of average daily net assets in excess of $1.2 billion.
These fees are not separate expenses of the Fund, but are paid by Advisers.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
How does the Fund Buy Securities for its Portfolio?
Since most purchases by the Fund are principal transactions at net prices, the
Fund incurs little or no brokerage costs. The Fund deals directly with the
selling or buying principal or market maker without incurring charges for the
services of a broker on its behalf, unless it is determined that a better price
or execution may be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask prices. The Fund seeks to obtain prompt execution
of orders at the most favorable net price. Transactions may be directed to
dealers in return for research and statistical information, as well as for
special services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
No broker or dealer affiliated with the Trust or with Advisers may purchase
securities from, or sell securities to, the Fund.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by Advisers are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund 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 Fund.
Depending on Advisers' view of market conditions, the Fund may or may not buy
securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Fund may, however, sell
securities prior to maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1994, 1995 and 1996, the Fund paid no
brokerage commissions. As of June 30, 1996, the Fund did not own securities of
its regular broker-dealers.
How Do I Buy, Sell and Exchange Shares?
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
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 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 the Fund are purchased, they begin earning income immediately,
and income dividends will start being credited to your account on the effective
date of purchase and continue through the business day prior to the business day
those shares are sold.
Additional Information on Exchanging Shares
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
Additional Information on Selling Shares
The 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 the Fund of
the redemption request in proper form. The 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 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, 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 those 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 the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
General Information
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
Special Services. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. Fees for special services will not increase the
expenses borne by the Fund.
How are Fund Shares Valued?
The valuation of the Fund's portfolio securities, including any securities held
in a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund 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 but utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the 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 an
investment in a fund utilizing only market values, and existing investors in the
Fund would receive less investment income. The opposite would be true in a
period of rising interest rates.
The Fund's use of amortized cost, which helps it maintain its Net Asset Value
per share of $1.00, is permitted by a rule adopted by the SEC. Under this rule,
the Fund must adhere to certain conditions. The Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The Fund
must also invest only in those U.S. dollar-denominated instruments that the
Board determines present minimal credit risks. This means that they must be
rated in one of the two highest rating categories by nationally recognized
statistical rating agencies, or if unrated be deemed comparable in quality, or
be instruments issued by an issuer that, with respect to an outstanding issue of
short-term debt that is comparable in priority and protection, has received a
rating within the two highest rating categories.
The Board has agreed to establish procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share at $1.00, as computed for
the purpose of sales and redemptions. These procedures will include a review of
the Fund's portfolio holdings by the Board, at such intervals as it may deem
appropriate, to determine if the 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 Board. If the
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, it will take corrective action that it regards as
necessary and appropriate, which may include selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing a Net
Asset Value per share by using available market quotations.
Additional Information
on Distributions and Taxes
Distributions
The Fund's daily dividend includes accrued interest and any original issue and
market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable Net Asset Value per
share) less amortization of any premium paid on the purchase of portfolio
securities and the estimated expenses of the Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a
$1.00 per share Net Asset Value and may result in under or over distributions of
investment company taxable income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Fund's portfolio is composed of short-term securities, the
Fund does not expect to realize any long-term capital gains or losses. Any net
short-term or long-term capital gains that are realized by the Fund (adjusted
for any daily amounts of unrealized appreciation or depreciation and taking into
account any capital loss carryforward or post October loss deferral) will
generally be distributed once each year and may be distributed more frequently
if necessary to avoid federal excise taxes. Any distribution of capital gains
will be reinvested in additional Fund shares at Net Asset Value, unless you have
previously elected to have them paid in cash.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss, or unexpected fluctuation in net assets.
Taxes
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to 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 you until the following January, will be treated for
tax purposes as if paid by a Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare and pay these dividends in December to avoid the imposition of this
tax, but does not guarantee that its distributions will be sufficient to avoid
any or all federal excise taxes.
Distributions 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 you have owned Fund shares and regardless of whether the
distributions are received in cash or in additional shares.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by 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, the Fund will provide you with the percentage of any dividends
paid that may qualify for such tax-free treatment. You should then consult with
your tax advisor with respect to the application of state and local laws to
these distributions.
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 these shares. However,
since the Fund seeks to maintain a stable net asset value of $1.00 per share for
both purchases and redemptions, you are not expected to realize a capital gain
or loss upon the sale or exchange of Fund shares.
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, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
The Fund's Rule 12b-1 Plan
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act. Under the plan, the Fund may pay up to a maximum of 0.15%
per year of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its 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 Fund 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 that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be 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 those 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 under the rules of the
National Association of Securities Dealers, Inc.
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. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote of the Board, including a majority vote of
the Board members who are not interested persons of the Fund 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 Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members 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
management agreement with 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 agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
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 members of
the Board, 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 at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, 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 plan should be continued.
No payments have been made by the Fund pursuant to the plan since the plan's
inception.
How does the Fund Measure Performance?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results.
Yield
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The Fund's current yield for the seven day period ended June 30, 1996,
was 4.92%.
Effective Yield. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended June 30, 1996, was 5.04%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
Other Performance Quotations
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) 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 that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Bond Buyer - A daily publication that reports various articles as well as
indexes.
d) Salomon Brothers Bond Market Roundup - A weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) 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.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
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.
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.
Miscellaneous Information
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S. and may be considered in a program
for diversification of assets. Founded in 1947, Franklin, one of the oldest
mutual fund organizations, has managed mutual funds for over 48 years and now
services more than 2.5 million shareholder accounts. In 1992, Franklin, a leader
in managing fixed-income mutual funds and an innovator in creating domestic
equity funds, joined forces with Templeton Worldwide, Inc., a pioneer in
international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
The organization expenses attributable to the Fund are 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 the Fund's shares. New
investors buying shares after that date will be bearing these expenses during
the amortization period only as the charges are accrued daily against investment
income.
As of October 3, 1996, the principal shareholders of the Fund, beneficial or of
record, were as follows:
Name and Address Share Amount Percentage
City of Santa Clara 12,331,950.590 16.84%
1991A Electric
Revenue Bonds
1500 Warburton Ave
Santa Clara, CA
95050-3713
Certus Financial Corp. 5,902,087.910 8.06%
As Investment Manager
for Bear Stearns
Companies Inc. Cash
or Deferred Comp Plan
1 Bush Street, Suite 450
San Francisco, CA
94104-4410
The Washington
Trust Company 3,871,158.550 5.28%
23 Broad St
Westerly, RI 02891-1827
Visa International 4,761,061.160 6.50%
Collateral Posted by
Special Account 5
900 Metro Center
Foster City, CA
94404-2170
Sachem Trust
National Assoc. 18,009,139.310 24.60%
23 Boston St
Guilford, CT 06437-2855
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. As a
shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
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 investors can
use to compare to that of their own investment or portfolio.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
Financial Statements
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the fiscal year ended June 30, 1996, including the auditors'
report, are incorporated herein by reference.
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
FT Services - Franklin Templeton Services, Inc., the Fund's administrator
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996, as may be
amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
INSTITUTIONAL
FIDUCIARY TRUST
Franklin U.S. Government Agency
Money Market Fund
STATEMENT OF
ADDITIONAL INFORMATION777 Mariners Island Blvd., P.O. Box 7777
NOVEMBER 1, 1996San Mateo, CA 94403-7777 1-800/321-8563
Contents Page
How does the Fund Invest its Assets? .... 2
Investment Restrictions ................. 2
Officers and Trustees ................... 3
Investment Management and
Other Services ......................... 7
How does the Fund Buy
Securities For its Portfolio? .......... 8
How Do I Buy, Sell
and Exchange Shares? ................... 8
How Are Fund Shares Valued? ............. 9
Additional Information on
Distributions and Taxes ................ 10
The Fund's Underwriter .................. 11
How does the Fund
Measure Performance? ................... 13
Miscellaneous Information ............... 14
Financial Statements .................... 15
Useful Terms and Definitions ............ 15
When reading this SAI, you will see certain terms in capital letters. This means
the term is explained under "Useful Terms and Definitions."
The Franklin U.S. Government Agency Money Market Fund (the " Fund") is a
no-load, diversified series of the Institutional Fiduciary Trust (the "Trust"),
an open end management investment company. The Fund's objectives are capital
preservation and liquidity while seeking high current income consistent with
capital preservation and liquidity. It seeks to achieve its objectives by
investing 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.
The Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/321-8563 or write the Fund at the address shown.
This SAI is not a prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to provide you
with additional information regarding the activities and operations of the Fund,
and should be read in conjunction with the Prospectus.
Mutual funds, annuities, and other investment products:
o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by any bank;
o are subject to investment risks, including the possible loss of principal.
How does the Fund Invest its Assets?
The following provides more detailed information about some of the securities
the Fund may buy and its investment policies. You should read it together with
the section in the Prospectus entitled "How does the Fund Invest its Assets?"
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 13 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 Fund may buy 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 Fund may buy variable
rate U.S. government securities if the Board determines 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 Fund's investment policies, under which, in the
opinion of the Trust and based on the Trust's understanding of laws and
regulations governing investments by federal credit unions on October 30, 1996,
the Fund 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 FUND CONSTITUTE LEGAL INVESTMENTS
FOR THEM.
All investments of the Fund will be subject to the following limitations:
(a) The Fund may invest only in obligations of, or securities guaranteed as to
principal and interest by, the U.S. Government or its agencies and
instrumentalities.
(b) All purchases and sales of securities will be settled on a cash basis
within 30 days of the trade date. However, the 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) The Fund will not engage in repurchase agreements or reverse repurchase
agreements.
(d) The Fund will not 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.
(e) The Fund will not invest in mortgage related securities.
Investment Restrictions
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in any amount up to 5% of the total asset value.
2. Make loans, except (a) through the purchase of debt securities in accordance
with the investment objectives and policies of the Fund, or (b) by the loan of
its portfolio securities in accordance with the policies of the Fund.
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, which are not
readily marketable, if, as a result, more than 10% of the total assets of the
Fund would be invested in such securities 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 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. This prohibition does not apply where the policies of the 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 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.
12. The 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.
In addition to these fundamental policies, it is the present policy of the Fund
(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.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
Officers and Trustees
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Fund who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Fund under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupation During
Name, Age and Address with the Trust Past Five Years
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
* Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL
33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds. Frank W. T. LaHaye (67) 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, trustee or managing general partner, as the case may
be, of 26 of the investment companies in the Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River
Corporation (information services); Director, Fund American Enterprises
Holdings, Inc., MCI Communications, Inc., MedImmune, Inc. (biotechnology),
InfoVest Corporation (information services), Fusion Systems Corporation
(industrial technology), and Source One Mortgage Services Corporation
(information services); and director, trustee or managing general partner, as
the case may be, of 52 of the investment companies in the Franklin Templeton
Group of Funds; and formerly held the following positions: Chairman, Hambrecht
and Quist Group; Director, H & Q Healthcare Investors; and President, National
Association of Securities Dealers, Inc.
Harmon E. Burns (51) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (64) Vice President - Financia
777 Mariners Island Blvd. Reporting and Accounting
San Mateo, CA 94404 Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (36) Vice President
777 Mariners Island Blvd. and Chief
San Mateo, CA 94404 Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47) Vice President
777 Mariners Island Blvd. and Secretary
San Mateo, CA 94404
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57) Treasurer and
777 Mariners Island Blvd. Principal
San Mateo, CA 94404 Accounting
Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Thomas J. Runkel (38) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated Board members are currently paid $200
per month plus $200 per meeting attended. As shown above, some of the
nonaffiliated Board members also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members 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 from Franklin Templeton Group of Funds on
Name the Trust* Group of Funds** Which Each Serves***
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frank H. Abbott, III.................... $4,800 $162,420 31
Harris J. Ashton........................ 4,800 327,925 55
S. Joseph Fortunato..................... 4,800 344,745 57
David Garbellano........................ 4,800 146,100 30
Frank W.T. LaHaye....................... 4,600 143,200 26
Gordon S. Macklin....................... 4,800 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members are responsible. The Franklin Templeton Group of Funds currently
includes 60 registered investment companies, with approximately 166 U.S. based
funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director, trustee or
managing general partner. No officer or Board member received any other
compensation, including pension or retirement benefits, directly or indirectly
from the Fund or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in the
fees paid to its subsidiaries.
As of October 3, 1996, the officers and Board members, as a group, did not own
any of the Fund's total outstanding shares. Many of the Board members own shares
in other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
Investment Management and Other Services
Investment Manager and Services Provided. Advisers is the investment manager of
the Fund. Advisers provides investment research and portfolio management
services, including the selection of securities for the Fund to buy, hold or
sell and the selection of brokers through whom the Fund's portfolio transactions
are executed. Advisers' activities are subject to the review and supervision of
the Board to whom Advisers renders periodic reports of the Fund's investment
activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Fund. Advisers also maintains
all internal bookkeeping, clerical, secretarial and administrative personnel and
services and provides certain telephone and other mechanical services. Advisers
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the Fund.
Similarly, with respect to the Fund, Advisers is not obligated to recommend, buy
or sell, or to refrain from recommending, buying or selling any security that
Advisers and access persons, as defined by the 1940 Act, may buy or sell for its
or their own account or for the accounts of any other fund. Advisers is not
obligated to refrain from investing in securities held by the Fund or other
funds that it manages or administers. Of course, any transactions for the
accounts of Advisers and other access persons will be made in compliance with
the Fund's Code of Ethics.
Management Fees. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 15/100 of 1% of the Fund's average
daily net assets.
The management fee will be reduced as necessary to comply with the most
stringent limits on Fund expenses of any state where the Fund offers its shares.
Currently, the most restrictive limitation on a fund's allowable expenses for
each fiscal year, as a percentage of its average net assets, is 2.5% of the
first $30 million in assets, 2% of the next $70 million, and 1.5% of assets over
$100 million. Expense reductions have not been necessary based on state
requirements.
For the fiscal years ended June 30, 1994, 1995, and 1996, management fees,
before any advance waiver, totaled $2,973, $21,314 and $115,022, respectively.
Under an agreement by Advisers to limit its fees, the Fund paid management fees
totaling $0, $0 and $94,095 for the same periods.
Management Agreement. The management agreement is in effect until February 28,
1997. It may continue in effect for successive annual periods if its continuance
is specifically approved at least annually by a vote of the Board or by a vote
of the holders of a majority of the Fund's outstanding voting securities, and in
either event by a majority vote of the Board members who are not parties to the
management agreement or interested persons of any such party (other than as
members of the Board), cast in person at a meeting called for that purpose. The
management agreement may be terminated without penalty at any time by the Board
or by a vote of the holders of a majority of the Fund's outstanding voting
securities, or by Advisers on 60 days' written notice, and will automatically
terminate in the event of its assignment, as defined in the 1940 Act.
Fund Administration. FT Services, a wholly owned subsidiary of Resources,
provides certain administrative services and facilities for the Fund, including
preparation and maintenance of books and records, preparation of tax and
financial reports, and monitoring compliance with regulatory requirements. FT
Services is employed through a subcontract with Advisers and receives a monthly
fee equivalent on an annual basis to 0.15% of the Fund's average daily net
assets up to $200 million, 0.135% of average daily net assets over $200 million
up to $700 million, 0.10% of average daily net assets over $700 million up to
$1.2 billion, and 0.075% of average daily net assets in excess of $1.2 billion.
These fees are not separate expenses of the Fund, but are paid by Advisers.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
How does the Fund Buy
Securities For its Portfolio?
Since most purchases by the Fund are principal transactions at net prices, the
Fund incurs little or no brokerage costs. The Fund deals directly with the
selling or buying principal or market maker without incurring charges for the
services of a broker on its behalf, unless it is determined that a better price
or execution may be obtained by using the services of a broker. Purchases of
portfolio securities from underwriters will include a commission or concession
paid by the issuer to the underwriter, and purchases from dealers will include a
spread between the bid and ask prices. The Fund seeks to obtain prompt execution
of orders at the most favorable net price. Transactions may be directed to
dealers in return for research and statistical information, as well as for
special services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
No broker or dealer affiliated with the Trust or with Advisers may purchase
securities from, or sell securities to, the Fund.
If purchases or sales of securities of the Fund and one or more other investment
companies or clients supervised by Advisers are considered at or about the same
time, transactions in these securities will be allocated among the several
investment companies and clients in a manner deemed equitable to all by
Advisers, taking into account the respective sizes of the funds and the amount
of securities to be purchased or sold. In some cases this procedure could have a
detrimental effect on the price or volume of the security so far as the Fund 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 Fund.
Depending on Advisers' view of market conditions, the Fund may or may not buy
securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Fund may, however, sell
securities prior to maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1994, 1995 and 1996, the Fund paid no
brokerage commissions. As of June 30, 1996, the Fund did not own securities of
its regular broker-dealers.
How Do I Buy, Sell and Exchange Shares?
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
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 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 the Fund are purchased, they begin earning income immediately,
and income dividends will start being credited to your account on the effective
date of purchase and continue through the business day prior to the business day
those shares are sold.
Additional Information on Exchanging Shares
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
Additional Information on Selling Shares
The 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 the Fund of
the redemption request in proper form. The 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 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, 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 those 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 the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
General Information
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars, drawn on a U.S. bank, and are
accepted subject to collection at full face value. Checks drawn in U.S. funds on
foreign banks will not be credited to your account and dividends will not begin
accruing until the proceeds are collected, which may take a long period of time.
We may, in our sole discretion, either (a) reject any order to buy or sell
shares denominated in any other currency, or (b) honor the transaction or make
adjustments to your account for the transaction as of a date and with a foreign
currency exchange factor determined by the drawee bank.
Special Services. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally pays
Investor Services. These financial institutions may also charge a fee for their
services directly to their clients.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. Fees for special services will not increase the
expenses borne by the Fund.
How are Fund Shares Valued?
The valuation of the Fund's portfolio securities, including any securities held
in a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Fund 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 but utilizing a method of valuation
based upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the 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 an
investment in a fund utilizing only market values, and existing investors in the
Fund would receive less investment income. The opposite would be true in a
period of rising interest rates.
The Fund's use of amortized cost, which helps it maintain its Net Asset Value
per share of $1.00, is permitted by a rule adopted by the SEC. Under this rule,
the Fund must adhere to certain conditions. The Fund must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The Fund
must also invest only in those U.S. dollar-denominated instruments that the
Board determines present minimal credit risks. This means that they must be
rated in one of the two highest rating categories by nationally recognized
statistical rating agencies, or if unrated be deemed comparable in quality, or
be instruments issued by an issuer that, with respect to an outstanding issue of
short-term debt that is comparable in priority and protection, has received a
rating within the two highest rating categories.
The Board has agreed to establish procedures designed to stabilize, to the
extent reasonably possible, the Fund's price per share at $1.00, as computed for
the purpose of sales and redemptions. These procedures will include a review of
the Fund's portfolio holdings by the Board, at such intervals as it may deem
appropriate, to determine if the 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 Board. If the
deviation exceeds 1/2 of 1%, the Board will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, it will take corrective action that it regards as
necessary and appropriate, which may include selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing a Net
Asset Value per share by using available market quotations.
Additional Information on Distributions and Taxes
Distributions
The Fund's daily dividend includes accrued interest and any original issue and
market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable Net Asset Value per
share) less amortization of any premium paid on the purchase of portfolio
securities and the estimated expenses of the Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a
$1.00 per share Net Asset Value and may result in under or over distributions of
investment company taxable income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Fund's portfolio is composed of short-term securities, the
Fund does not expect to realize any long-term capital gains or losses. Any net
short-term or long-term capital gains that are realized by the Fund (adjusted
for any daily amounts of unrealized appreciation or depreciation and taking into
account any capital loss carryforward or post October loss deferral) will
generally be distributed once each year and may be distributed more frequently
if necessary to avoid federal excise taxes. Any distribution of capital gains
will be reinvested in additional Fund shares at Net Asset Value, unless you have
previously elected to have them paid in cash.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss, or unexpected fluctuation in net assets. Taxes
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to 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 you until the following January, will be treated for
tax purposes as if paid by a Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends as a matter of policy
to declare and pay these dividends in December to avoid the imposition of this
tax, but does not guarantee that its distributions will be sufficient to avoid
any or all federal excise taxes.
Distributions 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 you have owned Fund shares and regardless of whether the
distributions are received in cash or in additional shares.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by 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, the Fund will provide you with the percentage of any dividends
paid which may qualify for such tax-free treatment. You should then consult with
your tax advisor with respect to the application of state and local laws to
these distributions.
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 these shares. However,
since the Fund seeks to maintain a stable net asset value of $1.00 per share for
both purchases and redemptions, you are not expected to realize a capital gain
or loss upon the sale or exchange of Fund Shares.
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, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice. Distributors pays the expenses of the distribution of Fund
shares, including advertising expenses and the costs of printing sales material
and prospectuses used to offer shares to the public. The Fund pays the expenses
of preparing and printing amendments to its registration statements and
prospectuses (other than those necessitated by the activities of Distributors)
and of sending prospectuses to existing shareholders.
The Fund's Rule 12b-1 Plan
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act. Under the plan, the Fund may pay up to a maximum of 0.30%
of its average daily net assets, payable quarterly, for expenses incurred in the
promotion and distribution of its 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 Fund 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 that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers or Distributors
make payments that are deemed to be 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 those 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 under the rules of the
National Association of Securities Dealers, Inc.
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. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote of the Board, including a majority vote of
the Board members who are not interested persons of the Fund 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 Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members 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
management agreement with 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 agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
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 members of
the Board, 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 at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, 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 plan should be continued.
For the fiscal year ended June 30, 1996, Distributors had eligible expenditures
of $177,349 for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the Plan, of which the Fund paid Distributors
$169,560.
How does the Fund Measure Performance?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results.
Yield
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The Fund's current yield for the seven day period ended June 30, 1996,
was 4.85%.
Effective Yield. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended June 30, 1996, was 4.97%.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7]-1
Other Performance Quotations
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) 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 that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Bond Buyer - A daily publication that reports various articles as well as
indexes.
d) Salomon Brothers Bond Market Roundup - A weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) 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.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
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.
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.
Miscellaneous Information
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S. and may be considered in a program
for diversification of assets. Founded in 1947, Franklin, one of the oldest
mutual fund organizations, has managed mutual funds for over 48 years and now
services more than 2.5 million shareholder accounts. In 1992, Franklin, a leader
in managing fixed-income mutual funds and an innovator in creating domestic
equity funds, joined forces with Templeton Worldwide, Inc., a pioneer in
international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
As of October 3, 1996, the principal shareholders of the Fund, beneficial or of
record, were as follows:
Name and Address Share Amount Percentage
- --------------------------------------------------------------------------------
Franklin Resources, Inc.......................... 5,678,755.030 7.14%
Attn: Corp. Accounting #95
1850 Gateway 6th Floor
San Mateo, CA 94404-2467
Republic Bank California NA...................... 54,120,739.900 68.07%
445 N. Bedford Dr. 2nd Floor
Beverly Hills, CA 90210-4302
Sachem Trust National Assoc...................... 7,295,877.150 9.17%
23 Boston St
Guilford, CT 06437-2855
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.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
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 investors can
use to compare to that of their own investment or portfolio.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
Financial Statements
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the fiscal year ended June 30, 1996, including the auditors'
report, are incorporated herein by reference.
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Fund's investment manager
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
FT Servcices - Franklin Templeton Services, Inc., the Fund's administrator I
nvestor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996, as may be
amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
INSTITUTIONAL
FIDUCIARY TRUST
Money Market Portfolio and
Franklin U.S. Government Securities
Money Market Portfolio
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/DIAL BEN
Contents Page
How does the Fund Invest its Assets?.... 2
Investment Restrictions................. 3
Officers and Trustees................... 5
Investment Management and
Other Services ........................ 9
How does the Portfolio Buy
Securities for its Portfolio?.......... 10
How do I Buy, Sell and Exchange Shares?. 11
How are Fund Shares Valued?............. 12
Additional Information on
Distributions and Taxes................ 13
The Fund's Underwriter.................. 14
How does the Fund
Measure Performance?................... 15
Miscellaneous Information............... 16
Financial Statements.................... 17
Useful Terms and Definitions............ 17
Appendices
Summary of Procedures to Monitor
Conflicts of Interest.................. 18
California Government Code
Section 53601.......................... 18
California Government Code
Section 53635.......................... 22
Description of Ratings................. 25
When reading this SAI, you will see certain terms that are capitalized. This
means the term is explained under "Useful Terms and Definitions."
Mutual funds, annuities, and other investment products:
o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by any bank;
o are subject to investment risks, including the possible loss of principal.
The Money Market Portfolio (the "Money Fund") and the Franklin U.S. Government
Securities Money Market Portfolio (the "U.S. Securities Fund") are two no-load
diversified series of the Institutional Fiduciary Trust (the "Trust").
References in this SAI to the "Fund", unless the context indicates that only an
individual fund is being referenced, is to both the Money Fund and the U.S.
Securities Fund. 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.
The Money Fund seeks to achieve its investment objectives by investing all of
its assets in shares of the Money Market Portfolio (the "Money Portfolio") and
the U.S. Securities Fund by investing in the U.S. Government Securities Money
Market Portfolio (the "U.S. Securities Portfolio"). References in this SAI to
the "Portfolio," unless the context indicates that only an individual portfolio
is being referenced, are to both the Money Portfolio and the U.S. Securities
Portfolio. The Portfolio is a series of the Money Market Portfolios ("Money
Market"). The Money Portfolio may invest in various types of money market
instruments that 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 Portfolio may invest in Eurodollar as well as
Yankee Dollar Certificates of Deposit. The Money Portfolio will not invest in
warrants.
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 that 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 Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/321-8563 or write the Fund at the address shown.
This SAI is not a prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to provide you
with additional information regarding the activities and operations of the Fund,
and should be read in conjunction with the Prospectus.
How does the Fund Invest its Assets?
The following provides more detailed information about some of the securities
the Portfolio may buy and its investment policies. You should read it together
with the section in the Prospectus entitled "How does the Fund Invest its
Assets?"
The investment policies of the Fund, fundamental and nonfundamental, are
identical to those described below for the Portfolio except, in all cases, the
Fund may pursue its policies by investing in an open-end management investment
company with the same investment objectives and substantially similar policies
and restrictions as the Fund.
The achievement of the Portfolio's objectives will depend on market conditions
generally and on Advisers' analytical and portfolio management skills. It should
also be noted that because the Portfolio is limiting its investments to high
quality securities, there will be a generally lower yield than if the Portfolio
purchased securities with a lower rating and correspondingly greater risk. The
value of the securities held will fluctuate inversely with interest rates,
therefore there is no assurance that the Portfolio's, and thus the Fund's,
objectives will be achieved.
In addition, because of short-term variations in market or business conditions,
management's revised evaluation of a portfolio security or the need to obtain
cash to meet redemptions, the Portfolio may sell portfolio securities prior to
maturity. The Portfolio may also invest in deposits fully insured by the U.S.
government, its agencies or instrumentalities. Such deposits may include
deposits in banking and savings institutions up to the limit (currently $100,000
per depository) of the insurance on principal provided by the Federal Deposit
Insurance Corporation. Such deposits are frequently combined in larger units by
an intermediate bank or other institution.
When-Issued or Delayed-Delivery Transactions. 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. When the Money Portfolio is the buyer in the transaction, it will
keep in a segregated account with its custodian bank, cash or high-grade
marketable securities having an aggregate value equal to the amount of the
purchase commitments until payment is made. To the extent the 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.
Loans of Portfolio Securities. The Money Portfolio may make loans of its
portfolio securities, up to 25% of its total assets, in accordance with
guidelines adopted by Money Market's Board of Trustees. The lending of
securities is a common practice in the securities industry. 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. 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. 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
three business days after notice, or by the borrower on one day's notice.
Borrowed securities must be returned when the loan is terminated. Any gain or
loss in the market price of the borrowed securities which occurs during the term
of the loan inures to Money Portfolio and its shareholders. Money Portfolio may
pay reasonable finders', borrowers', administrative and custodial fees in
connection with a loan of its securities.
Credit Union Investment Regulations Applicable to an Investment in the
U.S. Securities Fund
This section summarizes the U.S. Securities Fund's investment policies under
which, in the opinion of the Trust and based on the Trust's understanding of
laws and regulations governing investments by federal credit unions on October
30, 1996, the Fund 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 U.S. Securities Fund will be subject to the following
limitations:
(a) The U.S. Securities 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, the U.S. Securities 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 the U.S. Securities 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 the U.S. Securities 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) The U.S. Securities Fund will not 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) The U.S. Securities Fund will not invest in mortgage related securities.
Portfolio Turnover Rate. Because the Portfolio will not purchase any instrument
with a remaining maturity of greater than 397 calendar days, it is not expected
to have any reportable annual portfolio turnover rate.
Investment Restrictions
The Fund has adopted the following restrictions as fundamental policies. These
restrictions may not be changed without the approval of a majority of the
outstanding voting securities of the Fund. Under the 1940 Act, this means the
approval of (i) more than 50% of the outstanding shares of the Fund or (ii) 67%
or more of the shares of the Fund present at a shareholder meeting if more than
50% of the outstanding shares of the Fund are represented at the meeting in
person or by proxy, whichever is less. The Fund may not:
(1) Borrow money or mortgage or pledge any of its assets, except that
borrowings (and a pledge of assets therefor) for temporary or emergency purposes
may be made from banks in any amount up to 5% of the 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 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, 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 the 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 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" or write covered call options in
accordance with its stated investment policies.
In addition to the above restrictions, the Fund has the following fundamental
policies, which may only be changed with shareholder approval: 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 that 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. government; 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 Fund will
invest 100% of its assets in securities with remaining maturities of 397 days or
less, or in another open-end management investment company that has the same
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 objectives
by investing all or substantially all of its assets in an open-end management
investment company with the same investment objectives and policies; iv) the
Money Fund may not purchase the securities of any one issuer (other than
obligations of the U.S. government, 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 and the Board of Trustees of Money Market to comply with
requirements under SEC 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 objectives 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) that
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 shareholder approval, 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.
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).
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
Money Market's trustees have elected to value the Portfolio's assets in
accordance with SEC Rule 2a-7. This rule also imposes various restrictions on
the Portfolio which are, in some cases, more restrictive than the Portfolio's
other stated fundamental policies and investment restrictions. The rule provides
that any fund which holds itself out as a money market fund must follow certain
portfolio provisions of the rule regarding the maturity and quality of each
portfolio investment, and the diversity of such investments. The Portfolio must
comply with these provisions unless its shareholders vote to change its policy
of being a money market fund.
Officers and Trustees
The Board has the responsibility for the overall management of the Fund,
including general supervision and review of its investment activities. The
Board, in turn, elects the officers of the Trust who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Trust under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupation During
Name, Age and Address with the Trust the Past Five Years
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
* Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
* Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
* Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of most
other subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee of 60 of the investment companies in the Franklin Templeton Group of
Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Stardards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of most other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Thomas J. Runkel (38)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
The officers and directors of the Trust are also officers and trustees of Money
Market, except as follows: Thomas J. Runkel, Vice President of the Trust is not
an officer or trustee of Money Market; and Edward V. McVey and R. Martin
Wiskemann are officers of the Money Market but not the Trust.
Positions and Offices Principal Occupation During
Name, Age and Address with Money Market the Past Five Years
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 (69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
The tables above show the officers and Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. Nonaffiliated Board
members are currently paid $200 per month plus $200 per meeting attended.
Nonaffiliated trustees of Money Market are currently paid $50 per month plus $50
per meeting attended. As shown above, some of the nonaffiliated Board members
and trustees of Money Market also serve as directors, trustees or managing
general partners of other investment companies in the Franklin Templeton Group
of Funds. They may receive fees from these funds for their services. The
following table provides the total fees paid to nonaffiliated Board members and
trustees of Money Market by the Trust, by Money Market, and by other funds in
the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Boards
Total Fees in the Franklin
Total Fees Total Fees Received from the Templeton Group
Received from Received from Franklin Templetonof Funds on Which
Name the Trust* Money Market* Group of Funds** Each Serves***
Frank H. Abbott, III............... $4,800 $1,200 $162,420 31
Harris J. Ashton................... 4,800 1,200 327,925 55
S. Joseph Fortunato................ 4,800 1,200 344,745 57
David W. Garbellano................ 4,800 1,200 146,100 30
Frank W.T. LaHaye.................. 4,600 1,150 143,200 26
Gordon S. Macklin.................. 4,800 1,200 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members and trustees of Money Market are responsible. The Franklin Templeton
Group of Funds currently includes 60 registered investment companies, with
approximately 166 U.S. based funds or series.
Nonaffiliated members of the Board and trustees of Money Market are reimbursed
for expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member or
trustee of Money Market received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund, Money Market or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of Money Market who are shareholders of Resources may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of October 3, 1996, no officers or Board members owned of record and
beneficially any shares of the Fund. Many of the Board members own shares in
other funds in the Franklin Templeton Group of Funds. Charles B. Johnson and
Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of
Charles E. Johnson.
Investment Management
and Other Services
Investment Manager and Administrator and Services Provided. Advisers is the
investment manager of the Portfolio and is also the administrator of the Fund.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Portfolio to buy, hold or sell and
the selection of brokers through whom the Portfolio's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of Money Market to whom Advisers renders periodic reports of
the Portfolio's investment activities.
Advisers provides office space, furnishings, facilities and equipment required
for managing the business affairs of the Portfolio. Advisers also maintains all
internal bookkeeping, clerical, secretarial and administrative personnel and
services and provides certain telephone and other mechanical services. Advisers
is covered by fidelity insurance on its officers, directors and employees for
the protection of the Fund and the Portfolio.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the
Portfolio. Similarly, with respect to the Portfolio, Advisers is not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act, may
buy or sell for its or their own account or for the accounts of any other fund.
Advisers is not obligated to refrain from investing in securities held by the
Portfolio or other funds that it manages or administers. Of course, any
transactions for the accounts of Advisers and other access persons will be made
in compliance with the Portfolio's Code of Ethics.
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 after June 30, 1997
upon notice to the Board.
For the fiscal years ended June 30, 1994, 1995 and 1996, the management fees for
the Money Portfolio, before any advance waiver were $463,296, $1,823,637 and
$3,162,519, respectively. Management fees paid by the Money Portfolio for the
fiscal years ended June 30, 1994, 1995 and 1996 were $415,665, $1,730,028 and
$3,034,014, respectively. For the fiscal years ended June 30, 1994, 1995 and
1996, the management fees for the U.S. Securities Portfolio, before any advance
waiver were $355,778, $634,994 and $542,615, respectively. Management fees paid
by the U.S. Securities Portfolio for the fiscal years ended June 30, 1994, 1995
and 1996 were $304,633, $581,495 and $424,648, respectively.
The management agreement for the Portfolio is in effect until February 28, 1997.
It may continue in effect for successive annual periods if its continuance is
specifically approved at least annually by a vote of the Board of Trustees of
Money Market or by a vote of the holders of a majority of the Portfolio's
outstanding voting securities, and in either event by a majority vote of the
trustees of Money Market who are not parties to the management agreement or
interested persons of any such party (other than as members of the Board of
Trustees of Money Market), cast in person at a meeting called for that purpose.
The management agreement may be terminated without penalty by the Board of
Trustees of Money Market on 30 days' written notice to Advisers or by a vote of
the holders of a majority of the Portfolio's outstanding voting securities, or
by Advisers on 60 days' written notice, and will automatically terminate in the
event of its assignment, as defined in the 1940 Act.
The table below shows the administration fees, before any advance waiver by
Advisers, for the fiscal years ended June 30, 1994, 1995 and 1996, respectively.
June 30
1994 1995 1996
Money Fund.... $154,317 $123,118 $154,740
U.S. Securities
Fund......... $118,962 $139,800 $98,326
The Money Fund and the U.S. Securities Fund paid no administration fees for the
fiscal years ended June 30, 1994 and 1995. For fiscal year ended June 30, 1996,
the Money Fund paid administration fees of $28,073 and the U.S. Securities Fund
paid $74,881.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
How does the Portfolio Buy
Securities For its Portfolio?
The Fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Portfolio is concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may not
buy securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Portfolio may, however,
sell securities prior to maturity to meet redemptions or as a result of a
revised management evaluation of the issuer.
During the fiscal years ended June 30, 1994, 1995 and 1996, the Portfolio paid
no brokerage commissions.
As of June 30, 1996, neither the Fund nor the Portfolio owned securities of its
regular broker-dealers.
How do I Buy, Sell and Exchange Shares?
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
The purchase price for shares of the Fund is the net asset value of the 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 your account on the effective
date of purchase and continue through the business day prior to the business day
you redeem the shares.
All purchases of Fund shares will be credited to you, in full and fractional
shares of the Fund (rounded to the nearest 1/1000 of a share), in an account
maintained for you by the Fund's transfer agent. No share certificates will be
issued.
The Fund reserves the right to reject any order for the purchase of shares of
the Fund and to waive any minimum investment requirements. The offering of
shares by the Fund may also be suspended at any time and resumed at any time
after suspension.
Additional Information on Exchanging Shares
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
Additional Information on Selling Shares
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such a redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash.
Shareholder Redemptions
The Fund will attempt to make payment for all shares redeemed on the day your
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 your 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 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.
General Information
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All wires sent and received by the custodian bank and reported by the custodian
bank to the Fund by 3.00 p.m. Pacific time, except on holidays, the day before a
holiday or the day after a holiday, are normally effective on the same day,
provided the Fund is notified on time as provided in the Prospectus. All wire
payments received or reported by the custodian bank to the Fund after 3:00 p.m.
will be effective on the next business day. All checks or other negotiable bank
drafts 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 U.S. funds
Checks drawn in U.S. funds on foreign banks will not be credited to your account
and dividends will not begin accruing until the proceeds are collected, which
may take a longer period of time. We may, in our sole discretion, either (a)
reject any order to buy or sell shares denominated in any other currency or (b)
honor the transaction or make adjustments to your account for the transaction as
of a date and with a foreign currency exchange factor determined by the drawee
bank.
How are Fund Shares Valued?
The valuation of the Portfolio's securities, including any securities held in a
separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the instrument. While this method provides certainty in calculation, it
may result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Portfolio computed as described above may tend to be higher than a
like computation made by a fund with identical investments but utilizing a
method of valuation based upon market prices and estimates of market prices for
all of its portfolio instruments. Thus, if the use of amortized cost by the
Portfolio resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Portfolio would be able to obtain a somewhat higher
yield than would result from an investment in a fund utilizing only market
values, and existing investors in the Portfolio would receive less investment
income. The opposite would be true in a period of rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
Net Asset Value per share of $1.00, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and only buy instruments having remaining maturities of 397 calendar days or
less. The Portfolio must also invest only in those U.S. dollar-denominated
instruments that the Board of Trustees of Money Market determines present
minimal credit risks. This means that they must be rated in one of the two
highest rating categories by nationally recognized statistical rating agencies,
or if unrated be deemed comparable in quality, or be instruments issued by an
issuer that, with respect to an outstanding issue of short-term debt that is
comparable in priority and protection, has received a rating within the two
highest rating categories. Securities subject to floating or variable interest
rates with demand features that comply with applicable SEC rules may have stated
maturities in excess of one year.
The Board of Trustees of Money Market has agreed to establish procedures
designed to stabilize, to the extent reasonably possible, the Portfolio's price
per share at $1.00, as computed for the purpose of sales and redemptions. These
procedures will include a review of the Portfolio's holdings by the Board of
Trustees of Money Market, at such intervals as it may deem appropriate, to
determine if the Portfolio's Net Asset Value calculated by using available
market quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Board of Trustees of Money
Market. If a deviation exceeds 1/2 of 1%, the trustees of Money Market will
promptly consider what action, if any, will be initiated. In the event the Board
of Trustees of Money Market determines that a deviation exists that may result
in material dilution or other unfair results to investors or existing
shareholders, they will take corrective action that they regard as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends, redeeming shares in kind or establishing a Net Asset
Value per share by using available market quotations.
Additional Information on
Distributions and Taxes
Distributions
The Portfolio's daily dividend includes accrued interest and any original issue
and market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in portfolio
securities (to the extent required to maintain a stable Net Asset Value per
share), less amortization of any premium paid on the purchase of portfolio
securities and the estimated expenses of the Portfolio. The Fund's daily
dividend consists of the income dividends paid by the Portfolio less the
estimated expenses of the Fund.
Distributions and distribution adjustments resulting from realized gains and
losses on the sale of portfolio securities or from unrealized appreciation or
depreciation in the value of portfolio securities are required to maintain a
stable Net Asset Value of $1.00 and may result in under or over distributions of
investment company taxable income.
The Portfolio may derive capital gains or losses in connection with sales or
other dispositions of its portfolio securities. However, because under normal
circumstances the Portfolio's portfolio is composed of short-term securities,
the Portfolio does not expect to realize any long-term capital gains or losses.
Any net short-term or long-term capital gains that are realized by the Portfolio
(adjusted for any daily amounts of unrealized appreciation or depreciation and
taking into account any capital loss carryforward) will generally be made once
each year and may be distributed more frequently if necessary to avoid federal
excise taxes. Any distributions of capital gain will be reinvested in additional
shares of the Fund at Net Asset Value, unless you have previously elected to
have them paid in cash.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
Taxes
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve-month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the Fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
which are declared in December but which, for operational reasons, may not be
paid to you until the following January, will be treated for tax purposes as if
paid by the Fund and received by you on December 31 of the calendar year in
which they are declared. The Fund intends, as a matter of policy, to declare and
pay these dividends in December to avoid the imposition of this tax, but does
not guarantee that its distributions will be sufficient to avoid any or all
federal excise taxes.
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.
You should then consult with your tax advisor about the application of your
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 you have owned Fund shares and whether you
receive the distributions 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.
The federal income tax treatment of dividends and distributions is the same
whether you elect to receive them in cash or reinvest them in Fund shares.
The Fund's Underwriter
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote, cast in
person at a meeting called for that purpose, of the Board or by a vote of the
holders of a majority of the Fund's outstanding voting securities, and in either
event by a majority vote of the Board members who are not parties to the
underwriting agreement or interested persons of any such party (other than as
members of the Board). The underwriting agreement terminates automatically in
the event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
Distributors may be entitled to reimbursement under the Fund's Rule 12b-1 plan,
as discussed below. Except as noted, Distributors received no other compensation
from the Fund for acting as underwriter.
The Fund's Rule 12b-1 Plan
The Fund has adopted a distribution plan or "Rule 12b-1 plan" pursuant to Rule
12b-1 of the 1940 Act. Under the plan, the Fund may pay up to a maximum of 0.15%
per year of its average daily net assets, payable quarterly, for expenses
incurred in the promotion and distribution of its shares.
In addition to the payments that Distributors or others are entitled to under
the plan, the plan also provides that to the extent the Fund, Advisers or
Distributors or other parties on behalf of the Fund, Advisers, Distributors make
payments that are deemed to be 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 under the rules of the
National Association of Securities Dealers, Inc.
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
later 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. These banking institutions, however, are permitted to receive fees under
the plan for administrative servicing or for agency transactions. If you are a
customer of a bank that is prohibited from providing these services, you would
be permitted to remain a shareholder of the Fund, and alternate means for
continuing the servicing would be sought. In this event, changes in the services
provided might occur and you might no longer be able to avail yourself of any
automatic investment or other services then being provided by the bank. It is
not expected that you would suffer any adverse financial consequences as a
result of any of these changes.
The plan has been approved in accordance with the provisions of Rule 12b-1. The
plan is renewable annually by a vote, cast in person at a meeting called for
that purpose, of the Board, including a majority vote of the Board members who
are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the plan. It is also required that the
selection and nomination of such Board members be done by the non-interested
members of the Board. The plan and any related agreement may be terminated at
any time, without penalty, by vote of a majority of the non-interested Board
members 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
management agreement with Advisers, or the underwriting agreement with
Distributors, 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 agreements may not be amended to increase materially
the amount to be spent for distribution expenses without approval by a majority
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 members of
the Board, 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 at least quarterly on
the amounts and purpose of any payment made under the plan and any related
agreements, 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 plan should be continued.
For the fiscal year ended June 30, 1996, the Fund did not incur any expenses
pursuant to the plan.
How does the Fund Measure Performance?
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and effective yield quotations used by the Fund are based on the
standardized methods of computing performance mandated by the SEC. An
explanation of these and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results.
Yield
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated by determining the net change, excluding capital changes, in the
value of a hypothetical pre-existing account having a balance of one share at
the beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the value
of the account at the beginning of the base period to obtain the base period
return. The result is then annualized by multiplying the base period return by
(365/7). The current yield for the seven day period ended June 30, 1996 was
5.21% for the Money Fund and 5.13% for the U.S. Securities Fund.
Effective Yield. The Fund's effective yield is calculated in the same manner as
its current yield, except the annualization of the return for the seven day
period reflects the results of compounding. The Fund's effective yield for the
seven day period ended June 30, 1996 was 5.35% for the Money Fund and 5.26% for
the U.S. Securities Fund.
This figure was obtained using the following SEC formula:
Effective Yield = [(Base Period Return + 1)365/7] - 1
Other Performance Quotations
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices and averages. These
comparisons may include, but are not limited to, the following examples:
a) IBC/Donoghue's Money Fund Report(R) - Industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
b) Bank Rate Monitor - A weekly publication that reports various bank
investments such as CD rates, average savings account rates and average loan
rates.
c) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, and Lipper - Mutual Fund Yield Survey - measure total
return and average current yield for the mutual fund industry and rank
individual mutual fund performance over specified time periods, assuming
reinvestment of all distributions, exclusive of any applicable sales charges.
d) Salomon Brothers Bond Market Roundup - A weekly publication that reviews
yield spread changes in the major sectors of the money, government agency,
futures, options, mortgage, corporate, Yankee, Eurodollar, municipal, and
preferred stock markets and summarizes changes in banking statistics and reserve
aggregates.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services, in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation published by Ibbotson Associates - a
historical measure of yield, price, and total return for common and small
company stock, long term government bonds, Treasury bills and inflation.
g) Financial publications: The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines - provide
performance statistics over specified time periods.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the Fund's
fixed-income investments, as well as the value of its shares that are based upon
the value of such portfolio investments, can be expected to decrease.
Conversely, when interest rates decrease, the value of the Fund's shares can be
expected to increase. CDs are frequently insured by an agency of the U.S.
government. An investment in the Fund is not insured by any federal, state or
private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's portfolio, the indices and averages are generally
unmanaged, and the items included in the calculations of the averages may not be
identical to the formula used by the Fund to calculate its figures. In addition,
there can be no assurance that the Fund will continue its performance as
compared to these other averages.
Miscellaneous Information
The Fund may help you achieve various investment goals such as accumulating
money for retirement, saving for a down payment on a home, college costs and
other long-term goals. The Franklin College Costs Planner may help you in
determining how much money must be invested on a monthly basis in order to have
a projected amount available in the future to fund a child's college education.
(Projected college cost estimates are based upon current costs published by the
College Board.) The Franklin Retirement Planning Guide leads you through the
steps to start a retirement savings program. Of course, an investment in the
Fund cannot guarantee that these goals will be met.
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one in
service quality for five of the past eight years.
The Fund may be used in shareholder newsletters as an example 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 $43 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.
Special Services
You may utilize Franklin's IFT Hypothetical Illustrations Service as a useful
tool in considering investments. The service, which is free of charge, enables
you to make an actual, dollar-for-dollar performance comparison of any of the
Trust's series to any security, pool or portfolio which you may currently be
using. It is based on historical information, and covers any time period you may
wish to use after February 4, 1988 (the beginning of dividend payments for two
series of the Trust). You would simply choose a series of the Trust to compare
and provide us 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 you can use to compare to that of
your own investment or portfolio.
Investor Services may charge you separate fees to be negotiated directly with
you, for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. These special services will not increase the
expenses borne by the Fund.
From time to time, the number of Fund shares held in the "street name" accounts
of various Securities Dealers for the benefit of their clients or in centralized
securities depositories may exceed 5% of the total shares outstanding. To the
best knowledge of the Fund, no other person holds beneficially or of record more
than 5% of the Fund's outstanding shares.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Fund's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
Financial Statements
The audited financial statements contained in the Annual Report to Shareholders
of the Trust for the fiscal year ended June 30, 1996, including the auditors'
report, are incorporated herein by reference.
Useful Terms and Definitions
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996 as may be
amended from time to time
Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or another
wholly-owned subsidiary of Resources.
APPENDICES
Summary of Procedures to
Monitor Conflicts of Interest
The Board of Trustees of Money Market, on behalf of its series ("master fund"),
and the Board of the Fund ("feeder fund"), 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 fund in this format.
These potential conflicts of interest could include, among others: the creation
of additional feeder funds with different fee structures; the creation of
additional feeder funds that could have controlling voting interests in any
pass-through voting which could affect investment and other policies; a proposal
to increase fees at the master fund level; and any consideration of changes in
fundamental policies at the master fund level that may or may not be acceptable
to a particular feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
of Trustees of Money Market and the Board of the Fund have adopted certain
procedures under which i) management of the master fund and the feeder fund
will, on a yearly basis, report to each board, including the independent members
of each board, on the operation of the master/feeder fund structure; ii) the
independent members of each board will have ongoing responsibility for reviewing
all proposals at the master fund level to determine whether any proposal
presents potential for a conflict of interest and to the extent any other
potential conflicts arise prior to the normal annual review, they will act
promptly to review the potential conflict; iii) if the independent members of
each board determine that a situation or proposal presents a potential conflict,
they will request a written analysis from the master fund management describing
whether the apparent potential conflict of interest will impede the operation of
the constituent feeder fund and the interests of the feeder fund's shareholders;
and iv) upon receipt of the analysis, the independent members of each board
shall review the analysis and present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
objectives and policies; iv) recommend to the full boards that a new board be
recommended to shareholders for approval; or v) recommend such other action as
may be considered appropriate.
California Government Code Section 53601.
Securities authorized for investment;
text of section effective on July 7, 1988, amended in 1992, 1995 and 1996.
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 those investments set forth below. A local agency purchasing or
obtaining any securities prescribed in this section, in a negotiable, bearer,
registered, or nonregistered format, shall require delivery of the securities to
the local agency, including those purchased for the agency by financial
advisors, consultants, or managers using the agency's funds, by book entry,
physical delivery or by third party custodial agreement. The transfer of
securities to the counterparty bank's customer book entry account may be used
for book entry delivery. For purposes of this section "counterparty" means the
other party to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the local agency. 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, that 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. Purchases of banker's acceptances may
not exceed 270 days maturity or 40 percent of the agency's surplus money that
may be invested pursuant to this section. However, no more than 30 percent of
the agency's surplus funds 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, Inc.,
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, Inc. 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 that 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) (1) Investments in repurchase agreements or reverse repurchase agreements of
any securities authorized by this section as long as the agreements are subject
to this subdivision, including, the delivery requirements specified in this
section.
(2) Investments in repurchase agreements may be made, on any investment
authorized in this section when the term of the agreement does not exceed one
year. The market value of securities that underlay a repurchase agreement shall
be valued at 102 percent or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly.
(3) Reverse repurchase agreements may be utilized only when either of the
following conditions are met:
(A) The security was owned or specifically committed to purchase, by the local
agency prior to December 31, 1994, and was sold using a reverse repurchase
agreement on December 31, 1994.
(B) The security to be sold on reverse repurchase agreement has been owned and
fully paid for by the local agency for a minimum of 30 days prior to sale; the
total of all reverse repurchase agreements on investments owned by the local
agency not purchased or committed to purchase, prior to December 31, 1994, does
not exceed 20 percent of the base value of the portfolio; and the agreement does
not exceed a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period between the sale
of a security using a reverse repurchase agreement and the final maturity date
of the same security.
(4) After December 31, 1994, a reverse repurchase agreement may not be entered
into with securities not sold on a reverse repurchase agreement and purchased,
or committed to purchase, prior to that date, as a means of financing or paying
for the security sold on a reverse repurchase agreement, but may only be entered
into with securities owned and previously paid for a minimum of 30 days prior to
the settlement of the reverse repurchase agreement, in order to supplement the
yield on securities owned and previously paid for or to provide funds for the
immediate payment of a local agency obligation. Funds obtained or funds within
the pool of an equivalent amount to that obtained from selling a security to a
counterparty by way of a reverse repurchase agreement, on securities originally
purchased subsequent to December 31, 1994, shall not be used to purchase another
security with a maturity longer than 92 days from the initial settlement date of
the reverse repurchase agreement, unless the reverse repurchase agreement
includes a written codicil guaranteeing a minimum earning or spread for the
entire period between the sale of a security using a reverse repurchase
agreement and the final maturity date of the same security. Reverse repurchase
agreements specified in subparagraph (B) of paragraph (3) may not be entered
into unless the percentage restrictions specified in that subparagraph are met,
including the total of any reverse repurchase agreements specified in
subparagraph (A) of paragraph (3).
(5) Investments in reverse repurchase agreements or similar investments in which
the local agency sells securities prior to purchase, with a simultaneous
agreement to repurchase the security, may only be made upon prior approval of
the governing body of the local agency and shall only be made with primary
dealers of the Federal Reserve Bank of New York.
(6) (A) "Repurchase agreement" means a purchase of securities by the local
agency pursuant to an agreement by which the counterparty seller will repurchase
the securities on or before a specified date and for a specified amount and the
counterparty 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.
(B) "Securities," for purpose of repurchase under this subdivision, means
securities of the same issuer, description, issue date, and maturity.
(C) "Reverse repurchase agreement" means a sale of securities by the local
agency pursuant to an agreement by which the local agency will repurchase the
securities on or before a specified date and includes other comparable
agreements.
(D) For purposes of this section, the base value of the local agency's pool
portfolio shall be that dollar amount obtained by totaling all cash balances
placed in the pool by all pool participants, excluding any amounts obtained
through selling securities by way of reverse repurchase agreements or other
similar borrowing methods.
(E) For purposes of this section, the spread is the difference between the cost
of funds obtained using the reverse repurchase agreement and the earnings
obtained on the reinvestment of the funds.
(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
that invest in the securities and obligations as authorized by subdivisions (a)
to (j), inclusive, or subdivisions (m) or (n) and that comply with the
investment restrictions of this article and Article 2 (commencing with Section
53630). However, notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement is not required to be a primary dealer of the Federal
Reserve Bank of New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the securities
underlying a repurchase agreement may be 100 percent of the sales price if the
securities are marked to market daily.
(2) Shares of beneficial interest issued by diversified management companies
that are money market funds registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et
seq.).
(3) If investment is in shares issued pursuant to paragraph (1), the company
shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two nationally recognized statistical rating
organizations.
(B) Retained an investment adviser registered or exempt from registration with
the Securities and Exchange Commission with not less than five years' experience
investing in the securities and obligations authorized by subdivisions (a) to
(j), inclusive, or subdivisions (m) or (n) and with assets under management in
excess of five hundred million dollars ($500,000,000).
(4) If investment is in shares issued pursuant to paragraph (2), the company
shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two nationally recognized statistical rating
organizations.
(B) Retained an investment adviser registered or exempt from registration with
the Securities and Exchange Commission with not less than five years' experience
managing money market mutual funds with assets under management in excess of
five hundred million dollars ($500,000,000).
(5) The purchase price of shares of beneficial interest purchased pursuant to
this subdivision shall not include any commission that the companies may charge
and shall not exceed 20 percent of the agency's surplus money that may be
invested pursuant to this section. However, no more than 10 percent of the
agency's surplus funds may be invested in shares of beneficial interest of any
one mutual fund pursuant to paragraph (1).
(l) Notwithstanding anything to the contrary contained in this section, Section
53635 or any other provision of law, money 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, lease
installment sale, or other agreements, may be invested in accordance with the
statutory provisions governing the issuance of those bonds, indebtedness, 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 that 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 obligation, 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 1995 and 1996.
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 investments set forth below. A local agency purchasing or
obtaining any securities described in this section, in a negotiable, bearer,
registered, or nonregistered format, shall require delivery of all the
securities to the local agency, including those purchased for the agency by
financial advisors, consultants, or managers using the agency's funds, by book
entry, physical delivery, or by third-party custodial agreement. The transfer of
securities to the counterparty bank's customer book entry account may be used
for book-entry delivery. For purposes of this section, "counterparty" means the
other party to the transaction. A counterparty bank's trust department or
separate safekeeping department may be used for the physical delivery of the
security if the security is held in the name of the local agency.
(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, Inc.
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, Inc. 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, the credit committee or
supervisory committee of the state or federal credit union issuing the
negotiable certificates of deposit.
(i) (1) Investments in repurchase agreements or reverse repurchase agreements of
any securities authorized by this section, so long as the agreements are subject
to this subdivision, including the delivery requirements specified in this
section.
(2) Investments in repurchase agreements may be made, on any investment
authorized in this section when the term of the agreement does not exceed one
year. The market value of securities that underlay a repurchase agreement shall
be valued at 102 percent or greater of the funds borrowed against those
securities and the value shall be adjusted no less than quarterly.
(3) Reverse repurchase agreements may be utilized only when either of the
following conditions are met:
(A) The security was owned or specifically committed to purchase, by the local
agency, prior to repurchase agreement on December 31, 1994, and was sold using a
reverse repurchase agreement on December 31, 1994.
(B) The security to be sold on reverse repurchase agreement has been owned and
fully paid for by the local agency for a minimum of 30 days prior to sale, the
total of all reverse repurchase agreements on investments owned by the local
agency not purchased or committed to purchase, prior to December 31, 1994, does
not exceed 20 percent of the base value of the portfolio, and the agreement does
not exceed a term of 92 days, unless the agreement includes a written codicil
guaranteeing a minimum earning or spread for the entire period between the sale
or a security using a reverse repurchase agreement and the final maturity date
of the same security.
(4) After December 31, 1994, a reverse repurchase agreement may not be entered
into with securities not sold on a reverse repurchase agreement and purchased,
or committed to purchase, prior to that date, as a means of financing or paying
for the security sold on a reverse repurchase agreement, but may only be entered
into with securities owned and previously paid for, for a minimum of 30 days
prior to the settlement of the reverse repurchase agreement, in order or
supplement the yield on securities owned and previously paid for or to provide
funds for the immediate payment of a local agency obligation. Funds obtained or
funds within the pool of an equivalent amount to that obtained from selling a
security to a counterparty by way of a reverse repurchase agreement, on
securities originally purchased subsequent to December 31, 1994, shall not be
used to purchase another security with a maturity longer than 92 days from the
initial settlement date of the reverse repurchase agreement, unless the reverse
repurchase agreement includes a written codicil guaranteeing a minimum earning
or spread for the entire period between the sale of a security using a reverse
repurchase agreement and the final maturity date of the same security. Reverse
repurchase agreements specified in subparagraph (B) of paragraph (3) may not be
entered into unless the percentage restrictions specified in that subparagraph
are met, including the total of any reverse repurchase agreements specified in
subparagraph (A) of paragraph (3).
(5) Investments in reverse repurchase agreements or similar investments in which
the local agency sells securities prior to purchase, with a simultaneous
agreement to repurchase the security, may only be made upon prior approval of
the governing body of the local agency and shall only be made with primary
dealers of the Federal Reserve Bank of New York.
(6)(A) "Repurchase agreement" means a purchase of securities by the local agency
pursuant to an agreement by which the counterparty seller will repurchase the
securities on or before a specified date and for a specified amount, and the
counterparty 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's bank's customer book-entry account
may be used for book-entry delivery.
(B) "Securities," for purpose of repurchase under this subdivision, means
securities of the same issuer, description, issue date, and maturity.
(C) "Reverse repurchase agreement" means a sale of securities by the local
agency, pursuant to an agreement by which the local agency will repurchase the
securities on or before a specified date and includes other comparable
agreements.
(D) For purposes of this section, the base value of the local agency's pool
portfolio shall be that dollar amount obtained by totaling all cash balances
placed in the pool by all pool participants, excluding any amounts obtained
through selling securities by way of reverse repurchase agreements or other
similar borrowing methods.
(E) For purposes of this section, the spread is the difference between the costs
of funds obtained using the reverse repurchase agreement and the earnings
obtained on the reinvestment of the funds.
(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
that invest in the securities and obligations as authorized by subdivisions (a)
to (i), inclusive, or subdivisions (l) or (m) and that comply with the
investment restrictions of this article and Article 2 (commencing with Section
53600). However, notwithstanding these restrictions, a counterparty to a reverse
repurchase agreement is not required to be a primary dealer of the Federal
Reserve Bank of New York if the company's board of directors finds that the
counterparty presents a minimal risk of default, and the value of the securities
underlying a repurchase agreement may be 100 percent of the sales price if the
securities are marked to market daily.
(2) Shares of beneficial interest issued by diversified management companies
that are money market funds registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 (15 U.S.C. Sec. 80a-1, et
seq.).
(3) If investment is in shares issued pursuant to paragraph (1), the company
shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two nationally recognized statistical rating
organizations.
(B) Retained an investment adviser registered or exempt from registration with
the Securities and Exchange Commission with not less than five years' experience
investing in the securities and obligations authorized by subdivisions (a) to
(j), inclusive, or subdivisions (l) or (m) and with assets under management in
excess of five hundred million dollars ($500,000,000).
(4) If investment is in shares issued pursuant to paragraph (2), the company
shall have met either of the following criteria:
(A) Attained the highest ranking or the highest letter and numerical rating
provided by not less than two nationally recognized statistical rating
organizations.
(B) Retained an investment adviser registered or exempt from registration with
the Securities and Exchange Commission with not less than five years' experience
managing money market mutual funds with assets under management in excess of
five hundred million dollars ($500,000,000).
(5) The purchase price of shares of beneficial interest purchased pursuant to
this subdivision shall not include any commission that the companies may charge
and shall not exceed 20 percent of the agency's surplus money that may be
invested pursuant to this section. However, no more than 10 percent of the
agency's surplus funds may be invested in shares of beneficial interest of any
one mutual fund pursuant to paragraph (1).
(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 obligation, 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.
Description of Ratings
Municipal Bond Ratings
Moody's
Aaa: Municipal bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to principal
and interest are considered adequate, but elements may be present which suggest
a susceptibility to impairment sometime in the future.
Baa: Municipal bonds rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They possess
the ultimate degree of protection as to principal and interest. In the market,
they move with interest rates and, hence, provide the maximum safety on all
counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in the
majority of instances differ from AAA issues only in a small degree. Here, too,
prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse effects
of changes in economic and trade conditions. Interest and principal are regarded
as safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within the major rating categories.
Fitch
AAA: Municipal bonds rated AAA are considered to be of investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal which is unlikely to be affected by reasonably
foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong although not quite as strong as bonds rated AAA and not
significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic conditions
and circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus are not
used for the AAA category.
Municipal Note Ratings
Moody's
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in recognition
of the differences between short-term credit risk and long-term risk. Factors
affecting the liquidity of the borrower are uppermost in importance in
short-term borrowing; factors of the first importance in long-term borrowing
risk are of lesser importance in the short run. Symbols used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from established
cash flows of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although not
so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted for,
but lacking the undeniable strength of the preceding grades. Market access for
refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds. After
June 29, 1984, for new municipal note issues due in three years or less, the
ratings below will usually be assigned. Notes maturing beyond three years will
most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
Commercial Paper Ratings
Moody's
Moody's commercial paper ratings, which are also applicable to municipal paper
investments permitted to be made by the Fund, are opinions of the ability of
issuers to repay punctually their promissory obligations not having an original
maturity in excess of nine months. Moody's employs the following designations,
all judged to be investment grade, to indicate the relative repayment capacity
of rated issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Fitch's
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect on assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely payment,
but the margin of safety is not as great as for issues assigned F-1+ and F-1
ratings.
F-3: Fair credit quality. Have characteristics suggesting that the degree of
assurance for timely payment is adequate; however, near-term adverse changes
could cause these securities to be rated below investment grade.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
INSTITUTIONAL
FIDUCIARY TRUST
Franklin Institutional Adjustable
U.S. Government Securities Fund
Franklin Institutional Adjustable
Rate Securities Fund
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1996
777 Mariners Island Blvd., P.O. Box 7777
San Mateo, CA 94403-7777 1-800/321-8563
Table of Contents
How does the Fund Invest its Assets?..... 2
Investment Restrictions.................. 3
Officers and Trustees.................... 4
Investment Management and
Other Services.......................... 8
How does the Portfolio Buy
Securities For its Portfolio?........... 9
How Do I Buy, Sell and Exchange Shares?.. 10
How are Fund Shares Valued?.............. 11
Additional Information on
Distributions and Taxes................. 11
The Fund's Underwriter................... 12
How does the Fund
Measure Performance?.................... 12
Miscellaneous Information................ 15
Useful Terms and Definitions............. 16
Appendices............................... 16
Summary of Procedures to Monitor
Conflicts of Interest................... 16
Description of Ratings.................. 17
Financial Statements..................... 18
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When reading this SAI, you will see certain terms that are capitalized. This
means the term is explained under "Useful Terms and Definitions."
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The Franklin Institutional Adjustable U.S. Government Securities Fund (the
"Adjustable U.S. Government Fund") and the Franklin Institutional Adjustable
Rate Securities Fund (the "Adjustable Rate Securities Fund") are each a no-load,
diversified series of Institutional Fiduciary Trust (the "Trust"), an open-end
management investment company. References to the "Fund" in this SAI refer to
each fund individually, unless the context indicates otherwise.
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
Fund and the Adjustable Rate Securities Fund seek to achieve their objective by
investing all of their assets in shares of the U.S. Government Adjustable Rate
Mortgage Portfolio (the "Mortgage Portfolio") and the Adjustable Rate Securities
Portfolio (the "Securities Portfolio"), respectively, each a series of the
Adjustable Rate Securities Portfolios. The investment objective of each Fund is
the same as the investment objective of the Portfolio in which it invests.
References to the "Portfolio" in this SAI refer to each Portfolio individually,
unless the context indicates otherwise.
The Mortgage Portfolio invests primarily in adjustable rate mortgage securities
("ARMS") or other securities collateralized by or representing an interest in
mortgages and that have interest rates that reset at periodic intervals. The
Mortgage Portfolio will only invest in mortgage securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities.
The Securities Portfolio invests primarily in adjustable rate securities
collateralized by or representing an interest in mortgages, including ARMS,
issued or guaranteed by private institutions or by the U.S. government, its
agencies or instrumentalities, and other adjustable rate asset-backed securities
(collectively, "ARS"), which have interest rates that reset at periodic
intervals. The Securities Portfolio will only invest in securities 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 agencies. The
Securities Portfolio may also invest in unrated securities if Advisers
determines that they are of comparable quality to the ratings above.
The Prospectus, dated November 1, 1996, as may be amended from time to time,
contains the basic information you should know before investing in the Fund. For
a free copy, call 1-800/321-8563 or write the Fund at the address shown.
This SAI is not a prospectus. It contains information in addition to and in more
detail than set forth in the Prospectus. This SAI is intended to provide you
with additional information regarding the activities and operations of the Fund,
and should be read in conjunction with the Prospectus.
Mutual funds, annuities, and other investment products:
o are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other agency of the U.S. government;
o are not deposits or obligations of, or guaranteed or endorsed by any bank;
o are subject to investment risks, including the possible loss of principal.
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How does the Fund Invest its Assets?
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The following provides more detailed information about some of the securities
the Portfolio may buy and its investment policies. You should read it together
with the section in the Prospectus entitled "How does the Fund Invest its
Assets?" The investment policies of the Fund, fundamental and nonfundamental,
are identical to those described below for the Portfolio except, in all cases,
the Fund may pursue its policies by investing in an open-end management
investment company with the same investment objective and substantially similar
policies and restrictions as the Fund.
The Portfolio may invest without limit in obligations of the U.S. government or
of corporations chartered by Congress as federal government instrumentalities.
The Portfolio may buy securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, such as those issued by the Government
National Mortgage Association ("GNMA"). GNMA guarantees are backed by the full
faith and credit of the U.S. Treasury. No assurances, however, can be given that
the U.S. government will provide financial support to the obligations of other
U.S. government agencies or instrumentalities in which the Portfolio may invest.
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 buy certain obligations of
an agency or instrumentality, or the credit of the agency or instrumentality.
Several of the Franklin Funds, including the Portfolio, are major buyers of
government securities. Advisers will seek to negotiate attractive prices for
government securities and pass on any savings from these negotiations to
shareholders in the form of higher current yields.
Collateralized Mortgage Obligations ("CMOs") and Real Estate Mortgage Investment
Conduits ("REMICs"). To the extent indicated in the Prospectus, the Portfolio
may invest in CMOs and REMICs. CMOs and REMICs may be issued by governmental or
government related entities or by private 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 private entities that are collateralized by (a) mortgage
securities issued by the Federal Home Loan Mortgage Corporation ("FHLMC"), the
Federal National Mortgage Association or GNMA, (b) pools of mortgages that are
guaranteed by an agency or instrumentality of the U.S. government, or (c) pools
of mortgages that are not guaranteed by an agency or instrumentality of the U.S.
government and that may or may not be guaranteed by the private issuer. The
Mortgage Portfolio will not invest in privately issued CMOs or REMICs.
Asset-Backed Securities. The Securities Portfolio may invest 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. The
payment rate may be affected by various economic and 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
underlying assets, how well the issuers of 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 the underlying assets to make payments, asset-backed securities
may contain elements of credit support. Credit support falls into two
categories: (i) liquidity protection and (ii) protection against losses from the
default by an obligor on the underlying assets. Liquidity protection refers to
advances, generally provided 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 from the default by an obligor enhances the likelihood
of payments of the obligations on at least some of the assets in the pool. This
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 these
approaches. The Securities Portfolio will not pay any additional fees for 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 that are subordinate to the other classes with respect to the
payment of principal and interest 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 on the securities and pay any servicing or other fees). The degree of
credit support provided 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 the securities.
Floaters. The Securities 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 of short-term interest rates
and move at an accelerated speed. The Securities Portfolio may also invest up to
5% of its total assets in super floaters. Super floaters are instruments that
float at a greater than 1 to 1 ratio with the London Interbank Offered Rate
("LIBOR") and are used as a hedge against the risk that LIBOR floaters become
"capped" and can no longer float higher.
Cash and Cash Equivalents. The Portfolio may retain its underlying assets in
cash and cash equivalents, including Treasury bills, commercial paper and
short-term bank obligations such as CDs, bankers' acceptances and repurchase
agreements. The Portfolio intends, however, to retain in cash only as much of
its underlying assets as is considered desirable or expedient under existing
market conditions.
Investment Restrictions
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Each Fund, except as noted, has adopted the following restrictions as
fundamental policies. These restrictions may not be changed without the approval
of a majority of the outstanding voting securities of the Fund. Under the 1940
Act, this means the approval of (i) more than 50% of the outstanding shares of
the Fund or (ii) 67% or more of the shares of the Fund present at a shareholder
meeting if more than 50% of the outstanding shares of the Fund are represented
at the meeting in person or by proxy, whichever is less. The Fund may not:
1. Borrow money or mortgage or pledge any of its assets, except that borrowings
(and a pledge of assets therefor) for temporary or emergency purposes may be
made from banks in 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 the 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
the 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 the Fund may be invested in another
registered investment company having the same investment objective and policies
of the Fund.
5. Invest more than 5% of the value of the 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 the
Fund may be invested in another registered investment company having the same
investment objective and policies of the 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 the Fund may be invested in
another registered investment company having the same investment objective and
policies of the 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 Fund,
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 the Fund may be invested in another
registered investment company having the same investment objective and policies
of the 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 the Fund may be invested in another registered investment
company having the same investment objective and policies of the 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 the Fund may be invested in another registered investment company
having the same investment objective and policies of the Fund. To the extent
permitted by exemptions which may be granted under the 1940 Act, the Fund may
invest in shares of one or more money market funds managed by Advisers or its
affiliates.
13. Issue senior securities as defined in the 1940 Act except that this
restriction will not prevent the Fund from entering into repurchase agreements
or making borrowings, mortgages and pledges as permitted by restriction #1
above.
The investment restrictions of the Portfolio are substantially the same as the
Fund's investment restrictions, except as necessary to reflect the policy of the
Fund to invest all of its assets in shares of the Portfolio.
If a percentage restriction is met at the time of investment, a later increase
or decrease in the percentage due to a change in value of portfolio securities
or the amount of assets will not be considered a violation of any of the
foregoing restrictions.
Officers and Trustees
- -------------------------------------------------------------------------------
The Board has the responsibility for the overall management of the Trust,
including general supervision and review of each Fund's investment activities.
The Board, in turn, elects the officers of the Trust who are responsible for
administering the Fund's day-to-day operations. The affiliations of the officers
and Board members and their principal occupations for the past five years are
shown below. Members of the Board who are considered "interested persons" of the
Trust under the 1940 Act are indicated by an asterisk (*).
Positions and Offices Principal Occupations During
Name, Age and Address with the Trust the Past Five Years
- --------------------------------------------------------------------------------
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
- --------------------------------------------------------------------------------
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------------
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
- --------------------------------------------------------------------------------
* Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board 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 56 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
* Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
* Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
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, trustee or managing general
partner, as the case may be, of 26 of the investment companies in the Franklin
Group of Funds.
- --------------------------------------------------------------------------------
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
- --------------------------------------------------------------------------------
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
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 60 of the investment companies in the Franklin Templeton Group of Funds.
- -------------------------------------------------------------------------------
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial 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 (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
- --------------------------------------------------------------------------------
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
- -------------------------------------------------------------------------------
Diomedes Loo-Tam (57) Treasurer
777 Mariners Island Blvd. and Principal
San Mateo, CA 94404 Accounting Officer
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
- -------------------------------------------------------------------------------
Thomas J. Runkel (38) Vice President
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Employee of Franklin Advisers, Inc. and officer of four of the investment
companies in the Franklin Group of Funds.
- --------------------------------------------------------------------------------
The officers and Board members of the Trust are also officers and trustees of
the Portfolios, except Thomas J. Runkel who is not an officer or trustee of the
Portfolios. The following trustee and officer of the Portfolios are not officers
or trustees of the Trust:
William J. Lippmann (71)
One Parker Plaza
Fort Lee, NJ 07024
Trustee
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.
- --------------------------------------------------------------------------------
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
- --------------------------------------------------------------------------------
Mr. Lippmann is considered an "interested person" of the Portfolios under the
1940 Act. The tables above show the officers and Board members and the trustees
of the Portfolios who are affiliated with Distributors and Advisers.
Nonaffiliated Board members are currently paid $200 per month plus $200 per
meeting attended. Nonaffiliated trustees of the Portfolios are currently paid
$50 per month plus $50 per meeting attended. As shown above, some of the
nonaffiliated Board members and trustees of the Portfolios also serve as
directors, trustees or managing general partners of other investment companies
in the Franklin Templeton Group of Funds. They may receive fees from these funds
for their services. The following table provides the total fees paid to
nonaffiliated Board members and trustees of the Portfolios by the Trust, by the
Portfolios, and by other funds in the Franklin Templeton Group of Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Number of Boards
Total Fees in the Franklin
Total Fees Total Fees Received from the Templeton Group
Received Received from Franklin Templeton of Funds on Which
Name from the Trust* the Portfolios** Group of Funds*** Each Serves****
- -----------------------------------------------------------------------------------------------------------------
Frank H. Abbott, III............. $4,800 $800 $162,420 31
Harris J. Ashton................. $4,800 $800 $327,925 55
S. Joseph Fortunato.............. $4,800 $800 $344,745 57
David W. Garbellano.............. $4,800 $800 $146,100 30
Frank W.T. LaHaye................ $4,600 $750 $143,200 26
Gordon S. Macklin................ $4,800 $800 $321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the eight months ended June 30, 1996.
***For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the Board
members and trustees of the Portfolios are responsible. The Franklin Templeton
Group of Funds currently includes 60 registered investment companies, with
approximately 166 U.S. based funds or series.
Nonaffiliated members of the Board and trustees of the Portfolios are reimbursed
for expenses incurred in connection with attending board meetings, paid pro rata
by each fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member or
trustee of the Portfolios received any other compensation, including pension or
retirement benefits, directly or indirectly from the Fund, the Portfolios or
other funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of the Portfolios who are shareholders of Resources may be
deemed to receive indirect remuneration by virtue of their participation, if
any, in the fees paid to its subsidiaries.
As of October 3, 1996, the officers and Board members did not own any of the
Fund's outstanding shares. Many of the Board members own shares in other funds
in the Franklin Templeton Group of Funds. Charles B. Johnson and Rupert H.
Johnson, Jr. are brothers and the father and uncle, respectively, of Charles E.
Johnson.
Investment Management and Other Services
- --------------------------------------------------------------------------------
Investment Manager and Administrator and Services Provided. Advisers is the
investment manager of the Portfolio and is also the administrator of the Fund.
Advisers provides investment research and portfolio management services,
including the selection of securities for the Portfolio to buy, hold or sell and
the selection of brokers through whom the Portfolio's portfolio transactions are
executed. Advisers' activities are subject to the review and supervision of the
Board of Trustees of the Portfolios to whom Advisers renders periodic reports of
the Portfolio's investment activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Portfolio. Advisers also
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services and provides certain telephone and other mechanical
services. Advisers is covered by fidelity insurance on its officers, directors
and employees for the protection of the Fund and the Portfolio.
Advisers acts as investment manager or administrator to 36 U.S. registered
investment companies with 124 separate series. Advisers may give advice and take
action with respect to any of the other funds it manages, or for its own
account, that may differ from action taken by Advisers on behalf of the
Portfolio. Similarly, with respect to the Portfolio, Advisers is not obligated
to recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act, may
buy or sell for its or their own account or for the accounts of any other fund.
Advisers is not obligated to refrain from investing in securities held by the
Portfolio or other funds that it manages or administers. Of course, any
transactions for the accounts of Advisers and other access persons will be made
in compliance with the Portfolio's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
Management and Administration Fees. Under its management agreement, the
Portfolio pays Advisers a management fee equal to an annual rate of 40/100 of 1%
of average daily net assets up to and including $5 billion; 35/100 of 1% of net
assets in excess of $5 billion up to and including $10 billion; 33/100 of 1% of
net assets in excess of $10 billion up to and including $15 billion; and 30/100
of 1% of net assets in excess of $15 billion. The fee is computed at the close
of business on the last business day of each month.
The management fee will be reduced as necessary to comply with the most
stringent limits on Portfolio expenses of any state where the Portfolio offers
its shares. Currently, the most restrictive limitation on a fund's allowable
expenses for each fiscal year, as a percentage of its average net assets, is
2.5% of the first $30 million in assets, 2% of the next $70 million, and 1.5% of
assets over $100 million. Expense reductions have not been necessary based on
state requirements.
Advisers provides various administrative, statistical, and other services to the
Fund. Under its administration agreement, the Fund pays Advisers an
administration fee equal to an annual rate of 5/100 of 1% of the value of the
Fund's average daily net assets. The fee is computed at the close of business on
the last business day of each month.
Advisers has agreed in advance to limit its fees and to make certain payments to
reduce expenses so that the Fund's and the Portfolio's total operating expenses
are not more than if the Fund invested directly in the securities held by the
Portfolio.
For the nine month period ended October 31, 1993, the fiscal years ended October
31, 1994 and 1995, and the eight month period ended June 30, 1996, management
fees, before any advance waiver, totaled $9,965,963, $4,787,133, $2,456,413 and
$1,304,601, respectively, for the Mortgage Portfolio and $222,753, $372,319,
$119,324, and $62,965, respectively, for the Securities Portfolio. Management
fees paid for the same periods were $6,534,699, $0, $968,077 and $754,856,
respectively, for the Mortgage Portfolio and $20,602, $205,735, $55,384, and
$23,516, respectively, for the Securities Portfolio.
For the fiscal years ended June 30, 1994, 1995 and 1996, administration fees,
before any advance waiver, totaled $176,440, $18,855 and $7,276, respectively,
for the Adjustable U.S. Government Fund and $33,771, $7,453 and $4,313,
respectively, for the Adjustable Rate Securities Fund. Administration fees paid
for the same periods were $110,182, $7,825 and $7,276, respectively, for the
Adjustable U.S. Government Fund and $0, $0 and $4,313, respectively, for the
Adjustable Rate Securities Fund.
Management Agreement. The management agreement for the Portfolio is in effect
until February 28, 1997. It may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board of Trustees of the Portfolios or by a vote of the holders of a majority of
the Portfolio's outstanding voting securities, and in either event by a majority
vote of the trustees of the Portfolios who are not parties to the management
agreement or interested persons of any such party (other than as members of the
Board of Trustees of the Portfolios), cast in person at a meeting called for
that purpose. The management agreement may be terminated without penalty at any
time by the Board of Trustees of the Portfolios or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, or by Advisers on 60
days' written notice, and will automatically terminate in the event of its
assignment as defined in the 1940 Act.
Shareholder Servicing Agent. Investor Services, a wholly-owned subsidiary of
Resources, is the Fund's shareholder servicing agent and acts as the Fund's
transfer agent and dividend-paying agent. Investor Services is compensated on
the basis of a fixed fee per account.
Custodians. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York, 10286, acts as custodian of the securities and other assets of
the Fund. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Fund shares. Citibank Delaware, One Penn's Way, New Castle,
Delaware 19720, acts as custodian in connection with transfer services through
bank automated clearing houses. The custodians do not participate in decisions
relating to the purchase and sale of portfolio securities.
Auditors. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California
94105, are the Fund's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Trust included in the Trust's Annual Report to
Shareholders for the fiscal year ended June 30, 1996.
How does the Portfolio Buy Securities For its Portfolio?
The Fund will not incur any brokerage or other costs in connection with its
purchase or redemption of shares of the Portfolio.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Portfolio is concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to the Portfolio.
During the fiscal years ended October 31, 1993, 1994, and 1995, and the eight
months ended June 30, 1996, the Portfolio paid no brokerage commissions.
How Do I Buy, Sell and Exchange Shares?
- --------------------------------------------------------------------------------
Additional Information on Buying Shares
The Fund continuously offers its shares through Securities Dealers who have an
agreement with Distributors. Securities laws of states where the Fund offers its
shares may differ from federal law. Banks and financial institutions that sell
shares of the Fund may be required by state law to register as Securities
Dealers.
When you buy shares, if you submit a check or a draft that is returned unpaid to
the Fund we may impose a $10 charge against your account for each returned item.
Under agreements with certain banks in Taiwan, Republic of China, the Fund's
shares are available to these banks' trust accounts without a sales charge. The
banks may charge service fees to their customers who participate in the trusts.
A portion of these service fees may be paid to Distributors or one of its
affiliates to help defray expenses of maintaining a service office in Taiwan,
including expenses related to local literature fulfillment and communication
facilities. Additional Information on Exchanging Shares
If you request the exchange of the total value of your account, accrued but
unpaid income dividends and capital gain distributions will be reinvested in the
Fund at the Net Asset Value on the date of the exchange, and then the entire
share balance will be exchanged into the new fund. Backup withholding and
information reporting may apply. Information regarding the possible tax
consequences of an exchange is included in the tax section in this SAI and in
the Prospectus.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
Additional Information on Selling Shares
Through Your Securities Dealer. If you sell shares through your Securities
Dealer, it is your dealer's responsibility to transmit the order to the Fund in
a timely fashion. Any loss to you resulting from your dealer's failure to do so
must be settled between you and your Securities Dealer.
Redemptions in Kind. The Fund has committed itself to pay in cash (by check) all
requests for redemption by any shareholder of record, limited in amount,
however, during any 90-day period to the lesser of $250,000 or 1% of the value
of the Fund's net assets at the beginning of the 90-day period. This commitment
is irrevocable without the prior approval of the SEC. In the case of redemption
requests in excess of these amounts, the Board reserves the right to make
payments in whole or in part in securities or other assets of the Fund, in case
of an emergency, or if the payment of such redemption in cash would be
detrimental to the existing shareholders of the Fund. In these circumstances,
the securities distributed would be valued at the price used to compute the
Fund's net assets and you may incur brokerage fees in converting the securities
to cash. The Fund does not intend to redeem illiquid securities in kind. If this
happens, however, you may not be able to recover your investment in a timely
manner.
General Information
If dividend checks are returned to the Fund marked "unable to forward" by the
postal service, we will consider this a request by you to change your dividend
option to reinvest all distributions. The proceeds will be reinvested in
additional shares at Net Asset Value until we receive new instructions.
If mail is returned as undeliverable or we are unable to locate you or verify
your current mailing address, we may deduct the costs of our efforts to find you
from your account. These costs may include a percentage of the account when a
search company charges a percentage fee in exchange for its location services.
All checks, drafts, wires and other payment mediums used to buy or sell shares
of the Fund must be denominated in U.S. dollars. We may, in our sole discretion,
either (a) reject any order to buy or sell shares denominated in any other
currency or (b) honor the transaction or make adjustments to your account for
the transaction as of a date and with a foreign currency exchange factor
determined by the drawee bank.
Special Services. Investor Services may pay certain financial institutions that
maintain omnibus accounts with the Fund on behalf of numerous beneficial owners
for recordkeeping operations performed with respect to such owners. For each
beneficial owner in the omnibus account, the Fund may reimburse Investor
Services an amount not to exceed the per account fee that the Fund normally pays
Investor Services.
Investor Services may charge you separate fees, negotiated directly with you,
for providing special services in connection with your account, such as
subaccounting, processing a large number of wires each month or other special
handling that you may request. Fees for special services will not increase the
expenses borne by the Fund.
Certain shareholder servicing agents may be authorized to accept your
transaction request.
How are Fund Shares Valued?
- --------------------------------------------------------------------------------
We calculate the Net Asset Value per share as of the scheduled close of the
Exchange, generally 1:00 p.m. Pacific time, each day that the Exchange is open
for trading. As of the date of this SAI, the Fund is informed that the Exchange
observes the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
For the purpose of determining the aggregate net assets of the Portfolio, cash
and receivables are valued at their realizable amounts. Interest is recorded as
accrued. Portfolio securities listed on a securities exchange or on the NASDAQ
National Market System for which market quotations are readily available are
valued at the last quoted sale price of the day or, if there is no such reported
sale, within the range of the most recent quoted bid and ask prices.
Other securities for which market quotations are readily available are valued at
the current market price, which may be obtained from a pricing service, based on
a variety of factors including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific issues. Securities and other assets for which
market prices are not readily available are valued at fair value as determined
following procedures approved by the Board of Trustees of the Portfolios. With
the approval of the trustees, the Portfolio may utilize a pricing service, bank
or Securities Dealer to perform any of the above described functions.
Additional Information
on Distributions and Taxes
- --------------------------------------------------------------------------------
Distributions
You may receive two types of distributions from the Fund:
1. Income dividends. The Fund receives income generally in the form of dividends
paid by the Portfolio. The Portfolio receives income generally in the form of
interest and other income derived from its investments. The Fund's income, less
the expenses incurred in the Fund's operations, is its net investment income
from which income dividends may be distributed. Thus, the amount of dividends
paid per share may vary with each distribution.
2. Capital gain distributions. The Fund may derive capital gains or losses in
connection with sales or other dispositions of its portfolio securities.
Distributions by the Fund derived from net short-term and net long-term capital
gains (after taking into account any capital loss carryforward or Post October
loss deferral) may generally be made once a year in December to reflect any net
short-term and net long-term capital gains realized by the Fund as of October 31
of the current fiscal year and any undistributed capital gains from the prior
fiscal year. The Fund may make more than one distribution derived from net
short-term and net long-term capital gains in any year or adjust the timing of
these distributions for operational or other reasons.
Taxes
As stated in the Prospectus, the Fund has elected and qualified to be treated as
a regulated investment company under Subchapter M of the Code. The Board
reserves the right not to maintain the qualification of the Fund as a regulated
investment company if it determines this course of action to be beneficial to
shareholders. In that case, the Fund will be subject to federal and possibly
state corporate taxes on its taxable income and gains, and distributions to
shareholders will be taxable to the extent of the Fund's available earnings and
profits.
The Code requires all funds to distribute at least 98% of their taxable ordinary
income earned during the calendar year and at least 98% of their capital gain
net income earned during the twelve month period ending October 31 of each year
(in addition to amounts from the prior year that were neither distributed nor
taxed to the fund) to shareholders by December 31 of each year in order to avoid
the imposition of a federal excise tax. Under these rules, certain distributions
that are declared in October, November or December but which, for operational
reasons, may not be paid to you until the following January, will be treated for
tax purposes as if paid by the Fund and received by you on December 31 of the
calendar year in which they are declared. The Fund intends, as a matter of
policy, to declare 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 Fund shares 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 your basis in the shares
and the amount received, subject to the rules described below. If the shares are
a capital asset in your hands, 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 the
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 Fund 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.
The Fund's Underwriter
- --------------------------------------------------------------------------------
Pursuant to an underwriting agreement, Distributors acts as principal
underwriter in a continuous public offering for shares of the Fund. The
underwriting agreement will continue in effect for successive annual periods if
its continuance is specifically approved at least annually by a vote of the
Board or by a vote of the holders of a majority of the Fund's outstanding voting
securities, and in either event by a majority vote of the Board members who are
not parties to the underwriting agreement or interested persons of any such
party (other than as members of the Board), cast in person at a meeting called
for that purpose. The underwriting agreement terminates automatically in the
event of its assignment and may be terminated by either party on 90 days'
written notice.
Distributors pays the expenses of the distribution of Fund shares, including
advertising expenses and the costs of printing sales material and prospectuses
used to offer shares to the public. The Fund pays the expenses of preparing and
printing amendments to its registration statements and prospectuses (other than
those necessitated by the activities of Distributors) and of sending
prospectuses to existing shareholders.
How does the Fund Measure Performance?
- --------------------------------------------------------------------------------
Performance quotations are subject to SEC rules. These rules require the use of
standardized performance quotations or, alternatively, that every
non-standardized performance quotation furnished by the Fund be accompanied by
certain standardized performance information computed as required by the SEC.
Current yield and average annual total return quotations used by the Fund are
based on the standardized methods of computing performance mandated by the SEC.
An explanation of those and other methods used by the Fund to compute or express
performance follows. Regardless of the method used, past performance is not
necessarily indicative of future results, but is an indication of the return to
shareholders only for the limited historical period used.
Total Return
Average Annual Total Return. Average annual total return is determined by
finding the average annual rates of return over one-, five-, and ten-year
periods, or fractional portion thereof, that would equate an initial
hypothetical $1,000 investment to its ending redeemable value. The calculation
assumes income dividends and capital gain distributions are reinvested at Net
Asset 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 average annual total return for the one-year period ended June 30, 1996, and
the period from inception to June 30, 1996, was 6.98% and 3.77%, respectively,
for the Adjustable U.S. Government Fund and 6.41% and 5.11%, respectively, for
the Adjustable Rate Securities Fund.
These figures were calculated according to the 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)
Cumulative Total Return. Like average annual total return, cumulative total
return assumes income dividends and capital gain distributions are reinvested at
Net Asset Value. Cumulative total return, however, will be based on the Fund's
actual return for a specified period rather than its average return over one-,
five-, and ten-year periods, or fractional portion thereof. The cumulative total
return for the one-year period ended June 30, 1996, and the period from
inception to June 30, 1996, was 6.98% and 18.46%, respectively, for the
Adjustable U.S. Government Fund and 6.41% and 25.11%, respectively, for the
Adjustable Rate Securities Fund.
Yield
Current Yield. Current yield shows the income per share earned by the Fund. It
is calculated 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. Expenses accrued for the period include any
fees charged to all shareholders during the base period. The yield for the
30-day period ended June 30, 1996, was 6.23% for the Adjustable U.S. Government
Fund and 6.00% for the Adjustable Rate Securities Fund.
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 reimbursements)
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends d = the Net Asset Value per share on the last day
of the period Current Distribution Rate
Current yield, which is calculated according to a formula prescribed by the SEC,
is not indicative of the amounts which were or will be paid to shareholders of
the Fund. Amounts paid to shareholders are reflected in the quoted current
distribution rate. The current distribution rate is usually computed by
annualizing the dividends paid per share during a certain period and dividing
that amount by the current Net Asset Value. 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 show the Fund's volatility or risk.
Measures of volatility or risk are generally used to compare the Fund's Net
Asset Value or performance 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
an index considered representative of the types of securities in which the fund
invests. 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 idea is that greater volatility means greater
risk undertaken in achieving performance.
Other Performance Quotations
The Fund may include in its advertising or sales material information relating
to investment objectives and performance results of funds belonging to the
Templeton Group of Funds. Resources is the parent company of the advisors and
underwriter of both the Franklin Group of Funds and Templeton Group of Funds.
Comparisons
To help you better evaluate how an investment in the Fund may satisfy your
investment objective, advertisements and other materials about the Fund may
discuss certain measures of Fund performance as reported by various financial
publications. Materials may also compare performance (as calculated above) to
performance as reported by other investments, indices, and averages. These
comparisons may include, but are not limited to, the following examples:
a) Lipper - Mutual Fund Performance Analysis, Lipper - Fixed Income Fund
Performance Analysis, Lipper - Mutual Fund Yield Survey, and Lipper - Mutual
Fund Indices - 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) 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 mutual funds.
d) Financial publications: The Wall Street Journal, 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 - measures yield,
price, and total return for Treasury, agency, corporate and mortgage bonds.
i) Salomon Brothers Composite High Yield Index or its component indices -
measures yield, price and total return for the 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 - measures yield,
price and total return for Treasury, agency, corporate, mortgage and yankee
bonds.
k) Other taxable investments, including CDs, money market deposit accounts,
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) IBC/Donoghue's 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, Lehman
Brothers and Bloomberg L.P.
o) Morningstar - information published by Morningstar, Inc., including
Morningstar proprietary mutual fund ratings. The ratings reflect Morningstar's
assessment of the historical risk adjusted performance of a fund over specified
time periods relative to other funds within its class.
From time to time, advertisements or information for the Fund may include a
discussion of certain attributes or benefits to be derived from an investment in
the Fund. The advertisements or information may include symbols, headlines, or
other material that highlights or summarizes the information discussed in more
detail in the communication.
Advertisements or information may also compare the Fund's performance to the
return on CDs or other investments. You should be aware, however, that an
investment in the Fund involves the risk of fluctuation of principal value, a
risk generally not present in an investment in a CD issued by a bank. For
example, as the general level of interest rates rise, the value of the
Portfolio's fixed-income investments, if any, as well as the value of its and
the Fund's shares that are based upon the value of such portfolio investments,
can be expected to decrease. Conversely, when interest rates decrease, the value
of the Portfolio's and thus the Fund's shares can be expected to increase. CDs
are frequently insured by an agency of the U.S. government. An investment in the
Fund is not insured by any federal, state or private entity.
In assessing comparisons of performance, you should keep in mind that the
composition of the investments in the reported indices and averages is not
identical to the Fund's, the indices and averages are generally unmanaged, and
the items included in the calculations of the averages may not be identical to
the formula used by the Fund to calculate its figures. In addition there can be
no assurance that the Fund will continue its performance as compared to these
other averages.
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. 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, CDs 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. CDs 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.
In addition, in promoting the sale of Fund shares, advertisements or information
for the Fund may also include quotes from Benjamin Franklin, especially Poor
Richard's Almanac.
Miscellaneous Information
The Fund is a member of the Franklin Templeton Group of Funds, one of the
largest mutual fund organizations in the U.S., and may be considered in a
program for diversification of assets. Founded in 1947, Franklin, one of the
oldest mutual fund organizations, has managed mutual funds for over 48 years and
now services more than 2.5 million shareholder accounts. In 1992, Franklin, a
leader in managing fixed-income mutual funds and an innovator in creating
domestic equity funds, joined forces with Templeton Worldwide, Inc., a pioneer
in international investing. Together, the Franklin Templeton Group has over $145
billion in assets under management for more than 4.1 million U.S. based mutual
fund shareholder and other accounts. The Franklin Templeton Group of Funds
offers 115 U.S. based mutual funds to the public. The Fund may identify itself
by its NASDAQ symbol or CUSIP number.
The Dalbar Surveys, Inc. broker-dealer survey has ranked Franklin number one
in service quality for five of the past eight years.
As of October 3, 1996, the principal shareholders of each Fund, beneficial or of
record, were as follows:
Share
Name and Address Amount Percentage
- --------------------------------------------------------------------------------
Adjustable U.S.
Government Fund
ISTCO A Partnership
c/o Magna Trust Co.
222 E. Main St.
P.O. Box 523
Belleville, IL 62222-0523 113,193.676 11.39%
Bank of Stockton
Trust Dept.
P.O. Box 1110
Stockton, CA 95201-1110 203,356.945 20.46%
City of Stockton
General - Pool
Attn: Accounting Dept.
425 N. El Dorado St.
Stockton, CA 95202-1951 310,000.000 31.19%
Adjustable Rate
Securities Fund
County of Stanislaus
c/o Tom Watson
Treasurer-Tax Collector
P.O. Box 859
Modesto, CA 95353-0859 352,993.288 72.95%
Webat & Co.
107 Post Rd. E
P.O. Box 5177
Westport, CT 06881-5177 36,719.324 7.59%
DAI-ICHI Kangyo Bank
of CA TTEE
For the Employees Retire-
ment Plan of the DAI-ICHI
Kangyo Bank Ltd.
c/o BAC/Plan Member
Services
1200 5th Ave. Ste. 600
Seattle, WA 98101 45,229.576 9.35%
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.
As a shareholder of a Massachusetts business trust, you could, under certain
circumstances, be held personally liable as a partner for its obligations. The
Trust's Agreement and Declaration of Trust, however, contains an express
disclaimer of shareholder liability for acts or obligations of the Fund. The
Declaration of Trust also provides for indemnification and reimbursement of
expenses out of the Fund's assets if you are held personally liable for
obligations of the Fund. The Declaration of Trust provides that the Fund shall,
upon request, assume the defense of any claim made against you for any act or
obligation of the Fund and satisfy any judgment thereon. All such rights are
limited to the assets of the Fund. The Declaration of Trust further provides
that the Fund may maintain appropriate insurance (for example, fidelity bonding
and errors and omissions insurance) for the protection of the Fund, its
shareholders, trustees, officers, employees and agents to cover possible tort
and other liabilities. Furthermore, the activities of the Fund as an investment
company, as distinguished from an operating company, would not likely give rise
to liabilities in excess of the Fund's total assets. Thus, the risk of you
incurring financial loss on account of shareholder liability is limited to the
unlikely circumstances in which both inadequate insurance exists and the Fund
itself is unable to meet its obligations.
In the event of disputes involving multiple claims of ownership or authority to
control your account, the Fund has the right (but has no obligation) to: (a)
freeze the account and require the written agreement of all persons deemed by
the Fund to have a potential property interest in the account, prior to
executing instructions regarding the account; (b) interplead disputed funds or
accounts with a court of competent jurisdiction; or (c) surrender ownership of
all or a portion of the account to the IRS in response to a Notice of Levy.
Summary of Code of Ethics. Employees of Resources or its subsidiaries who are
access persons under the 1940 Act are permitted to engage in personal securities
transactions subject to the following general restrictions and procedures: (i)
the trade must receive advance clearance from a compliance officer and must be
completed within 24 hours after clearance; (ii) copies of all brokerage
confirmations must be sent to a compliance officer and, within 10 days after the
end of each calendar quarter, a report of all securities transactions must be
provided to the compliance officer; and (iii) access persons involved in
preparing and making investment decisions must, in addition to (i) and (ii)
above, file annual reports of their securities holdings each January and inform
the compliance officer (or other designated personnel) if they own a security
that is being considered for a fund or other client transaction or if they are
recommending a security in which they have an ownership interest for purchase or
sale by a fund or other client.
Useful Terms and Definitions
- -------------------------------------------------------------------------------
1940 Act - Investment Company Act of 1940, as amended
Advisers - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
Board - The Board of Trustees of the Trust
CD - Certificate of deposit
Code - Internal Revenue Code of 1986, as amended
Distributors - Franklin/Templeton Distributors, Inc., the Fund's principal
underwriter
Exchange - New York Stock Exchange
Franklin Funds - The mutual funds in the Franklin Group of Funds(R) except
Franklin Valuemark Funds and the Franklin Government Securities Trust
Franklin Templeton Group of Funds - All U.S. registered mutual funds in the
Franklin Group of Funds(R) and the Templeton Group of Funds
Investor Services - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent IRS - Internal Revenue Service
Net Asset Value (NAV) - The value of a mutual fund is determined by deducting
the fund's liabilities from the total assets of the portfolio. The net asset
value per share is determined by dividing the net asset value of the fund by the
number of shares outstanding.
Prospectus - The prospectus for the Fund dated November 1, 1996, as may be
amended from time to time Resources - Franklin Resources, Inc.
SAI - Statement of Additional Information
SEC - U.S. Securities and Exchange Commission
Securities Dealer - A financial institution which, either directly or through
affiliates, has an agreement with Distributors to handle customer orders and
accounts with the Fund. This reference is for convenience only and does not
indicate a legal conclusion of capacity.
U.S. - United States
We/Our/Us - Unless a different meaning is indicated by the context, these terms
refer to the Fund and/or Investor Services, Distributors, or other wholly-owned
subsidiaries of Resources.
APPENDICES
Summary of Procedures
to Monitor Conflicts of Interest
- -------------------------------------------------------------------------------
The Board of Trustees of the Portfolios, on behalf of each Portfolio ("master
fund"), and the Board on behalf of each Fund ("feeder fund"), both of which,
except in the case of one trustee, are composed of the same individuals,
recognize that there is the potential for certain conflicts of interest to arise
between the master fund and the feeder fund in this format. These potential
conflicts of interest could include, among others: the creation of additional
feeder funds with different fee structures; the creation of additional feeder
funds that could have controlling voting interests in any pass-through voting
which could affect investment and other policies; a proposal to increase fees at
the master fund level; and any consideration of changes in fundamental policies
at the master fund level that may or may not be acceptable to a particular
feeder fund.
In recognition of the potential for conflicts of interest to develop, the Board
and the Board of Trustees of the Portfolios have adopted certain procedures
under which i) management of the master fund and the feeder fund will, on a
yearly basis, report to each board, including the independent members of each
board, on the operation of the master/feeder fund structure; ii) if the
independent members of each board will have ongoing responsibility for reviewing
proposals at the master fund level to determine whether any proposal presents a
potential for a conflict of interest and to the extent any other potential
conflicts arise prior to the normal annual review, they will act promptly to
review the potential conflict; iii) if the independent members of each board
determine that a situation or proposal presents a potential conflict, they will
request a written analysis from the master fund management describing whether
the apparent potential conflict of interest will impede the operation of the
constituent feeder fund and the interests of the feeder fund's shareholders; and
iv) upon receipt of the analysis, the independent members of each board shall
review the analysis and present their conclusion to the full boards.
If no actual conflict is deemed to exist, the independent board members will
recommend that no further action be taken. If the analysis is inconclusive, they
may submit the matter to and be guided by the opinion of independent legal
counsel issued in a written opinion. If a conflict is deemed to exist, they may
recommend one or more of the following actions: i) suggest a course of action
designed to eliminate the potential conflict of interest; ii) if appropriate,
request that the full boards submit the potential conflict to shareholders for
resolution; iii) recommend to the full boards that the affected feeder fund no
longer invest in its designated master fund and propose either a search for a
new master fund in which to invest the feeder fund's assets or the hiring of an
investment manager to manage the feeder fund's assets in accordance with its
objectives and policies; iv) recommend to the full boards that a new board be
recommended to shareholders for approval; or v) recommend such other action as
may be considered appropriate.
Description of Ratings
- --------------------------------------------------------------------------------
Corporate Bond Ratings
Moody's
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, those changes as can be visualized are most unlikely to impair the
fundamentally strong position of the issues.
Aa - Bonds 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, fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks appear
somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium grade obligations. Factors giving security to principal
and interest are considered adequate but elements may be present that suggest a
susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium grade obligations. 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. These
bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds rated Ba are judged to have predominantly speculative elements and
their future cannot be considered well assured. Often the protection of interest
and principal payments is very moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
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; modifier 2 indicates a mid-range ranking; and modifier 3 indicates
that the issue ranks in the lower end of its generic rating category.
S&P
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,
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.
Commercial Paper Ratings
Moody's
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually their promissory obligations not having an original maturity in
excess of nine months. Moody's employs the following designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
P-1 (Prime-1): Superior capacity for repayment.
P-2 (Prime-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment is
very strong. A "plus" (+) designation indicates an even stronger likelihood of
timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements contained in the Annual Report to Shareholders
of the Trust, for the fiscal year ended June 30, 1996, including the auditors'
report and the unaudited financial statements of the Portfolios for the period
ended June 30, 1996, are incorporated herein by reference. Following are the
audited financial statements for the Portfolios for the fiscal year ended
October 31, 1995, including the auditors' report.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Face Value
Amount U.S. Government Adjustable Rate Mortgage Portfolio (Note 1)
Adjustable Rate Mortgage Securities96.6%
Federal Home Loan Mortgage Corp. (FHLMC)25.9%
<C> <C> <C>
$ 6,486,145 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.779%, 11/01/16...... $ 6,632,610
2,642,734 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 7.801%, 07/01/20..... 2,697,122
1,158,740 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 7.339%, 04/01/20..... 1,174,256
4,617,382 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 7.468%, 07/01/20..... 4,721,043
907,915 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 7.823%, 02/01/19...... 928,289
2,847,028 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.868%, 04/01/19..... 2,942,973
5,666,177 FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.927%, 07/01/18...... 5,811,118
6,036,075 FHLMC, Cap 12.79%, Margin 2.07% + CMT, Resets Annually, 7.769%, 04/01/19....... 6,220,598
1,049,482 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 7.498%, 11/01/18 ...... 1,065,487
8,763,998 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.749%, 04/01/18...... 9,059,345
7,228,305 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.567%, 09/01/19...... 7,445,431
5,374,091 FHLMC, Cap 13.07%, Margin 2.12% + CMT, Resets Annually, 7.921%, 04/01/22....... 5,524,942
4,145,794 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.328%, 12/01/16..... 4,244,938
2,363,866 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.684%, 07/01/19...... 2,439,826
3,854,267 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.524%, 10/01/18..... 3,978,410
1,785,997 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 7.909%, 05/01/19..... 1,849,525
685,545 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 7.838%, 10/01/19 .... 700,072
2,747,142 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.635%, 03/01/19..... 2,829,791
868,495 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 7.439%, 04/01/18 ..... 892,584
1,945,682 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.626%, 12/01/18..... 2,004,036
2,994,881 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 8.097%, 07/01/20...... 3,104,224
5,573,928 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.966%, 07/01/19..... 5,782,517
5,789,578 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.597%, 03/01/18..... 5,962,675
11,206,472 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.634%, 04/01/19....... 11,517,562
9,746,883 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 8.033%, 07/01/20...... 10,099,720
733,246 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 7.669%, 02/01/19...... 739,163
5,235,750 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.955%, 11/01/19..... 5,397,482
10,372,361 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.711%, 04/01/18 .... 10,670,048
2,966,425 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years,
8.60%, 12/01/21 .............................................................. 3,061,766
1,719,346 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.42%, 12/01/18 ...... 1,761,178
4,249,865 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 8.228%, 02/01/19 ..... 4,459,469
-------------
Total Federal Home Loan Mortgage Corp. (Cost $135,982,186)..................... 135,718,200
-------------
Federal National Mortgage Association (FNMA)61.1%
3,293,207 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually,
7.533%, 11/01/18.............................................................. 3,416,538
18,611,592 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.485%, 11/01/17....... 18,773,513
5,755,655 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.724%, 03/01/19........ 5,924,411
Federal National Mortgage Association (FNMA) (cont.)
$ 14,663,088 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Annually,
7.297%, 01/01/19............................................................... $ 14,941,686
4,698,024 FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.905%, 01/01/19....... 4,702,205
11,679,517 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.394%, 09/01/18....... 11,653,354
5,169,685 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.454%, 01/01/19....... 5,209,801
5,380,481 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.970%, 11/01/20....... 5,560,082
7,880,916 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.418%, 05/01/19....... 8,134,576
3,960,326 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.815%, 06/01/17.............................................................. 4,156,877
7,701,343 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years,
7.985%, 10/01/17.............................................................. 7,924,682
8,827,407 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually,
7.122%, 07/01/17.............................................................. 8,962,112
2,507,963 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually,
7.350%, 02/01/18.............................................................. 2,534,472
11,320,379 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.429%, 02/01/19 ...... 11,295,020
4,913,891 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.865%, 12/01/19...... 5,103,051
7,048,239 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years,
8.123%, 11/01/17.............................................................. 7,263,703
6,964,521 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Monthly, 7.644%, 06/01/19......... 7,204,921
11,099,155 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.877%, 02/01/20........ 11,133,228
7,543,674 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.634%, 12/01/20.............................................................. 7,689,417
7,432,428 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.704%, 04/01/19...... 7,696,799
7,874,867 FNMA, Cap 13.099%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.646%, 07/01/20.............................................................. 8,022,047
5,692,587 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.716%, 04/01/19...... 5,887,649
3,927,794 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually,
7.893%, 11/01/26.............................................................. 4,034,316
4,007,503 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.872%, 06/01/19....... 4,122,479
9,271,494 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.605%, 10/01/19 ...... 9,594,532
8,489,983 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.920%, 04/01/03........ 8,494,823
16,005,786 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.776%, 09/01/22...... 16,589,997
14,870,123 FNMA, Cap 13.644%, Margin 2.011% + CMT, Resets Annually, 7.752%, 01/01/18...... 15,369,907
7,681,967 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.964%, 03/01/21...... 8,014,918
10,611,009 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 8.046%, 12/01/20...... 10,978,469
4,880,937 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.802%, 03/01/19 ...... 5,059,140
6,113,202 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually,
6.893%, 07/01/24.............................................................. 6,032,630
5,328,418 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.762%, 02/01/19....... 5,532,925
Federal National Mortgage Association (FNMA) (cont.)
$ 4,162,026 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.670%, 12/01/18....... $ 4,303,468
8,593,055 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.633%, 01/01/19...... 8,891,525
2,297,476 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.690%, 03/01/21...... 2,375,591
14,725,546 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years,
8.064%, 05/01/21.............................................................. 15,180,125
3,993,207 FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.889%, 03/01/20....... 4,126,500
10,711,879 FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.634%, 01/01/16....... 10,922,047
4,062,732 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 8.941%, 05/01/19...... 4,225,038
2,096,797 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 8.056%, 02/01/20...... 2,189,164
-------------
Total Federal National Mortgage Association (Cost $321,037,193)................ 319,227,738
-------------
Government National Mortgage Association (GNMA)9.6%
9,149,734 GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 01/20/24......... 9,162,817
5,745,469 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.00%, 08/20/24......... 5,879,855
8,145,960 GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 6.00%, 07/20/25......... 8,188,807
2,774,056 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 07/20/25......... 2,806,957
7,095,937 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 6.50%, 09/01/25......... 7,180,094
9,998,089 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 07/20/23........ 10,247,541
6,733,728 GNMA, Cap 11.50%, Margin 1.50% + CMT, Resets Annually, 7.125%, 08/20/23........ 6,901,734
-------------
Total Government National Mortgage Association (Cost $50,915,091).............. 50,367,805
-------------
Total Long-Term Investments (Cost $507,934,470)................................ 505,313,743
-------------
d,eReceivables from Repurchase Agreements1.5%
7,633,075 Joint Repurchase Agreements, 5.887%, 11/01/95 (Cost $7,754,634)
Daiwa Securities America, Inc., (Maturity Value $1,706,298)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $2,016,535)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00......... 7,754,634
-------------
Total Investments (Cost $515,689,104)98.1%.................................... 513,068,377
Others Assets and Liabilities, Net1.9%........................................ 9,733,580
-------------
Net Assets100%................................................................ $522,801,957
=============
At October 31, 1995, the net unrealized depreciation based on
the cost of investments for income tax purposes of $515,689,104 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost.............................................. $ 1,571,783
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value.............................................. (4,192,510)
-------------
Net unrealized depreciation ................................................... $ (2,620,727)
=============
</TABLE>
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Cost of Funds Index
DR - Discount Rate
NCI - National District Cost of Funds Index
TB - Treasury Bill Rate
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(f) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Statement of Investments in Securities and Net Assets, October 31, 1995
<TABLE>
<CAPTION>
Face Value
Amount Adjustable Rate Securities Portfolio (Note 1)
Adjustable Rate Mortgage Securities 79.9%
<C> <C> <C>
$ 878,306 FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%, 10/01/28........... $ 878,262
774,027 GNMA, Cap 11.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 02/20/17 .......... 783,176
1,275,424 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
7.46%, 01/25/18................................................................. 1,288,179
1,932,199 PHMS, Cap 10.88%, Margin 2.50% + CMT, Resets Annually, 8.06%, 01/25/23........... 1,966,013
2,086,020 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 8.74%, 07/25/22........... 2,122,526
1,298,157 PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.08%, 03/25/22........... 1,319,252
1,200,000 PHMS, Cap 12.625%, Margin 2.55% + CMT, Resets Annually, 8.625%, 08/25/20......... 1,291,500
2,616,806 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.97%, 11/25/22............ 2,664,645
1,637,674 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.50%, 04/26/21................................................................. 1,590,592
2,318,301 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.51%, 06/25/22...... 2,306,710
1,591,724 RTC, Cap 16.48%, Margin NACR - 0.15%, Resets Annually, 7.59%, 07/25/20........... 1,546,957
1,304,276 Ryland Mortgage Securities Corp., Cap 11.00%, Margin 1.00% + COFI,
Resets Monthly, 6.13%, 04/25/21................................................. 1,285,120
2,612,075 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 8.24%, 10/25/16................................................ 2,591,669
-------------
Total Adjustable Rate Mortgage Securities (Cost $22,189,652)..................... 21,634,601
-------------
Fixed Rate Mortgage Securities4.7%
1,314,244 Countrywide Mortgage-Backed Securities, Inc., Series 1994-I, Class A8, 6.25%,
07/25/09 (Cost $1,278,102)...................................................... 1,278,312
-------------
Other Adjustable Rate Securities4.8%
1,300,000 Advanta Credit Card Master Trust, Margin 0.16% + 1 Month LIBOR, Resets Monthly,
6.03%, 09/01/00 (Cost $1,301,523)............................................... 1,303,055
-------------
U.S Government Securities7.6%
1,000,000 U.S. Treasury Notes, 6.75%, 05/31/97............................................. 1,017,187
1,000,000 U.S. Treasury Notes, 8.50%, 07/15/97............................................. 1,046,562
-------------
Total U.S. Government Securities (Cost $2,054,453) .............................. 2,063,749
-------------
Total Long-Term Investments (Cost $26,823,730)................................... 26,279,717
-------------
d,eReceivables from Repurchase Agreements2.6%.......................................
$ 695,644 Joint Repurchase Agreements, 5.887%, 11/01/95 (Cost $706,588)
Daiwa Securities America, Inc., (Maturity Value $155,475)
Collateral: U.S. Treasury Bills, 04/25/96
U.S. Treasury Notes, 6.125%, 09/30/00
Donaldson, Lufkin & Jenrette, (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 5.125% - 8.25%, 07/31/96 - 03/31/00
Swiss Bank Corp., (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 6.875%, 03/31/00
UBS Securities, Inc., (Maturity Value $183,743)
Collateral: U.S. Treasury Notes, 5.125% - 8.50%, 11/15/95 - 01/31/00............. $ 706,588
-------------
Total Investments (Cost $27,530,318)99.6%....................................... 26,986,305
Other Assets and Liabilities, Net.4%............................................ 92,595
-------------
Net Assets100.0%................................................................ $27,078,900
=============
At October 31, 1995, the net unrealized depreciation based on
the cost of investments for income tax purposes of $27,530,318 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost................................................ $ 17,543
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value................................................ (561,556)
-------------
Net unrealized depreciation...................................................... $ (544,013)
=============
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - 11th District Cost of Funds Index
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
LIBOR - London Interbank Offered Rate
NACR - National Average Contract Rate
NCI - National District Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
TB - Treasury Bill Rate
dFace amount for repurchase agreements is for the underlying collateral.
eSee Note 1(f) regarding Joint Repurchase Agreements.
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements
Statements of Assets and Liabilities
October 31, 1995
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
---------- -----------
Assets:
Investments in securities:
<S> <C> <C>
At identified cost....................................................... $507,934,470 $26,823,730
=========== ===========
At value................................................................. 505,313,743 26,279,717
Receivables from repurchase agreements, at value and cost................. 7,754,634 706,588
Cash...................................................................... 3,137,654 --
Receivables:
Interest................................................................. 3,941,508 234,803
Investment securities sold............................................... 2,869,491 --
Unamortized organization costs (Note 2)................................... -- 2,745
----------- -----------
Total assets......................................................... 523,017,030 27,223,853
----------- -----------
Liabilities:
Payables:
Capital shares repurchased............................................... -- 125,717
Distributions payable to shareholders.................................... 18,831 --
Management fees.......................................................... 106,645 4,106
Professional fees........................................................ 61,989 3,011
Accrued expenses and other liabilities.................................... 27,608 12,119
----------- -----------
Total liabilities.................................................... 215,073 144,953
----------- -----------
Net assets, at value....................................................... $522,801,957 $27,078,900
============ ===========
Net assets consist of:
Unrealized depreciation on investments.................................... $ (2,620,727) $ (544,013)
Net realized loss from investments........................................ (137,401,286) (2,705,888)
Capital shares............................................................ 560,356 27,610
Additional paid-in capital................................................ 662,263,614 30,301,191
------------ -----------
Net assets, at value....................................................... $522,801,957 $27,078,900
============ ===========
Shares outstanding......................................................... 56,035,644 2,760,971
============ ===========
Net asset value per share.................................................. $9.33 $9.81
============ ===========
Representative computation (U.S. Government Adjustable Rate Mortgage
Portfolio) of net asset value, offering price and redemption price per share:
($522,801,957 O 56,035,644)............................................... $9.33
============
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1995
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage PortfolioSecurities Portfolio
---------- -----------
Investment income:
<S> <C> <C>
Interest (Note 1)......................................................... $39,043,371 $1,971,336
----------- -----------
Expenses:
Management fees (Note 6).................................................. 2,456,413 119,324
Professional fees......................................................... 66,154 5,642
Custodian fees............................................................ 53,416 2,641
Rating service fees....................................................... 12,714 6,310
Trustees' fees and expenses............................................... 8,019 240
Reports to shareholders................................................... 4,621 1,058
Amortization of organization costs (Note 2)............................... -- 2,196
Other..................................................................... 11,103 1,428
Payments from Manager (Note 6)............................................ (1,488,336) (63,940)
------------ -----------
Total expenses....................................................... 1,124,104 74,899
------------ -----------
Net investment income............................................... 37,919,267 1,896,437
------------ -----------
Realized and unrealized gain (loss) on investments:
Net realized loss......................................................... (7,672,691) (602,782)
Net unrealized appreciation .............................................. 16,342,196 913,301
------------ -----------
Net realized and unrealized gain on investments............................ 8,669,505 310,519
------------ -----------
Net increase in net assets resulting from operations....................... $46,588,772 $2,206,956
============ ===========
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1995 and 1994
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
----------------------- --------------------
1995 1994 1995 1994
---------- ----------- --------- ---------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income..................... $ 37,919,267 $ 47,964,106 $ 1,896,437 $ 4,221,967
Net realized loss from investments ....... (7,672,691) (67,057,492) (602,782) (1,993,495)
Net unrealized appreciation (depreciation)
on investments............................. 16,342,196 (12,751,845) 913,301 (1,410,266)
---------- ----------- --------- ---------
Net increase (decrease) in net assets
resulting from operations.................. 46,588,772 (31,845,231) 2,206,956 818,206
Distributions to shareholders from
undistributed net investment income
(Note 1)................................... (37,919,267) (47,964,106) (1,896,437) (4,221,967)
Decrease in net assets from
capital share transactions (Note 4)........ (233,338,662) (1,302,948,561) (14,850,372) (79,286,725)
---------- ----------- --------- ---------
Net decrease in net assets............ (224,669,157) (1,382,757,898) (14,539,853) (82,690,486)
Net assets (there is no undistributed net
investment income at beginning or end
of year):
Beginning of year......................... 747,471,114 2,130,229,012 41,618,753 124,309,239
---------- ----------- --------- ---------
End of year............................... $522,801,957 $ 747,471,114 $27,078,900 $ 41,618,753
========== =========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Notes to Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES
Adjustable Rate Securities Portfolios (the Trust) is a no load, open end,
diversified management investment company (mutual fund), registered under the
Investment Company Act of 1940 as amended. The Trust currently has two separate
portfolios (the Portfolios) consisting of the U.S.Government Adjustable Rate
Mortgage Portfolio (Mortgage Portfolio) and the Adjustable Rate Securities
Portfolio (Securities Portfolio). The shares of the Trust are issued in private
placements and are thus exempt from registration under the Securities Act of
1933.
The following is a summary of significant accounting policies consistently
followed by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.
a. Security Valuations:
Portfolio securities listed on a securities exchange or on the NASDAQ National
Market System for which market quotations are readily available are valued at
the last quoted sale price of the day or, if there is no such reported sale,
within the range of the most recent quoted bid and asked prices. Other
securities for which market quotations are readily available are valued at
current market values, obtained from pricing services, which are based on a
variety of factors, including recent trades, institutional size trading in
similar types of securities (considering yield, risk and maturity) and/or
developments related to specific securities. Portfolio securities which are
traded both in the over-the-counter market and on a securities exchange are
valued according to the broadest and most representative market as determined by
the Manager. Other securities for which market quotations are not available, if
any, are valued in accordance with procedures established by the Board of
Trustees.
b. Income Taxes:
The Trust intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes. Therefore, no income tax provision is required.
Each Portfolio is treated as a separate entity in the determination of
compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification for both financial statement
and income tax purposes.
Net realized capital losses may differ for financial statement and tax purposes
primarily due to differing treatment of wash
sale transactions.
d. Investment Income, Expenses and Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. Bond discount, if any, is
amortized as required by the Internal Revenue Code. The Fund normally declares
dividends from its net investment income daily and distributes monthly. Daily
allocations of net investment income will commence on the date following receipt
of an investor's funds. Dividends are normally declared each day the New York
Stock Exchange is open for business and are equal to the Portfolio's total net
investment income and are payable to shareholders of record at the beginning of
business on the ex-date. Once each month, dividends are reinvested in additional
shares of the Portfolio or paid in cash as requested by the shareholders.
e. Expense Allocation:
Common expenses incurred by the Trust are allocated among the Portfolios based
on the ratio of net assets of each Portfolio to the combined net assets. In all
other respects, expenses are charged to each Portfolio as incurred on a specific
identification basis.
1. SIGNIFICANT ACCOUNTING POLICIES (cont.)
f. Repurchase Agreements:
The Funds may enter into Joint Repurchase Agreements whereby their uninvested
cash balances are deposited into a joint cash account to be used to invest in
one or more repurchase agreements with government securities dealers recognized
by the Federal Reserve Board and/or member banks of the Federal Reserve System.
The value and face amount of the Joint Repurchase Agreement are allocated to the
Trust based on its pro-rata interest.
In a repurchase agreement, the Fund purchases a U.S. Government security from a
dealer or bank subject to an agreement to resell it at a mutually agreed upon
price and date. Such a transaction is accounted for as a loan by the Fund to the
seller, collateralized by the underlying security. The transaction requires the
initial collateralization of the seller's obligation by U.S. Government
securities with market value, including accrued interest, of at least 102% of
the dollar amount invested by the Fund, with the value of the underlying
security marked to market daily to maintain coverage of at least 100%. The
collateral is delivered to the Fund's custodian and held until resold to the
dealer or bank. At October 31, 1995, all outstanding joint repurchase agreements
held by the Funds have been entered into on that date.
g. Securities Traded on a When-Issued or Delayed Delivery Basis:
The Funds may trade securities on a when-issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Funds will
generally purchase these securities with the intention of acquiring such
securities, they may sell such securities before the settlement date. These
securities, if any, are identified on the accompanying Statement of Investments
in Securities and Net Assets. The Funds set aside sufficient investment
securities as collateral for these purchase commitments.
2. ORGANIZATION COSTS
The organization costs of the Securities Portfolio are amortized on a
straight-line basis over a period of five years from December 26, 1991, the
effective date of registration. In the event Franklin Resources, Inc. (which was
the sole shareholder prior to December 26, 1991) redeems its seed money shares
within the five-year period, the pro rata share of the then-unamortized deferred
organization cost will be deducted from the redemption price paid to Franklin
Resources, Inc. New investors purchasing shares of the portfolio subsequent to
that date bear such costs during the amortization period only as such charges
are accrued daily against investment income.
3. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
<TABLE>
<CAPTION>
At October 31, 1995, for tax purposes, the Portfolios had accumulated capital
loss carryovers as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
----------- ------------
Capital loss carryovers
<S> <C> <C>
Expiring in:2000..................... $ 45,439,616 $ 57,701
2001..................... 17,182,002 50,908
2002..................... 67,102,060 1,987,888
2003..................... 7,677,608 609,391
------------- ------------
$137,401,286 $2,705,888
============= ============
For tax purposes, the aggregate cost of securities and unrealized depreciation
of the Trust are the same as for financial statement purposes at October 31,
1995.
4. TRUST SHARES
At October 31, 1995, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolio's shares
for the years ended October 31, 1995 and 1994 are as follows:
U.S. Government Adjustable Adjustable Rate
Rate Mortgage Portfolio Securities Portfolio
------------------------ ----------------------
Shares Amount Shares Amount
---------- ------------ --------- -----------
1995
<S> <C> <C> <C> <C>
Shares sold.................................. 8,454,626 $78,435,001 1,241,431 $12,019,117
Shares issued in reinvestment of distributions 4,106,743 37,916,533 196,161 1,906,803
Shares redeemed.............................. (37,893,534) (349,690,196) (2,973,631) (28,776,292)
---------- ------------ --------- -----------
Net decrease................................. (25,332,165) $ (233,338,662) (1,536,039) $ (14,850,372)
========== ============ ========= ===========
1994
Shares sold.................................. 3,234,621 $ 31,184,230 9,103,489 $ 90,799,027
Shares issued in reinvestment of distributions 5,053,223 47,948,131 426,689 4,211,388
Shares redeemed.............................. (143,954,457) (1,382,080,922) (17,497,118) (172,994,477)
Changes from exercise of the exchange
privilege:
Shares redeemed............................ -- -- (132,789) (1,302,663)
---------- ------------ --------- -----------
Net decrease................................. (135,666,613) $(1,302,948,561) (8,099,729) $ (79,286,725)
========== ============ ========= ===========
5. PURCHASES AND SALES OF SECURITIES
Aggregate purchases and sales of securities (excluding purchases and sales of
short-term securities) for the year ended October 31, 1995, were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
----------- ------------
<S> <C> <C>
Purchases.............................. $118,370,164 $13,873,368
=========== ============
Sales.................................. $344,966,249 $25,825,172
=========== ============
</TABLE>
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
Franklin Advisers, Inc. (Advisers), under the terms of a management agreement,
provides investment advice, administrative services, office space and facilities
to each Portfolio, and receives fees computed monthly based on the average daily
net assets of each Portfolio during the month, equal to an annualized rate of
40/100 of 1% for the first $5 billion of net assets, 35/100 of 1% of net assets
in excess of $5 billion up to and including $10 billion, 33/100 of 1% of net
assets in excess of $10 billion up to and including $15 billion, and 30/100 of
1% of net assets in excess of $15 billion. The terms of the management agreement
provide that aggregate annual expenses of each Portfolio be limited to the
extent necessary to comply with the limitations set forth in the laws,
regulations and administrative interpretations of the states in which each
Portfolio's shares are registered. Each Portfolio's expenses did not exceed
these limitations; however, for the year ended October 31, 1995, Advisers agreed
in advance to waive $1,488,336 and $63,940 of the management fees for the
Mortgage Portfolio and Securities Portfolio, respectively.
6. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (cont.)
As of October 31, 1995, 54,635,889 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund and 1,399,755 shares
were owned by the Franklin Institutional Adjustable U.S. Government Securities
Fund. This represents 98% and 2%, respectively, of the outstanding shares of the
Mortgage Portfolio.
As of October 31, 1995, 1,736,779 shares of the Securities Portfolio were owned
by the Franklin Adjustable Rate Securities Fund and 1,022,854 shares were owned
by the Franklin Institutional Adjustable Securities Fund. This represents 63%
and 37%, respectively, of the outstanding shares of the Securities Portfolio.
The remaining 1,338 shares of the Securities Portfolio were owned by Franklin
Resources, Inc.
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers, a wholly-owned subsidiary of Franklin Resources, Inc., and the
Franklin Adjustable U.S. Government Securities Fund and the Franklin Adjustable
Rate Securities Fund.
7. FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected data for each share of beneficial interest outstanding throughout the
years by Portfolio are as follows:
Per Share Operating Performance Ratios/Supplemental Data
---------------------------------------------- -----------------------
Net
Realized & Distri- Distri- Net Net Ratio of Ratio of Net
Net Asset Net Unrealized butions butions Asset Assets Expenses Investment
Year Value at Invest- Gain Total From From Net From Total Value at End to Average Income to Portfolio
Ended Beginning ment (Loss)on Investment Investment Capital Distri- at End Total of Year Net Average Turnover
Oct. 31,of Year Income Securities Operations Income Gains butions of Year Return (in 000's) Assets Net Assets Rate
U.S. Government Adjustable Rate Mortgage Portfolio
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19921 $10.00 $.493 $ .013 $ .506 $(.493) $(.003) $(.496) $10.01 5.13%$4,315,658 .31%* 7.25%* 48.96%
19933 10.01 .544 (.100) .444 (.544) -- (.544) 9.91 4.53 4,201,411 .30 5.49 66.44
19934 9.91 .313 (.090) .223 (.313) -- (.313) 9.82 2.28 2,130,229 .27* 4.15* 76.55
1994 9.82 .415 (.630) (.215) (.415) -- (.415) 9.19 (2.22) 747,471 .02 4.01 56.43
1995 9.19 .572 .140 .712 (.572) -- (.572) 9.33 7.99 522,802 .18 6.17 20.16
Adjustable Rate Securities Portfolio
19922 10.00 -- -- -- -- -- -- 10.00 -- -- -- -- --
19933 10.00 .599 .020 .619 (.599) -- (.599) 10.02 6.36 44,656 -- 5.80 88.92
19934 10.02 .368 .010 .378 (.368) -- (.368) 10.03 3.83 124,309 .11* 4.76* 158.70
1994 10.03 .469 (.340) .129 (.469) -- (.469) 9.69 1.32 41,619 .25 4.55 192.06
1995 9.69 .625 .120 .745 (.625) -- (.625) 9.81 7.94 27,079 .25 6.36 50.29
</TABLE>
*Annualized.
1For the period May 20, 1991 (effective date) to January 31, 1992. 2For the
period December 26, 1991 (effective date) to January 31, 1992.
3For the year ended January 31,1993.
4For the nine months ended October 31,1993.
Total return measures the change in value of an investment over the period
indicated. It is not annualized. It assumes reinvestment of dividends and of
capital gains, if any, at net asset value. During the periods indicated below,
Franklin Advisers, Inc., the investment manager, agreed to waive in advance a
portion of its management fees and made payments of other expenses incurred by
the Portfolios. 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
U.S. Government Adjustable Rate
Mortgage Portfolio
19921............................... .41%*
19933............................... .42
19934............................... .41*
1994................................ .42
1995................................ .43
Ratio of expenses
to average net assets
Adjustable Rate Securities Portfolio
19922............................... --%
19933............................... .64
19934............................... .47*
1994................................ .43
1995................................ .47
ADJUSTABLE RATE SECURITIES PORTFOLIOS
Report of Independent Auditors
To the Shareholders and Board of Trustees
of Adjustable Rate Securities Portfolios:
We have audited the accompanying statements of assets and liabilities of the two
Portfolios comprising the Adjustable Rate Securities Portfolios (the Trust),
including each Portfolio's statement of investments in securities and net
assets, as of October 31, 1995, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the financial highlights for each of the
periods indicated in Note 7. These financial statements and financial highlights
are the responsibility of the Trust's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the two Portfolios comprising the Adjustable Rate Securities Portfolios as of
October 31, 1995, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for each of the periods indicated in Note 7, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 8, 1995
INSTITUTIONAL FIDUCIARY TRUST
File Nos. 2-96634
811-4267
FORM N-1A
PART C
OTHER INFORMATION
ITEM 24 FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements.
(1) Incorporated herein by reference to the following Annual Reports to
Shareholders dated June 30, 1996 as filed with the SEC electronically on
Form Type N-30D on September 10, 1996
(a) Franklin Cash Reserves Fund
(i) Statement of Investments in Securities and Net Assets -
June 30, 1996
(ii) Statements of Assets and Liabilities - June 30, 1996
(iii) Statements of Operations - for the year ended June 30, 1996
(iv) Statements of Changes in Net Assets - for the years ended
June 30, 1996 and 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - August 6, 1996
(vii) Statement of Investments in Securities and Net Assets of The
Money Market Portfolios- June 30, 1996
(viii) Statements of Assets and Liabilities of The Money Market
Portfolios - June 30, 1996
(ix) Statements of Operations of The Money Market Portfolios -
for the year ended June 30, 1996
(x) Statements of Changes in Net Assets of The Money Market
Portfolios - for the years ended June 30, 1996 and 1995
(xi) Notes to Financial Statements
(xii) Report of Independent Auditors of The Money Market Portfolios
- August 6, 1996
(b) Franklin U.S. Treasury Money Market Portfolio, Franklin U.S.
Government Agency Money Market Fund, Money Market Portfolio and
Franklin U.S. Government Securities Money Market Portfolio
(i) Statement of Investments in Securities and Net Assets -
June 30, 1996
(ii) Statements of Assets and Liabilities - June 30, 1996
(iii) Statements of Operations - for the year ended June 30, 1996
(iv) Statements of Changes in Net Assets - for the years ended
June 30, 1996 and 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - August 6, 1996
(vii) Statement of Investments in Securities and Net Assets of The
Money Market Portfolios- June 30, 1996
(viii) Statements of Assets and Liabilities of The Money Market
Portfolios - June 30, 1996
(ix) Statements of Operations of The Money Market Portfolios -
for the year ended June 30, 1996
(x) Statements of Changes in Net Assets of The Money Market
Portfolios - for the years ended June 30, 1996 and 1995
(xi) Notes to Financial Statements
(xii) Report of Independent Auditors of The Money Market Portfolios
- August 6, 1996
(c) Franklin Institutional Adjustable U.S. Government Securities Fund
and Franklin Institutional Adjustable Rate Securities Fund
(i) Statement of Investments in Securities and Net Assets
June 30, 1996
(ii) Statements of Assets and Liabilities - June 30, 1996
(iii) Statements of Operations - for the year ended June 30, 1996
(iv) Statements of Changes in Net Assets - for the years ended
June 30, 1996 and 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - August 6, 1996
(vii) Statement of Investments in Securities and Net Assets of
Adjustable Rate Securities Portfolios - June 30, 1996
(unaudited)
(viii) Statements of Assets and Liabilities of Adjustable Rate
Securities Portfolios - June 30, 1996 (unaudited)
(ix) Statements of Operations of Adjustable Rate Securities
Portfolios - for the eight months ended June 30, 1996
(unaudited)
(x) Statements of Changes in Net Assets of Adjustable Rate
Securities Portfolios - for the eight months ended June 30,
1996 (unaudited) and the year ended October 31, 1995
(xi) Notes to Financial Statements (unaudited)
(2) Filed in Part B
(i) Statement of Investments in Securities and Net Assets of
Adjustable Rate Securities Portfolios - October 31, 1995
(ii) Statements of Assets and Liabilities of Adjustable Rate
Securities Portfolios - October 31, 1995
(iii) Statements of Operations of Adjustable Rate Securities
Portfolios - for the year ended October 31, 1995
(iv) Statements of Changes in Net Assets of Adjustable Rate
Securities Portfolios - for the years ended October 31, 1995
and 1994
(v) Notes to Financial Statements
(vi) Report of Independent Auditors - December 8, 1995
b) Exhibits
The following exhibits, where applicable, are herewith incorporated by reference
with the exception of Exhibits 5(viii), 5(ix), 5(x), 5(xi), 5(xii), 5(xiii),
5(xiv), 5(xv), 8(iv), 8(v), 10(i), 11(i), 18(i), 27(i), 27(ii), 27(iii), 27(iv),
27(v), 27(vi), and 27(vii) which are attached:
(1) copies of the charter as now in effect;
(i) Agreement and Declaration of Trust dated January 15, 1985
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Certificate of Amendment to Agreement and Declaration of Trust dated
May 12, 1987
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii)Certificate of Amendment to Agreement and Declaration of Trust dated
October 9, 1987
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iv) Certificate of Amendment to Agreement and Declaration of Trust dated
November 17, 1987
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Certificate of Amendment to Agreement and Declaration of Trust dated
December 8, 1987
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi)Certificate of Amendment to Agreement and Declaration of Trust dated
December 12, 1989
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vii)Certificate of Amendment to Agreement and Declaration of Trust dated
October 15, 1993
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(2) copies of the existing By-Laws or instruments corresponding thereto;
(i) By-Laws
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Certificate of Amendment of By-Laws dated October 9, 1987
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(3) copies of any voting trust agreement with respect to more than five percent
of any class of equity securities of the Registrant;
Not Applicable
(4) specimens or copies of each security issued by the Registrant, including
copies of all constituent instruments, defining the rights of the holders
of such securities, and copies of each security being registered;
Not Applicable
(5) copies of all investment advisory contracts relating to the management of
the assets of the Registrant;
(i) Administration Agreement between Registrant, on behalf of Franklin
Institutional Adjustable U.S. Government Securities Fund, and
Franklin Advisers, Inc. dated November 1, 1991
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Management Agreement between Registrant, on behalf of Franklin U.S.
Treasury Money Market Portfolio, and Franklin Advisers, Inc. dated
August 20, 1991
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii)Administration Agreement between Registrant, on behalf of Franklin
Institutional Adjustable Rate Securities Fund and Franklin Advisers,
Inc. dated January 2, 1992
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iv) Administration Agreement between Registrant, on behalf of Franklin
U.S. Government Securities Money Market Portfolio, and Franklin
Advisers, Inc., dated November 1, 1992
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Administration Agreement between Registrant, on behalf of Money
Market Portfolio, and Franklin Advisers, Inc, dated November 1, 1992
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi) Management Agreement between Registrant, on behalf of the Franklin
U.S. Government Agency Money Market Fund, and Franklin Advisers,
Inc. dated February 8, 1994
Filing: Post Effective Amendment No. 24 to Registration Statement
on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vii)Administration Agreement between Registrant, on behalf of the Franklin
Cash Reserves Fund, and Franklin Advisers, Inc. dated July 1, 1994
Filing: Post Effective Amendment No. 24 to Registration Statement
on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(viii)Amendment to Administration Agreement between Registrant on behalf of
Money Market Portfolio and Franklin Advisers, INC. dated August 1,
1995
(ix) Amendment to Management Agreement between Registrant on behalf of
Franklin Late Day Money Market Portfolio and Franklin Advisers, Inc.
dated August 1, 1995
(x) Amendment to Administration Agreement between Registrant on behalf
of Franklin U.S. Government Securities Money Market Portfolio and
Franklin Advisers, Inc. dated August 1, 1995
(xi) Amendment to Management Agreement between Registrant on behalf of
Franklin U.S. Treasury Money Market Portfolio and Franklin Advisers,
Inc. dated August 1, 1995
(xii)Amendment to Administration Agreement between Registrant on behalf of
Franklin Institutional Adjustable Rate Securities Fund and Franklin
Advisers, Inc. dated August 1, 1995
(xiii)Amendment to Administration Agreement between Registrant on behalf of
Franklin Institutional Adjustable U.S. Securities Fund and Franklin
Advisers, Inc. dated August 1, 1995
(xiv)Amendment to Management Agreement between Registrant on behalf of
Franklin U.S. Government Agency Money Market Fund and Franklin
Advisers, Inc. dated August 1, 1995
(xv) Amendment to Administration Agreement between Registrant on behalf
of Franklin Cash Reserves Fund and Franklin Advisers, Inc. dated
August 1, 1995
(6) copies of each underwriting or distribution contract between the
Registrant and a principal underwriter, and specimens or copies of all
agreements between principal underwriters and dealers;
(i) Amended and Restated Distribution Agreement between Registrant and
Franklin/Templeton Distributors, Inc. dated April 23, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii)Form of Dealer Agreements between Franklin/Templeton Distributors,
Inc. and dealers
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(7) copies of all bonus, profit sharing, pension or other similar contracts or
arrangements wholly or partly for the benefit or directors or officers of
the Registrant in their capacity as such; any such plan that is not set
forth in a formal document, furnish a reasonably detailed description
thereof;
Not Applicable
(8) copies of all custodian agreements and depository contracts under Section
17(f) of the 1940 Act, with respect to securities and similar investments
of the Registrant, including the schedule of remuneration;
(i) Custodian Agreement between Registrant and Bank of America NT & SA
dated June 17, 1985
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Amendment to Custodian Agreement between Registrant and Bank of
America NT & SA dated April 2, 1990
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii)Copy of Custodian Agreements between Registrant and Citibank Delaware:
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master Agreement
3. Short Form Bank Agreement-Deposits and Disbursements of Funds
Incorporated herein by reference to:
Registrant: Franklin Asset Allocation Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File No. 2-12647
Filing Date: February 27, 1995
(iv)Master Custodian Agreement between Registrant and Bank of New York
dated February 16, 1996
(v) Terminal Link Agreement between Registrant and Bank of New York dated
February 16, 1996
(9) copies of all other material contracts not made in the ordinary course of
business which are to be performed in whole or in part at or after the
date of filing the Registration Statement;
Not Applicable
(10) an opinion and consent of counsel as to the legality of the securities
being registered, indicating whether they will then be legally issued,
fully paid and nonassessable;
(i) Opinion and Consent of Counsel dated October 18, 1996
(11) copies of any other opinions, appraisals or rulings and consents to the
use thereof relied on in the preparation of this registration statement
and required by Section 7 of the 1933 Act;
(i) Consent of Independent Auditors
(12) All financial statements omitted from Item 23;
Not Applicable
(13) copies of any agreements or understandings made in consideration for
providing the initial capital between or among the Registrant, the
underwriter, adviser, promoter or initial stockholders and written
assurances from promoters or initial stockholders that their purchases
were made for investment purposes without any present intent of redeeming
or reselling;
Not Applicable
(14) copies of the model plan used in the establishment of any retirement plan
in conjunction with which Registrant offers its securities, any
instructions thereto and any other documents making up the model plan.
Such form(s) should disclose the costs and fees charged in connection
therewith;
(i) Copy of model retirement plan.
Filing: Post-effective Amendment No. 26 to Registration Statement on
Form N-1A
Name of Registrant: AGE High Income Fund, Inc.
File No. 2-30203
Filing Date: August 1, 1989
(15) copies of any plan entered into by Registrant pursuant to Rule 12b-1 under
the 1940 Act, which describes all material aspects of the financing of
distribution of Registrant's shares, and any agreements with any person
relating to implementation of such plan.
(i) Distribution Plan pursuant to Rule 12b-1 between Registrant on
behalf of the Franklin U. S. Government Agency Money Market Fund and
Franklin Advisers, Inc., dated February 8, 1994
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Distribution Plan pursuant to Rule 12b-1 between Registrant on
behalf of the Franklin Cash Reserves Fund and Franklin Advisers,
Inc., dated July 1, 1994
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii)Amended and Restated Distribution Plan pursuant to Rule 12b-1 between
Registrant on behalf of Franklin U.S. Treasury Money Market
Portfolio and Franklin Advisers, Inc., dated December 1, 1993
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iv) Amended and Restated Distribution Plan pursuant to Rule 12b-1
between Registrant on behalf of Franklin U.S. Government Securities
Money Market Portfolio and Franklin Advisers, Inc., dated December
1, 1993
Filing: Post Effective Amendment No. 24 to Registration Statement
on Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Amended and Restated Distribution Plan pursuant to Rule 12b-1
between Registrant on behalf of Money Market Portfolio and Franklin
Advisers, Inc., dated December 1, 1993
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(16) Schedule for computation of each performance quotation provided in the
registration statement in response to Item 22 (which need not be
audited).
(i) Schedules for computation of performance quotation
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(17) Powers of Attorney
(i) Institutional Fiduciary Trust dated January 17, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(ii) Adjustable Rate Securities Portfolio dated February 16, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(iii)The Money Market Portfolios dated September 18, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
Certificates of Secretary
(iv) Institutional Fiduciary Trust dated January 17, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(v) Adjustable Rate Securities Portfolios dated February 16, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(vi) The Money Market Portfolios dated September 18, 1995
Filing: Post Effective Amendment No. 24 to Registration Statement on
Form N-1A
File No. 2-96634
Filing Date: September 1, 1995
(18) Copies of any plan entered into by Registrant pursuant to Rule 18f-3 under
the 1940 Act
(i) Form of Mutiple Class Plan dated October 19, 1995
(27) Financial Data Schedule
(i) Financial Data Schedule for Franklin Cash Reserves Fund
(ii) Financial Data Schedule for Money Market Portfolio
(iii) Financial Data Schedule for Franklin U.S. Government
Securities Money Market Portfolio
(iv) Financial Data Schedule for Franklin U.S. Treasury
Money Market Portfolios
(v) Financial Data Schedule for Franklin U.S. Government Agency Money
Market Fund
(vi) Financial Data Schedule for Franklin Institutional Adjustable
U.S. Government Securities Fund
(vii) Financial Data Schedule for Franklin Institutional
Adjustable Rate Securities Fund
ITEM 25 PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None
ITEM 26 NUMBER OF HOLDERS OF SECURITIES
As of July 31, 1996 the number of record holders of each class of securities of
the Registrant was as follows:
NUMBER OF
TITLE OF CLASS RECORD HOLDERS
Shares of Beneficial
Interest of:
Franklin Cash Reserves Fund 306
Money Market Portfolio 276
Franklin U.S. Government 372
Securities Money Market Portfolio
Franklin U.S. Treasury 159
Money Market Portfolios
Franklin U.S. Government Agency 61
Money Market Fund
Franklin Institutional Adjustable 52
U.S.
Government Securities Fund
Franklin Institutional 9
Adjustable Rate Securities Fund
ITEM 27 INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court or appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The officers and directors of Franklin Advisers, Inc., the investment advisor of
the Registrant's Franklin U.S. Treasury Money Market Portfolio and Franklin U.S.
Government Agency Money Market Fund and administrator of Money Market Portfolio,
Franklin U. S. Government Securities Money Market Portfolio, Franklin
Institutional Adjustable U.S. Government Securities Fund and Franklin
Institutional Adjustable Rate Securities Fund also serve as officers and/or
directors for (1) the advisor's corporate parent, Franklin Resources, Inc.,
and/or (2) other investment companies in the Franklin Group of Funds. In
addition, Mr. Charles B. Johnson is a director of General Host Corporation. For
additional information please see Part B.
ITEM 29 PRINCIPAL UNDERWRITERS
a) Franklin/Templeton Distributors, Inc., ("Distributors") also acts as
principal underwriter of shares of:
Franklin Asset Allocation Fund
Franklin California Tax-Free Income Fund, Inc.
Franklin California Tax-Free Trust
Franklin Custodian Funds, Inc.
Franklin Equity Fund
Franklin Federal Money Fund
Franklin Federal Tax-Free Income Fund
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund, Inc.
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Advantaged High Yield Securities Fund
Franklin Tax-Advantaged International Bond Fund
Franklin Tax-Advantaged U.S. Government Securities Fund
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Global Trust
Franklin Templeton International Trust
Franklin Templeton Money Fund Trust
Franklin Value Investors Trust
Franklin Templeton Japan Fund
Templeton American Trust, Inc.
Templeton Capital Accumulator Fund, Inc.
Templeton Developing Markets Trust
Templeton Funds, Inc.
Templeton Global Investment Trust
Templeton Global Opportunities Trust
Templeton Global Real Estate Fund
Templeton Global Smaller Companies Fund, Inc.
Templeton Growth Fund, Inc.
Templeton Income Trust
Templeton Institutional Funds, Inc.
Templeton Variable Products Series Fund
b) The information required by this Item 29 with respect to each director and
officer of Distributors is incorporated by reference to Part B of this
N-1A and Schedule A of Form BD filed by Distributors with the Securities
and Exchange Commission pursuant to the Securities Act of 1934 (SEC File
No. 8-5889).
(c) Not Applicable. Registrant's principal underwriter is an affiliated person
of an affiliated person of the Registrant.
ITEM 30 LOCATION OF ACCOUNTS AND RECORDS
The accounts, books or other documents required to be maintained by Section 31
(a) of the Investment Company Act of 1940 are kept by the Fund or its
shareholder services agent, Franklin/Templeton Investor Services, Inc., both of
whose address is 777 Mariners Island Blvd., San Mateo, CA 94404.
ITEM 31 MANAGEMENT SERVICES
There are no management-related service contracts not discussed in Part A or
Part B.
ITEM 32 UNDERTAKINGS
a) Registrant hereby undertakes to promptly call a meeting of shareholders for
the purpose of voting upon the question of removal of any trustees when
requested in writing to do so by the record holders of not less than 10 per
cent of the Registrant's outstanding shares and to assist its shareholders
in the communicating with other shareholders in accordance with the
requirements of Section 16(c) of the Investment Company Act of 1940.
b) Registrant hereby undertakes to comply with the information requirement in
Item 5A of the Form N-1A by including the required information in the
Trust's annual report and to furnish each person to whom a prospectus is
delivered a copy of the annual report upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of San
Mateo and the State of California, on the 30th day of October, 1996.
INSTITUTIONAL FIDUCIARY TRUST
(Registrant)
By:CHARLES E. JOHNSON
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this consent to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
CHARLES E. JOHNSON* Trustee and Principal Executive Officer
Charles E. Johnson Dated: October 30, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: October 30, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 30, 1996
FRANK H. ABBOTT III* Trustee
- -------------------
Frank H. Abbott III Dated: October 30, 1996
HARRIS J. ASHTON* Trustee
- ----------------
Harris J. Ashton Dated: October 30, 1996
S. JOSEPH FORTUNATO* Trustee
- --------------------
S. Joseph Fortunato Dated: October 30, 1996
DAVID W. GARBELLANO* Trustee
- -------------------
David W. Garbellano Dated: October 30, 1996
CHARLES B. JOHNSON* Trustee
- -------------------
Charles B. Johnson Dated: October 30, 1996
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: October 30, 1996
FRANK W.T. LAHAYE* Trustee
- ------------------
Frank W.T. LaHaye Dated: October 30, 1996
GORDON S. MACKLIN* Trustee
- ------------------
Gordon S. Macklin Dated: October 30, 1996
*By: /s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the undersigned has duly consented to the
filing of this Registration Statement of Institutional Fiduciary Trust to be
signed by the undersigned, thereunto duly authorized in the City of San Mateo
and the State of California, on the 30th day of October, 1996.
THE MONEY MARKET PORTFOLIOS
By: CHARLES E. JOHNSON*
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this consent to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
CHARLES E. JOHNSON* Trustee and Principal Executive Officer
Charles E. Johnson Dated: October 30, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: October 30, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 30, 1996
FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: October 30, 1996
HARRIS J. ASHTON* Trustee
- -----------------
Harris J. Ashton Dated: October 30, 1996
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: October 30, 1996
DAVID W. GARBELLANO* Trustee
David W. Garbellano Dated: October 30, 1996
CHARLES B. JOHNSON* Trustee
- -------------------
Charles B. Johnson Dated: October 30, 1996
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: October 30, 1996
FRANK W.T. LAHAYE* Trustee
- ------------------
Frank W.T. LaHaye Dated: October 30, 1996
GORDON S. MACKLIN Trustee
- ------------------
Gordon S. Macklin Dated: October 30, 1996
*By: /s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the undersigned has duly consented to the
filing of this Registration Statement of Institutional Fiduciary Trust to be
signed by the undersigned, thereunto duly authorized in the City of San Mateo
and the State of California, on the 30th day of October, 1996.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
By: CHARLES E. JOHNSON*
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this consent to
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
CHARLES E. JOHNSON* Trustee and Principal Executive Officer
Charles E. Johnson Dated: October 30, 1996
MARTIN L. FLANAGAN* Principal Financial Officer
Martin L. Flanagan Dated: October 30, 1996
DIOMEDES LOO-TAM* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 30, 1996
FRANK H. ABBOTT III* Trustee
Frank H. Abbott III Dated: October 30, 1996
HARRIS J. ASHTON* Trustee
- -----------------
Harris J. Ashton Dated: October 30, 1996
S. JOSEPH FORTUNATO* Trustee
S. Joseph Fortunato Dated: October 30, 1996
DAVID W. GARBELLANO* Trustee
David W. Garbellano Dated: October 30, 1996
CHARLES B. JOHNSON* Trustee
- -------------------
Charles B. Johnson Dated: October 30, 1996
RUPERT H. JOHNSON, JR.* Trustee
Rupert H. Johnson, Jr. Dated: October 30, 1996
FRANK W.T. LAHAYE* Trustee
- ------------------
Frank W.T. LaHaye Dated: October 30, 1996
GORDON S. MACKLIN* Trustee
- ------------------
Gordon S. Macklin Dated: October 30, 1996
*By: /s/Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney previously filed)
INSTITUTIONAL FIDUCIARY TRUST
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO. IN
SEQUENTIAL
NUMBERING
SYSTEM
EX-99.B1(i) Agreement and Declaration of Trust *
dated January 15, 1985
EX-99.B1(ii) Certificate of Amendment to Agreement *
and Declaration of Trust dated May 12,
1987
EX-99.B1(iii) Certificate of Amendment to Agreement *
and Declaration of Trust dated October
9, 1987
EX-99.B1(iv) Certificate of Amendment to Agreement *
and Declaration of Trust dated
November 17, 1987
EX-99.B1(v) Certificate of Amendment to Agreement *
and Declaration of Trust dated
December 8, 1987
EX-99.B1(vi) Certificate of Amendment to Agreement *
and Declaration of Trust dated
December 12, 1989
EX-99.B1(vii) Certificate of Amendment to Agreement *
and Declaration of Trust dated October
15, 1993
EX-99.B2(i) By-Laws *
EX-99.B2(ii) Certificate of Amendment to By-Laws *
dated October 9, 1987
EX-99.B5(i) Administration Agreement between *
Registrant, on behalf of Franklin
Institutional Adjustable U.S.
Government Securities Fund, and
Franklin Advisers, Inc. dated November
1, 1991
EX-99.B5(ii) Management Agreement between *
Registrant, on behalf of Franklin U.S.
Treasury Money Market Portfolio, and
Franklin Advisers, Inc. dated August
20, 1991
EX-99.B5(iii) Administration Agreement between *
Registrant, on behalf of Franklin
Institutional Adjustable Rate
Securities Fund, and Franklin
Advisers, Inc. dated January 2, 1992
EX-99.B5(iv) Administration Agreement between *
Registrant, on behalf of Franklin U.S.
Government Securities Money Market
Portfolio and Franklin Advisers, Inc.
dated November 1, 1992
EX-99.B5(v) Administration Agreement between *
Registrant, on behalf of Money Market
Portfolio and Franklin Advisers, Inc.,
dated November 1, 1992
EX-99.B5(vi) Management Agreement between *
Registrant, on behalf of the Franklin
U. S. Government Agency Money Market
Fund and Franklin Advisers, Inc.,
dated February 8, 1994
EX-99.B5(vii) Administration Agreement between *
Registrant on behalf of the Franklin
Cash Reserve Fund and Franklin
Advisers, Inc. dated July 1, 1994
EX-99.B5(viii) Amendment to Administration Agreement Attached
between Registrant on behalf of Money
Market Portfolio and Franklin
Advisers, Inc. dated August 1, 1995
EX-99.B5(ix) Amendment to Management Agreement Attached
between Registrant on behalf of
Franklin Late Day Money Market
Portfolio and Franklin Advisers, Inc.
dated August 1, 1995
EX-99.B5(x) Amendment to Administration Agreement Attached
between Registrant on behalf of
Franklin U.S. Government Securities
Money Market Portfolio and Franklin
Advisers, Inc. dated August 1, 1995
EX-99.B5(xi) Amendment to Management Agreement Attached
between Registrant on behalf of
Franklin U.S. Treasury Money Market
Portfolio and Franklin Advisers, Inc.
dated August 1, 1995
EX-99.B5(xii) Amendment to Administration Agreement Attached
between Registrant on behalf of
Franklin Institutional Adjustable Rate
Securities Fund and Franklin Advisers,
Inc. dated August 1, 1995
EX-99.B5(xiii) Amendment to Administration Agreement Attached
between Registrant on behalf of
Franklin Institutional Adjustable U.S.
Securities Fund and Franklin Advisers,
Inc. dated August 1, 1995
EX-99.B5(xiv) Amendment to Management Agreement Attached
between Registrant on behalf of
Franklin U.S. Government Agency Money
Market Fund and Franklin Advisers,
Inc. dated August 1, 1995
EX-99.B5(xv) Amendment to Administration Agreement Attached
between Registrant on behalf of
Franklin Cash Reserves Fund and
Franklin Advisers, Inc. dated August
1, 1995
EX-99.B6(i) Amended and Restated Distribution *
Agreement between Registrant and
Franklin/Templeton Distributors, Inc.
dated April 23, 1995
EX-99.B6(ii) Form of Dealer Agreements between *
Franklin/Templeton Distributors, Inc.
and dealers
EX-99.B8(i) Custodian Agreement between Registrant *
and Bank of America NT & SA dated June
17, 1985
EX-99.B8(ii) Amendment to Custodian Agreement *
between Registrant and Bank of America
NT & SA dated April 2, 1990
EX-99.B8(iii) Custody Agreement between Registrant *
and Citibank Delaware
EX-99.B8(iv) Master Custodian Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(v) Terminal Link Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B10(i) Opinion and Consent of Counsel dated Attached
October 18, 1996
EX-99.B11(i) Consent of Independent Auditors for Attached
Institutional Fiduciary Trust
EX-99.B14(i) Copy of model retirement plan *
EX-99.B15(i) Distribution Plan pursuant to Rule *
12b-1, between Registrant on behalf
of the Franklin U. S. Government
Agency Money Market Fund and Franklin
Advisers, Inc., dated February 8, 1994
EX-99.B15(ii) Distribution Plan pursuant to Rule *
12b-1, between Registrant on behalf of
the Franklin Cash Reserves Fund and
Franklin Advisers, Inc., dated July 1,
1994
EX-99.B15(iii) Amended and Restated Distribution *
Plan pursuant to Rule 12b-1, between
Registrant on behalf of Franklin U.S.
Treasury Money Market Portfolio and
Franklin Advisers, Inc., dated
December 1, 1993
EX-99.B15(iv) Amended and Restated Distribution *
Plan pursuant to Rule 12b-1, between
Registrant on behalf of Franklin U.S.
Government Securities Money Market
Portfolio and Franklin Advisers,
Inc., dated December 1, 1993
EX-99.B15(v) Amended and Restated Distribution *
Plan pursuant to Rule 12b-1, between
Registrant on behalf of Franklin
Money Market Portfolio and Franklin
Advisers, Inc., dated December 1, 1993
EX-99.B16(i) Schedule for Computation of *
Performance Quotation
EX-99.B17(i) Power of Attorney for Institutional *
Fiduciary Trust dated January 17, 1995
EX-99.B17(ii) Power of Attorney for Adjustable Rate *
Securities Portfolio dated February
16, 1995
EX-99.B17(iii) Power of Attorney for The Money Market *
Portfolios dated September 18, 1995
EX-99.B17(iv) Certificate of Secretary for the *
Institutional Fiduciary Trust dated
January 17, 1995
EX-99.B17(v) Certificate of Secretary for *
Adjustable Rate Securities Portfolio
dated February 16, 1995
EX-99.B17(vi) Certificate of Secretary for The Money *
Market Portfolios dated September 18,
1995
EX-99B18(i) Form of Multiple Class Plan dated Attached
October 19, 1995
EX-99.B27(i) Financial Data Schedule Franklin Cash Attached
Reserves Fund
EX-99.B27(ii) Financial Data Schedule Money Market Attached
Portfolio
EX-99.B27(iii) Financial Data Schedule Franklin Late Attached
Day Money Market Portfolio
EX-99.B27(iv) Financial Data Schedule Franklin U.S. Attached
Government Securities Money Market
Portfolio
EX-99.B27(v) Financial Data Schedule Franklin U.S. Attached
Treasury Money Market Portfolio
EX-99.B27(vi) Financial Data Schedule Franklin U.S. Attached
Government Agency Money Market Fund
EX-99.B27(vii) Financial Data Schedule Franklin Attached
Institutional Adjustable U.S.
Government Securities Fund
EX-99.B27(viii) Financial Data Schedule for Franklin Attached
Institutional Adjustable Rate
Securities Fund
*Incorporated by Reference
AMENDMENT TO ADMINISTRATION AGREEMENT
This Amendment dated as of August 1, 1995, is to the Administration
Agreement dated November 1, 1992, by and between INSTITUTIONAL FIDUCIARY TRUST,
a Massachusetts business trust (the "Trust"), on behalf of MONEY MARKET
PORTFOLIO (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a
California corporation, (the "Administrator"). The undersigned parties,
intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 is amended to include section C:
C. The Administrator may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase price
of its services. The Administrator shall be contractually bound hereunder by the
terms of any publicly announced waiver of its fee, or any limitation of the
Fund's expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Administration Agreement dated November 1,
1992, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Money Market Portfolio
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated February 2, 1988, by and between INSTITUTIONAL FIDUCIARY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN LATE DAY MONEY
MARKET PORTFOLIO (the "Fund"), formerly Franklin Government Investors Money
Market Portfolio, a series of the Trust, and FRANKLIN ADVISERS, INC., a
California corporation, (the "Manager"). The undersigned parties, intending to
be legally bound, hereby agree as follows:
(1) Paragraph 4 B. is amended to read:
B. The management fee payable by the Fund shall be reduced or
eliminated to the extent that Franklin Distributors, Inc. has actually received
cash payments of tender offer solicitation fees less certain cost and expenses
incurred in connection therewith and to the extent necessary to comply with the
limitations on expenses which may be borne by the Fund as set forth in the laws,
regulations and administrative interpretations of those states in which the
Fund's shares are registered. The Manager may waive all or a portion of its fees
provided for hereunder and such waiver shall be treated as a reduction in
purchase price of its services. The Manager shall be contractually bound
hereunder by the terms of any publicly announced waiver of its fees, or any
limitation of the Fund's expenses, as if such waiver or limitation were full set
forth herein.
(2) All other provisions of the Management Agreement dated February 2,
1988, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin Late Day
Money Market Portfolio
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO ADMINISTRATION AGREEMENT
This Amendment dated as of August 1, 1995, is to the Administration
Agreement dated November 1, 1992, by and between INSTITUTIONAL FIDUCIARY TRUST,
a Massachusetts business trust (the "Trust"), on behalf of FRANKLIN U.S.
GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO (the "Fund"), a series of the
Trust, and FRANKLIN ADVISERS, Inc., a California corporation, (the
"Administrator"). The undersigned parties, intending to be legally bound, hereby
agree as follows:
(1) Paragraph 4 is amended to include section C:
C. The Administrator may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase price
of its services. The Administrator shall be contractually bound hereunder by the
terms of any publicly announced waiver of its fee, or any limitation of the
Fund's expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Administration Agreement dated November 1,
1992, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin U.S. Government
Securities Money Market Portfolio
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated August 20, 1991, by and between INSTITUTIONAL FIDUCIARY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN U.S. TREASURY
MONEY MARKET PORTFOLIO (the "Portfolio"), a series of the Trust, and FRANKLIN
ADVISERS, INC., a California corporation, (the "Manager"). The undersigned
parties, intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 B. is amended to read:
B. The management fee payable by the Portfolio shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain cost and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Portfolio as set forth in the laws,
regulations and administrative interpretations of those states in which the
Portfolio's shares are registered. The Manager may waive all or a portion of its
fees provided for hereunder and such waiver shall be treated as a reduction in
purchase price of its services. The Manager shall be contractually bound
hereunder by the terms of any publicly announced waiver of its fee, or any
limitation of the Portfolio's expenses, as if such waiver or limitation were
full set forth herein.
(2) All other provisions of the Management Agreement dated August 20,
1991, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin U.S.
Treasury Money Market Portfolio
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO ADMINISTRATION AGREEMENT
This Amendment dated as of August 1, 1995, is to the Administration
Agreement dated January 2, 1992, by and between INSTITUTIONAL FIDUCIARY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN INSTITUTIONAL
ADJUSTABLE RATE SECURITIES FUND (the "Fund"), a series of the Trust, and
FRANKLIN ADVISERS, INC., a California corporation, (the "Administrator"). The
undersigned parties, intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 is amended to include section C:
C. The Administrator may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase price
of its services. The Administrator shall be contractually bound hereunder by the
terms of any publicly announced waiver of its fee, or any limitation of the
Fund's expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Administration Agreement dated January 2,
1992, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin Institutional
Adjustable Rate Securities Fund
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO ADMINISTRATION AGREEMENT
This Amendment dated as of August 1, 1995, is to the Administration
Agreement dated November 1, 1991, by and between INSTITUTIONAL FIDUCIARY TRUST,
a Massachusetts business trust (the "Trust"), on behalf of FRANKLIN
INSTITUTIONAL ADJUSTABLE U.S. SECURITIES FUND (the "Fund"), a series of the
Trust, and FRANKLIN ADVISERS, INC., a California corporation, (the
"Administrator"). The undersigned parties, intending to be legally bound, hereby
agree as follows:
(1) Paragraph 4 is amended to include section C:
C. The Administrator may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase price
of its services. The Administrator shall be contractually bound hereunder by the
terms of any publicly announced waiver of its fee, or any limitation of the
Fund's expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Administration Agreement dated November 1,
1991, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin Institutional
Adjustable U.S. Securities Fund
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management Agreement
dated February 8, 1994, by and between INSTITUTIONAL FIDUCIARY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN U.S.
GOVERNMENT AGENCY MONEY MARKET FUND (the "Fund"), a series of the Trust, and
FRANKLIN ADVISERS, INC., a California corporation, (the "Manager"). The
undersigned parties, intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 B. is amended to read:
B. The management fee payable by the Fund shall be reduced or
eliminated to the extent that Distributors has actually received cash payments
of tender offer solicitation fees less certain cost and expenses incurred in
connection therewith and to the extent necessary to comply with the limitations
on expenses which may be borne by the Fund as set forth in the laws, regulations
and administrative interpretations of those states in which the Fund's shares
are registered. The Manager may waive all or a portion of its fees provided for
hereunder and such waiver shall be treated as a reduction in purchase price of
its services. The Manager shall be contractually bound hereunder by the terms of
any publicly announced waiver of its fee, or any limitation of the Fund's
expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Management Agreement dated February 8,
1994, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin U.S.
Government Agency Money Market Fund
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
AMENDMENT TO ADMINISTRATION AGREEMENT
This Amendment dated as of August 1, 1995, is to the Administration
Agreement dated July 1, 1994, by and between INSTITUTIONAL FIDUCIARY TRUST, a
Massachusetts business trust (the "Trust"), on behalf of FRANKLIN CASH RESERVES
FUND (the "Fund"), a series of the Trust, and FRANKLIN ADVISERS, INC., a
California corporation, (the "Administrator"). The undersigned parties,
intending to be legally bound, hereby agree as follows:
(1) Paragraph 4 is amended to include section C:
C. The Administrator may waive all or a portion of its fees provided
for hereunder and such waiver shall be treated as a reduction in purchase price
of its services. The Administrator shall be contractually bound hereunder by the
terms of any publicly announced waiver of its fee, or any limitation of the
Fund's expenses, as if such waiver or limitation were full set forth herein.
(2) All other provisions of the Administration Agreement dated July 1,
1994, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and year
first above written.
INSTITUTIONAL FIDUCIARY TRUST
On behalf of Franklin Cash Reserves Fund
By ______________________
FRANKLIN ADVISERS, INC.
By ______________________
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for
each of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby
appoints and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust
Company as a Subcustodian to hold assets of the Funds in accordance with the
provisions of this Agreement. In addition, upon receipt of Proper Instructions
and a certified copy of a resolution of the Board or of the Executive Committee,
and certified by the Secretary or an Assistant Secretary, of an Investment
Company, the Custodian may from time to time appoint one or more other
Subcustodians or Foreign Custodians to hold assets of the affected Funds in
accordance with the provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS HELD
BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a
Subcustodian or a Foreign Custodian in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities
System, in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities
are called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in
accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities
made by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent
for delivery to the Transfer Agent or to the holders of Shares in connection
with distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of
Proper Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
each Fund, settle Securities trades for the account of each Fund and credit and
debit each Fund's account with the Custodian in connection therewith as stated
in this Subsection 3.5. This Subsection shall not apply to repurchase
agreements, which are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of a Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or
options on futures contracts for the account of the Fund but only, except as
otherwise provided herein, (i) against the delivery of such securities, or
evidence of title to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Subsection 3.8
hereof; or (iii) in the case of repurchase agreements entered into between the
Fund and the Custodian, another bank or a broker-dealer (A) against delivery of
the Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management, accounting, transfer
agent and legal fees and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred expenses;
and
(e) for the payment of any dividends or distributions
declared by the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in
the Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased
for the account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account of the Fund upon (A)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of Domestic Securities for the account of the Fund shall be maintained
for the Fund by the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation of the transfer to or
from the account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding domestic
securities deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities
held hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of
a Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
a Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information
in its possession (to the extent permissible under applicable law) to the entity
or entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and
accepts the limitations of liability as set forth in each Investment Company's
Agreement and Declaration of Trust, Articles of Incorporation, or Agreement of
Limited Partnership. The Custodian agrees that each Fund's obligation hereunder
shall be limited to the assets of the Fund, and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the Fund nor
from any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by each Investment
Company, on behalf of a Fund, or by the Custodian by 90 days notice in Writing
to the other provided that any termination by an Investment Company shall be
authorized by a resolution of the Board, a certified copy of which shall
accompany such notice of termination, and provided further, that such resolution
shall specify the names of the persons to whom the Custodian shall deliver the
assets of the affected Funds held by the Custodian. If notice of termination is
given by the Custodian, the affected Investment Companies shall, within 90 days
following the giving of such notice, deliver to the Custodian a certified copy
of a resolution of the Boards specifying the names of the persons to whom the
Custodian shall deliver assets of the affected Funds held by the Custodian. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 90 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the affected Investment Companies certified copies of resolutions of the Boards
specifying the names of the persons to whom the Custodian shall deliver the
assets of the Funds held by the Custodian, the Custodian, at its election, may
deliver such assets to a bank or trust company doing business in the State of
California to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold such assets until a certified copy of one or
more resolutions as aforesaid is delivered to the Custodian. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the
other party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: /s/ illegible
Its: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Their: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Their: Vice President & Secretary
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income
Trust Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals
Fund Real Estate
Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global
Income Securities
Fund Investment
Grade Intermediate
Bond Fund Income
Securities Fund
U.S. Government
Securities Fund
Zero Coupon Fund -
2000 Zero Coupon
Fund - 2005 Zero
Coupon Fund - 2010
Adjustable U.S.
Government Fund
Rising Dividends
Fund Templeton
Pacific Growth Fund
Templeton
International
Equity Fund
Templeton
Developing Markets
Equity Fund
Templeton Global
Growth Fund
Templeton Global
Asset Allocation
Fund Small Cap Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money
Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S.
Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market
Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated
as of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission
of instructions from each Fund to the Custodian, as and to the extent permitted
by the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners,
as applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing
to act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ illegible
Title: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Title: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income
Securities Fund Investment
Grade Intermediate Bond
Fund Income Securities
Fund U.S. Government
Securities Fund Zero
Coupon Fund -2000 Zero
Coupon Fund -2005 Zero Coupon
Fund -2010 Adjustable U.S. Government
Fund Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity
Fund Templeton Developing
Markets Equity Fund Templeton
Global Growth Fund Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
October 18, 1996
Institutional Fiduciary Trust
777 Mariners Island Blvd.
San Mateo, California 94404
Re: Institutional Fiduciary Trust
Gentlemen:
We have examined the Declaration of Trust and Bylaws of
Institutional Fiduciary Trust ("Fund"), a Massachusetts Business Trust, and the
various pertinent records, documents and proceedings we deem material. We have
also examined the Notification of Registration and the Registration Statements
filed under the Investment Company Act of 1940 ("Investment Company Act") and
the Securities Act of 1933 ("Securities Act"), all as amended to date, as well
as other items we deem material to this opinion.
You have indicated that, pursuant to Section 24(e)(l) of the
Investment Company Act, the Fund intends to file Post-Effective Amendment No. 25
to its registration statement under the Securities Act to register 164,991,621
additional shares of beneficial interest for sale pursuant to its currently
effective registration statement under the Securities Act.
Based upon the foregoing information and examination, it is our
opinion that the Fund is a valid and subsisting business trust organized under
the laws of the Commonwealth of Massachusetts and that the proposed registration
of the 164,991,621 shares of beneficial interest is proper and such shares of
beneficial interest, when issued will be legally outstanding, fully-paid and
non-assessable shares of beneficial interest, and the holders of such shares of
beneficial interest will have all the rights provided for with respect to such
holding by the Declaration of Trust and the laws of the Commonwealth of
Massachusetts.
We hereby consent to the use of this opinion as an exhibit to
Post-Effective Amendment No. 25 to be filed by the Fund, covering the
registration of the said shares under the Securities Act and the applications
and registration statements, and amendments thereto, filed in accordance with
the securities laws of the several states in which shares of the Fund are
offered, and we further consent to reference in the Prospectus and Statement of
Additional Information of the Fund to the fact that this opinion concerning the
legality of the issue has been rendered by us.
Very truly yours,
STRADLEY, RONON, STEVENS & YOUNG
BY: /s/Audrey C. Talley
Audrey C. Talley
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment
No. 25 to the Registration Statement of Institutional Fiduciary Trust on Form
N-1A (File No. 2-96634) of our report dated August 6, 1996 on our audit of the
financial statements and financial highlights of the Institutional Fiduciary
Trust, for the year ended June 30, 1996 and our report dated August 6, 1996 on
our audit of the financial statements and financial highlights of The Money
Market Portfolios for the year ended June 30, 1996, which reports are included
in the Annual Reports to Shareholders for the year ended June 30, 1996 and the
inclusion in the aforementioned Post-Effective Amendment of our report dated
December 8, 1995 on our audit of the financial statements and financial
highlights of The Adjustable Rate Securities Portfolios for the year ended
October 31, 1995.
/s/COOPERS & LYBRAND L.L.P.
San Francisco, California
October 28, 1996
Multiple Class Plan
This Multiple Class Plan (the "Plan") has been adopted by a majority of
each of the Boards of Directors or Trustees ("Boards") of the Franklin Funds and
Fund series listed on the attached Schedule A (the "Funds"). The Boards have
determined that the Plan is in the best interests of each class and each Fund as
a whole. The Plan sets forth the provisions relating to the establishment of
multiple classes of shares for each Fund.
1. Each Fund shall offer two classes of shares, to be known as Class I and
Class II.
2. Class I shares shall carry a front-end sales charge ranging from 0% -
4.50%, and Class II shares shall carry a front-end sales charge 1.00%, all as
set forth in each Fund's Prospectus.
3. Class I shares shall not be subject to a contingent deferred sales
charge ("CDSC") except in the following limited circumstances. On investments of
$1 million or more, a contingent deferred sales charge of 1.00% of the lesser of
the then-current net asset value or the original net asset value at the time of
purchase applies to redemptions of those investments within the contingency
period of 12 months from the calendar month following their purchase. The CDSC
is waived in certain circumstances, as described in each Fund's prospectus.
4. Class II shares redeemed within 18 months of their purchase shall be
assessed a CDSC of 1.00% of the lesser of the then-current net asset value or
the original net asset value at the time of purchase. The CDSC is waived in
certain circumstances as described in each Fund's prospectus.
5. The Rule 12b-1 Plan associated with Class I shares may be used to
reimburse Franklin/Templeton Distributors, Inc. (the "Distributor") or other for
expenses incurred in the promotion and distribution of the shares of Class I.
Such expenses 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 the Distributor's overhead expenses
attributable to the distribution of Class I 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 for Class I shares or with the
Distributor or its affiliates.
The Rule 12b-1 Plan associated with Class II shares has two components. The
first component is a shareholder servicing fee, to be paid to broker-dealers,
banks, trust companies and others who will provide personal assistance to
shareholders in servicing their accounts. The second component is an asset-based
sales charge to be retained by the Distributor during the first year after sale
of shares, and, in subsequent years, to be paid to dealers or retained by the
Distributor to be used in the promotion and distribution of Class II shares, in
a manner similar to that described above for Class I shares.
The Plans shall operate in accordance with the Rules of Fair Practice of
the National Association of Securities Dealers, Inc., Article III, section
26(d).
6. The only difference in expenses as between Class I and Class II shares
shall relate to differences in the Rule 12b-1 plan expenses of each class, as
described in each class' Rule 12b-1 Plan.
7. There shall be no conversion features associated with the Class I and
Class II shares.
8. Shares of either Class may be exchanged for shares of another investment
company within the Franklin Templeton Group of Funds according to the terms and
conditions stated in each fund's prospectus, as it may be amended from time to
time, to the extent permitted by the Investment Company Act of 1940 and the
rules and regulations adopted thereunder.
9. Each Class will vote separately with respect to the Rule 12b-1 Plan
related to that Class.
10. On an ongoing basis, each Fund's Board pursuant to the fiduciary
responsibilities under the 1940 Act and otherwise, will monitor each Fund for
the existence of any material conflicts between the interests of the two classes
of shares. Each Board, including a majority of the independent Board members,
shall take such action as is reasonably necessary to eliminate any such conflict
that may develop. Franklin Advisers, Inc. and Franklin/Templeton Distributors,
Inc. shall be responsible for alerting the Board to any material conflicts that
arise.
11. All material amendments to this Plan must be approved by a majority of
the Board members of each Fund, including a majority of the Board members who
are not interested persons of each Fund.
I, Deborah R. Gatzek, Secretary of the Franklin Funds, do hereby certify
that this Multiple Class Plan has been adopted by a majority of each of the
Boards of Directors or Trustees of the Franklin Funds and Fund series listed on
the attached Schedule A on April 18, 1995.
Date: October 19, 1995 By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Secretary
<TABLE>
<CAPTION>
INVESTMENT COMPANY FUND & CLASS; TITAN NUMBER
<S> <C>
Franklin Gold Fund Franklin Gold Fund - Class II; 232
Franklin Equity Fund Franklin Equity Fund - Class II; 234
AGE High Income Fund, Inc. AGE High Income Fund - Class II; 205
Franklin Custodian Funds, Inc. Growth Series - Class II; 206
Utilities Series - Class II; 207
Income Series - Class II; 209
U.S. Government Securities Series - Class II; 210
Franklin California Tax-Free Franklin California Tax-Free Income
Income Fund, Inc. Fund - Class II; 212
Franklin New York Tax-Free Franklin New York Tax-Free Income
Income Fund, Inc. Fund - Class II; 215
Franklin Federal Tax-Free Franklin Federal Tax-Free Income Fund -Class II; 216
Income Fund
Franklin Managed Trust Franklin Rising Dividends Fund - Class II; 258
Franklin California Tax-Free Trust Franklin California Insured Tax-Free
Income Fund - Class II; 224
Franklin New York Tax-Free Trust Franklin New York Insured Tax-Free
Income Fund - Class II; 281
Franklin Investors Securities Trust Franklin Global Government Income
Fund - Class II; 235
Franklin Strategic Series Franklin Global Utilities Fund - Class II; 297
Franklin Real Estate Securities Trust Franklin Real Estate Securities Fund - Class II; 292
INVESTMENT COMPANY FUND AND CLASS; TITAN NUMBER
Franklin Tax-Free Trust Franklin Alabama Tax-Free Income Fund - Class II; 264
Franklin Arizona Tax-Free Income Fund - Class II; 226
Franklin Colorado Tax-Free Income Fund - Class II; 227
Franklin Connecticut Tax Free Income Fund - Class II; 266
Franklin Florida Tax-Free Income Fund - Class II; 265
Franklin Georgia Tax-Free Income Fund - Class II; 228
Franklin High Yield Tax-Free Income Fund - Class II; 230
Franklin Insured Tax-Free Income Fund - Class II; 221
Franklin Louisiana Tax-Free Income Fund - Class II; 268
Franklin Maryland Tax-Free Income Fund - Class II; 269
Franklin Massachusetts Insured Tax-Free Income
Fund - Class II; 218
Franklin Michigan Insured Tax-Free Income Fund - Class II; 219
Franklin Minnesota Insured Tax-Free Income
Fund - Class II; 220
Franklin Missouri Tax-Free Income Fund - Class II; 260
Franklin New Jersey Tax-Free Income Fund - Class II; 271
Franklin North Carolina Tax-Free Income Fund - Class II; 270
Franklin Ohio Insured Tax-Free Income Fund - Class II; 222
Franklin Oregon Tax-Free Income Fund - Class II; 261
Franklin Pennsylvania Tax-Free Income Fund - Class II; 229
Franklin Puerto Rico Tax-Free Income Fund - Class II; 223
Franklin Texas Tax-Free Income Fund - Class II; 262
Franklin Virginia Tax-Free Income Fund - Class II; 263
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> FRANKLIN CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 30,405,256
<INVESTMENTS-AT-VALUE> 30,405,256
<RECEIVABLES> 0
<ASSETS-OTHER> 390
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 30,405,646
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,589
<TOTAL-LIABILITIES> 24,589
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 30,381,057
<SHARES-COMMON-STOCK> 30,381,057
<SHARES-COMMON-PRIOR> 14,545,304
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 30,381,057
<DIVIDEND-INCOME> 1,335,467
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (84,047)
<NET-INVESTMENT-INCOME> 1,251,420
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,251,420
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,251,420)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 146,315,356
<NUMBER-OF-SHARES-REDEEMED> (131,711,902)
<SHARES-REINVESTED> 1,232,299
<NET-CHANGE-IN-ASSETS> 15,835,753
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61,531
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 140,263
<AVERAGE-NET-ASSETS> 24,545,259
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.052
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.052)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.049
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 341,314,800
<INVESTMENTS-AT-VALUE> 341,314,800
<RECEIVABLES> 767,784
<ASSETS-OTHER> 5,442
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 342,088,026
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 793,471
<TOTAL-LIABILITIES> 793,471
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 341,294,555
<SHARES-COMMON-STOCK> 341,294,555
<SHARES-COMMON-PRIOR> 272,146,702
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 341,294,555
<DIVIDEND-INCOME> 16,947,851
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (131,723)
<NET-INVESTMENT-INCOME> 16,816,128
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 16,816,128
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 16,816,128
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,869,272,670
<NUMBER-OF-SHARES-REDEEMED> (2,807,550,248)
<SHARES-REINVESTED> 7,425,431
<NET-CHANGE-IN-ASSETS> 69,147,853
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 154,740
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 258,390
<AVERAGE-NET-ASSETS> 308,635,446
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.055
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.190
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> FRANKLIN U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 152,155,022
<INVESTMENTS-AT-VALUE> 152,155,022
<RECEIVABLES> 233,906
<ASSETS-OTHER> 24,261
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 152,413,189
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 240,081
<TOTAL-LIABILITIES> 240,081
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 152,173,108
<SHARES-COMMON-STOCK> 152,173,108
<SHARES-COMMON-PRIOR> 334,830,309
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 152,173,108
<DIVIDEND-INCOME> 10,739,597
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 73,834
<NET-INVESTMENT-INCOME> 10,665,763
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,665,763
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,665,763)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,106,494,209
<NUMBER-OF-SHARES-REDEEMED> (1,295,593,361)
<SHARES-REINVESTED> 6,441,951
<NET-CHANGE-IN-ASSETS> (182,657,201)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 98,326
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 195,605
<AVERAGE-NET-ASSETS> 196,112,928
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.054)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .190
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30,1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> FRANKLIN U.S. TREASURY MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 123,476,455
<INVESTMENTS-AT-VALUE> 123,476,455
<RECEIVABLES> 24,294
<ASSETS-OTHER> 13,189
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,513,938
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 356,581
<TOTAL-LIABILITIES> 356,581
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 123,157,357
<SHARES-COMMON-STOCK> 123,157,357
<SHARES-COMMON-PRIOR> 200,935,414
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 123,157,357
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,465,897
<OTHER-INCOME> 0
<EXPENSES-NET> (299,007)
<NET-INVESTMENT-INCOME> 8,166,890
<REALIZED-GAINS-CURRENT> 7,492
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,174,382
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (8,174,382)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 429,590,577
<NUMBER-OF-SHARES-REDEEMED> (509,880,817)
<SHARES-REINVESTED> 2,512,183
<NET-CHANGE-IN-ASSETS> (77,778,057)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 393,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 465,409
<AVERAGE-NET-ASSETS> 156,962,279
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .052
<PER-SHARE-GAIN-APPREC> .000
<PER-SHARE-DIVIDEND> (.052)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .190
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FRANKLIN INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> FRANKLIN U.S. GOVERNMENT AGENCY MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 71,760,593
<INVESTMENTS-AT-VALUE> 71,760,593
<RECEIVABLES> 0
<ASSETS-OTHER> 17,510
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 71,778,103
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 84,156
<TOTAL-LIABILITIES> 84,156
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,693,947
<SHARES-COMMON-STOCK> 71,693,947
<SHARES-COMMON-PRIOR> 34,284,552
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 71,693,947
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,186,024
<OTHER-INCOME> 0
<EXPENSES-NET> (335,467)
<NET-INVESTMENT-INCOME> 3,850,557
<REALIZED-GAINS-CURRENT> (2,545)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,848,012
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,848,012)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 239,775,798
<NUMBER-OF-SHARES-REDEEMED> (206,200,015)
<SHARES-REINVESTED> 3,833,612
<NET-CHANGE-IN-ASSETS> 37,409,395
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 115,022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 356,394
<AVERAGE-NET-ASSETS> 76,471,543
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.051
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.051)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.440
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> FRANKLIN INST. ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 9,925,322
<INVESTMENTS-AT-VALUE> 9,450,014
<RECEIVABLES> 0
<ASSETS-OTHER> 443
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,450,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,711
<TOTAL-LIABILITIES> 2,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,101,681
<SHARES-COMMON-STOCK> 1,017,549
<SHARES-COMMON-PRIOR> 2,703,982
<ACCUMULATED-NII-CURRENT> 14,621
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,193,248)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (475,308)
<NET-ASSETS> 9,447,746
<DIVIDEND-INCOME> 876,882
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (18,497)
<NET-INVESTMENT-INCOME> 858,385
<REALIZED-GAINS-CURRENT> (1,419,252)
<APPREC-INCREASE-CURRENT> 1,534,083
<NET-CHANGE-FROM-OPS> 973,216
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (886,196)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,039
<NUMBER-OF-SHARES-REDEEMED> (1,720,214)
<SHARES-REINVESTED> 11,742
<NET-CHANGE-IN-ASSETS> (15,572,201)
<ACCUMULATED-NII-PRIOR> 42,432
<ACCUMULATED-GAINS-PRIOR> (28,773,996)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,276
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,497
<AVERAGE-NET-ASSETS> 14,540,266
<PER-SHARE-NAV-BEGIN> 9.250
<PER-SHARE-NII> .600
<PER-SHARE-GAIN-APPREC> .028
<PER-SHARE-DIVIDEND> (.598)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.280
<EXPENSE-RATIO> .380
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 4,578,967
<INVESTMENTS-AT-VALUE> 4,456,113
<RECEIVABLES> 0
<ASSETS-OTHER> 186
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,456,299
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,167
<TOTAL-LIABILITIES> 3,167
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,573,941
<SHARES-COMMON-STOCK> 454,900
<SHARES-COMMON-PRIOR> 878,985
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,997,955)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (122,854)
<NET-ASSETS> 4,453,132
<DIVIDEND-INCOME> 538,931
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (9,461)
<NET-INVESTMENT-INCOME> 529,470
<REALIZED-GAINS-CURRENT> (104,150)
<APPREC-INCREASE-CURRENT> 108,261
<NET-CHANGE-FROM-OPS> 533,581
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (529,470)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 365,324
<NUMBER-OF-SHARES-REDEEMED> (792,417)
<SHARES-REINVESTED> 3,008
<NET-CHANGE-IN-ASSETS> (4,142,920)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,893,805)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,461
<AVERAGE-NET-ASSETS> 8,599,874
<PER-SHARE-NAV-BEGIN> 9.780
<PER-SHARE-NII> .601
<PER-SHARE-GAIN-APPREC> .011
<PER-SHARE-DIVIDEND> (.601)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.790
<EXPENSE-RATIO> .360
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
</TABLE>
