As filed with the Securities and Exchange Commission on October 30, 1997
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. 26 (X)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 27 (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 (650) 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, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) 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.
Title of Securities Being Registered:
Shares of Beneficial Interest of:
Franklin Cash Reserves Fund
Money Market Portfolio
Franklin U.S. Government Securities
Money Market Portfolio
Franklin U.S. Treasury Money
Market Portfolio
Franklin U.S. Government Agency
Money Market Fund
Franklin Institutional Adjustable
U.S. Government Securities Fund
Franklin Institutional Adjustable
Rate Securities Fund
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
PART A: INFORMATION REQUIRED IN THE PROSPECTUS
Franklin Cash Reserves Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How
Information does the Fund Measure
Performance?"
4. General Description "How is the Trust Organized?";
of 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 Contained in Registrant's Annual
of Fund Performance 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 the Fund and its
Shareholders"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 "How Do I Sell Shares?"; "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 THE PROSPECTUS
Franklin U.S. Treasury Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How
Information does the Fund Measure
Performance?"
4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion Contained in Registrant's Annual
of Fund Performance 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 the Fund and its
Shareholders"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 "How Do I Sell Shares?"; "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 THE PROSPECTUS
Franklin U.S. Government Agency Money Market Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How
Information does the Fund Measure
Performance?"
4. General Description "How is the Trust Organized?";
of Registrant "How does the Fund Invest its
Assets?"
5. Management of the Fund "Who Manages the Fund?"
5A. Management's Discussion Contained in Registrant's Annual
of Fund Performance 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 the Fund and its
Shareholders"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 "How Do I Sell Shares?"; "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 THE PROSPECTUS
Money Market Portfolio
Franklin U.S. Government Securities Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How
Information does the Fund Measure
Performance?"
4. General Description "How is the Trust Organized?";
of 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 Contained in Registrant's Annual
of Fund Performance 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 the Fund and its
Shareholders"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 "How Do I Sell Shares?"; "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 THE PROSPECTUS
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
1. Cover Page Cover Page
2. Synopsis "Expense Summary"
3. Condensed Financial "Financial Highlights"; "How
Information does the Fund Measure
Performance?"
4. General Description "How is the Trust Organized?";
of 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 Contained in Registrant's Annual
of Fund Performance 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 the Fund and its
Shareholders"
7. Purchase of Securities "How Do I Buy Shares?"; "May I
Being 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 "How Do I Sell Shares?"; "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 B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin Cash Reserves Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Prospectus "How is the Trust
History Organized?"
13. Investment Objectives "How does the Fund Invest its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the "Officers and Trustees";
Registrant "Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
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 Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How are Fund Shares
Being Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin U.S. Treasury Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Prospectus "How is the Trust
History Organized?"
13. Investment Objectives "How does the Fund Invest its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the "Officers and Trustees";
Registrant "Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
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 Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How are Fund Shares
Being Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin U.S. Government Agency Money Market Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Prospectus "How is the Trust
History Organized?"
13. Investment Objectives "How does the Fund Invest its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the "Officers and Trustees";
Registrant "Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
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 Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How are Fund Shares
Being Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCIARY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Money Market Portfolio
Franklin U.S. Government Securities Money Market Portfolio
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Prospectus "How is the Trust
History Organized?"
13. Investment Objectives "How does the Fund Invest its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the "Officers and Trustees";
Registrant "Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
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 Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and Exchange
Pricing of Securities Shares?"; "How are Fund Shares
Being Offered Valued?"; "Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
INSTITUTIONAL FIDUCAIRY TRUST
CROSS REFERENCE SHEET
FORM N-1A
Part B: Information Required in the
STATEMENT OF ADDITIONAL INFORMATION
Franklin Institutional Adjustable U.S. Government Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
N-1A LOCATION IN
ITEM NO. ITEM REGISTRATION STATEMENT
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Prospectus "How is the Trust
History Organized?"
13. Investment Objectives "How does the Fund Invest its
and Policies Assets?"; "Investment
Restrictions"
14. Management of the "Officers and Trustees";
Registrant "Investment Management and Other
Services"
15. Control Persons and "Officers and Trustees";
Principal Holders of "Investment Management and Other
Securities Services"; "Miscellaneous
Information"
16. Investment Advisory and "Investment Management and Other
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 Trust
Securities Organized?"
19. Purchase, Redemption and "How Do I Buy, Sell and
Pricing of Securities Exchange Shares?"; "How are
Being Offered Fund Shares Valued?";
"Financial Statements"
20. Tax Status "Additional Information on
Distributions and Taxes"
21. Underwriters "The Fund's Underwriter"
22. Calculation of "How does the Fund Measure
Performance Data Performance?"
23. Financial Statements "Financial Statements"
PROSPECTUS
FRANKLIN CASH
RESERVES FUND
INVESTMENT STRATEGY
INCOME
NOVEMBER 1, 1997
INSTITUTIONAL FIDUCIARY TRUST
This prospectus describes the Franklin Cash Reserves Fund (the "Fund"). It
contains information you should know before investing in the Fund. Please keep
it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated November 1,
1997, which may be amended from time to time. It 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.
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 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.
FRANKLIN CASH RESERVES FUND
Unlike most funds that invest directly in securities, 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 is a series of The Money
Market Portfolios ("Money Market"). Its investment objectives are the same as
the Fund's.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 2
Financial Highlights 3
How does the Fund Invest its Assets? 4
What are the Fund's Potential Risks? 8
Who Administers the Fund? 9
How does the Fund Measure Performance? 11
How Taxation Affects the Fund and its Shareholders 11
How is the Trust Organized? 12
ABOUT YOUR ACCOUNT
How Do I Buy Shares? 13
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 19
Services to Help You Manage Your Account 23
What If I Have Questions About My Account? 24
GLOSSARY
Useful Terms and Definitions 24
FRANKLIN
CASH
RESERVES
FUND
November 1, 1997
When reading this prospectus, you will see certain terms beginning with capital
letters. This means the term is explained in our glossary section
777 Mariners Island Blvd.
P.O. Box 7777
San Mateo
CA 94403-7777
1-800/321-8563
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, 1997. The
Fund's 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 0.40%**
12b-1 Fees 0.22%***
Other Expenses of the Fund and the Portfolio 0.07%
--------
Total Fund Operating Expenses 0.69%**
========
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------
$7 $22 $38 $86
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.
**For the period shown, Advisers had agreed in advance to limit its management
and administration fees. With this reduction, management fees of the Portfolio
were 0.14% and administration fees of the Fund were 0.07%. Total Fund operating
expenses were 0.50%.
*** These fees may not exceed 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. Advisers may end this arrangement at any time upon notice to the
Board. For more information on the fees and expenses of the Fund and the
Portfolio, please see "Who Administers the Fund?"
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering the periods shown below appears in the financial
statements in the Fund's Annual Report to Shareholders for the fiscal year ended
June 30, 1997. 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>
YEAR ENDED JUNE 30,
--------------------------------------
1997 1996 1995
--------------------------------------
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C>
Net asset value at beginning of period $1.00 $1.00 $1.00
Net investment income .050 .052 .052
Distributions from net investment income (.050) (.052) (.052)
--------------------------------------
Net asset value at end of period $1.00 $1.00 $1.00
======================================
Total Return* 5.11% 5.35% 5.34%
RATIOS/SUPPLEMENTAL DATA
Net assets at end of period (in 000's) $76,510 $30,381 $14,545
Ratio of expenses to average net assets1,2 .50% .49% .40%
Ratio of expenses to average net assets
(before fee waiver)1,2 .69% .73% .79%
Ratio of net investment income
to average net assets 5.00% 5.10% 5.69%
</TABLE>
*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It assumes reinvestment of dividends and
capital gains at Net Asset Value.
1Includes the Fund's share of the Portfolio's allocated expenses.
2During the periods indicated, Advisers agreed in advance to waive a portion of
its administration fees of the Fund and its management fees of the Portfolio.
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVES
The investment objectives of the Fund are high current income (in the context of
the type of investments available to the Fund) 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 objectives and substantially similar policies and
restrictions as the Fund. Any additional exceptions are noted below.
The Fund also attempts to maintain a stable Net Asset Value of $1 per share,
although there is no assurance that this will be achieved.
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
will achieve its objectives.
TYPES OF SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The Portfolio follows certain
procedures required by federal securities laws with respect to the quality,
maturity and diversification of its investments. These procedures are designed
to help maintain a stable $1 share price. Generally, they require the Portfolio
to maintain a dollar-weighted average portfolio maturity of 90 days or less and
to limit its investments to U.S. dollar denominated instruments that:
o the Board of Trustees of Money Market determines present minimal credit
risks;
o are rated by nationally recognized rating services in one of the two
highest rating categories, or are unrated but are considered to be
comparable in quality to securities that have been rated in one of the two
highest rating categories; and
o have remaining maturities of 397 calendar days or less.
These procedures also limit the amount of assets that the Portfolio may invest
in the securities of a single issuer. Generally, the Portfolio may not invest
more than 5% of its total assets in the securities of a single issuer, other
than in U.S. government securities. For a more complete description of the
Portfolio's diversification policies, please see "How does the Fund Invest its
Assets?" in the SAI. A description of the various rating categories is also
included in the SAI. Please see "Appendices - Description of Ratings." Because
the Portfolio limits its investments to high-quality securities, its portfolio
will generally earn lower yields than a portfolio with lower-quality securities
that are subject to greater risk. The yield to shareholders in the Portfolio,
and thus the Fund, is accordingly likely to be lower.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in U.S. government
securities. These include marketable fixed-, floating-, and variable-rate
securities issued or guaranteed by the U.S. government or its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government. Some of these securities, including U.S. Treasury bills, notes, and
bonds and securities of the Government National Mortgage Association and the
Federal Housing Administration, are issued or guaranteed by the U.S. government
or carry a guarantee that is supported by the full faith and credit of the U.S.
government. Other U.S. government securities are issued or guaranteed by federal
agencies or government-sponsored enterprises and are not direct obligations of
the U.S. government. Instead, they involve sponsorship or guarantees by
government agencies or enterprises. For example, some securities are supported
by the right of the issuer to borrow from the U.S. Treasury, such as obligations
of the Federal Home Loan Bank, and some are supported by the credit of the
instrumentality, such as obligations of the Federal National Mortgage
Association.
BANK OBLIGATIONS. The Portfolio may invest in bank obligations, or instruments
secured by bank obligations, including fixed-, floating-, or variable-rate CDs,
letters of credit, time deposits, bank notes, and bankers' acceptances issued by
banks and savings institutions with assets of at least $1 billion. Time deposits
are non-negotiable deposits that are held in a banking institution for a
specified time at a stated interest rate. The Portfolio may not invest more than
10% of its assets in time deposits with more than seven days to maturity.
The Portfolio may invest in obligations of U.S. banks, foreign branches of U.S.
banks, foreign branches of foreign banks, and U.S. branches of foreign banks
that have a federal or state charter to do business in the U.S. and are subject
to U.S. regulatory authorities. The Portfolio may invest in an obligation issued
by a branch of a bank only if the parent bank has assets of at least $5 billion,
and may invest only up to 25% of its assets in obligations of foreign branches
of U.S. or foreign banks. The Portfolio may, however, invest more than 25% of
its assets in certain domestic bank obligations, including U.S. branches of
foreign banks.
COMMERCIAL PAPER. The Portfolio may invest in commercial paper of domestic or
foreign issuers. Commercial paper typically refers to short-term obligations of
banks, corporations, and other borrowers with maturities of up to 270 days.
Variable master demand notes are a type of commercial paper. They are direct
arrangements between a lender and a borrower that allow daily changes to the
amount borrowed and to the interest rate. The Portfolio, as lender, may increase
or decrease the amount provided by the note agreement, and the borrower may
repay up to the full amount of the note without penalty. Typically, the borrower
may also set the interest rate daily, usually at a rate that is the same or
similar to the interest rate on other commercial paper issued by the borrower.
The Portfolio does not have any limit on the amount of its assets that may be
invested in master demand notes and may invest only in master demand notes of
U.S. issuers.
Because variable master demand notes are direct lending arrangements between the
lender and the borrower, they generally are not traded and do not have a
secondary market. They are, however, redeemable at face value plus accrued
interest at any time, although the Portfolio's ability to redeem a note is
dependent on the ability of the borrower to pay the principal and interest on
demand. When determining whether to invest in a master demand note, Advisers
considers, among other things, the earning power, cash flow, and other liquidity
ratios of the issuer.
CORPORATE OBLIGATIONS. The Portfolio may invest in corporate obligations,
including fixed-, floating-, and variable-rate bonds, debentures, or notes.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities. Municipal securities are issued by or on behalf of
states, territories, or possessions of the U.S., the District of Columbia, or
their political subdivisions, agencies, or instrumentalities. They are generally
issued to raise money for various public purposes, such as constructing public
facilities and making loans to public institutions. Certain types of municipal
securities are issued to provide funding for privately operated facilities and
are generally taxable.
OTHER INVESTMENT POLICIES OF THE PORTFOLIO
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Portfolio may buy and sell
securities on a "when-issued" and "delayed-delivery" basis. These are trading
practices where payment and delivery of the securities take place at a future
date. These transactions are subject to market fluctuations and the risk that
the value of a security at delivery may be more or less than its purchase price.
Repurchase Agreements. In a repurchase agreement, the Portfolio buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Portfolio by a
custodian bank approved by Money Market's Board of Trustees. The bank or
broker-dealer must transfer to the custodian securities with an initial market
value of at least 102% of the repurchase price to help secure the obligation to
repurchase the securities at a later date. The securities are then
marked-to-market daily to maintain coverage of at least 100%. If the bank or
broker-dealer does not repurchase the securities as agreed, the Portfolio may
experience a loss or delay in the liquidation of the securities underlying the
repurchase agreement and may also incur liquidation costs. The Portfolio,
however, intends to enter into repurchase agreements only with banks or
broker-dealers that are considered creditworthy by Advisers.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its portfolio securities
to qualified securities dealers or other institutional investors, if the loans
do not exceed 25% of the value of the Portfolio's total assets at the time of
the most recent loan. The Portfolio, however, currently intends to limit its
lending of securities to no more than 5% of its total assets.
PORTFOLIO TRADING. The Portfolio may actively trade securities in its portfolio,
without limitation, if Advisers believes that yields could be increased by doing
so. Advisers considers current market conditions, cash requirements, and its
revised evaluations of a security when determining whether or not to hold
securities until maturity. The yield on certain securities held by the Portfolio
may decline if the securities are sold before maturity.
BORROWING. The Portfolio may borrow up to 5% of its total assets from banks for
temporary or emergency purposes. The Portfolio will not make any new investments
while any outstanding loans exceed 5% of its total assets.
ILLIQUID INVESTMENTS. The Portfolio's policy is not to invest more than 10% of
its net assets 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 securities subject to legal or contractual restrictions on resale,
securities that are not readily marketable, and repurchase agreements and master
demand notes with more than seven days to maturity.
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.
The Fund and the Portfolio consider their respective policies and restrictions
discussed in this prospectus and in the SAI at the time of investment. Neither
the Fund nor the Portfolio is generally required to sell a security because of a
change in circumstances.
THE FUND'S MASTER/FEEDER FUND STRUCTURE
The Fund's structure, whereby it invests all of its assets in the Portfolio, is
sometimes known as a "Master/Feeder Fund Structure." This 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 Templeton Funds have three other funds that invest in the
Portfolio; two are designed for institutional investors only and one, Franklin
Templeton Money Fund II, is available only to Class II shareholders in the
Franklin Templeton Funds pursuant to that fund's exchange privilege. In the
future, other funds may be created that may likewise invest in the Portfolio, or
existing funds may be restructured so that they may invest in the Portfolio. If
requested, we will forward additional information to you about other funds
through which you may invest in the Portfolio. If you would like to receive this
information, please call Fund Information.
The Portfolio is a diversified series of Money Market, an open-end management
investment company. Money Market was organized as a Delaware business trust on
June 16, 1992, and is registered with the SEC. 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 ARE THE FUND'S POTENTIAL RISKS?
FOREIGN SECURITIES. Investments in securities of foreign issuers, including
obligations of foreign branches of U.S. and foreign banks and obligations of
U.S. branches of foreign banks, involve special risks. These risks include
future unfavorable political and economic developments, possible withholding
taxes, seizure of foreign deposits, currency controls, interest limitations, or
other governmental restrictions that may affect the payment of principal or
interest on securities held by the Portfolio. In addition, there may be less
publicly available information about foreign issuers.
CREDIT, MARKET AND INTEREST RATE 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 that affect the market as a whole. A security's maturity length
also affects its price. In addition, changes in interest rates may affect the
value of a security. Generally, when interest rates rise the value of a security
falls, and vice versa. Interest rates have increased and decreased in the past.
These changes are unpredictable. The short duration and high credit quality of
the securities in which the Portfolio, and thus the Fund, invests may generally
reduce these risks.
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 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 the Portfolio changes its objective or any of its
fundamental policies and shareholders of the Fund do not approve the change for
the Fund, 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
Fund's assets 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.
WHO ADMINISTERS THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the 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 manages the Portfolio's assets
and makes its investment decisions. Advisers also performs similar services for
other funds. 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.
Together, Advisers and its affiliates manage over $212 billion in assets.
Advisers also provides certain administrative services and facilities for the
Fund. 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, 1997, the Fund's proportionate
share of the Portfolio's management fees, before any advance waiver, totaled
0.15% of the average daily net assets of the Fund. The Fund's administration
fees, before any advance waiver, totaled 0.25%. Total operating expenses,
including fees paid to Advisers before any advance waiver, were 0.69%. Under an
agreement by Advisers to limit its fees, the Fund paid a proportionate share of
the Portfolio's management fees totaling 0.14% and administration fees totaling
0.07%. Total expenses of the Fund were 0.50%. 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, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Portfolio
Buy Securities for its Portfolio?" in the SAI for more information.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for the expenses of activities that are
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; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
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. Commonly used measures
of performance include 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 guarantee 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 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 generally 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 stable $1 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 its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes.
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 with your tax advisor with respect to the applicability of
state and local intangible property or income taxes to your investment in the
Fund 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.
HOW IS THE TRUST ORGANIZED?
The Fund is a no-load, diversified series of Institutional Fiduciary Trust (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. 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. Additional series may be offered in the future.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
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. Individuals may not otherwise buy shares of the Fund. In the case of
retirement plans, there is no required minimum initial investment amount and
shares of the Fund 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.
Certain institutional investors, such as corporations, banks, and savings and
loan associations, may also purchase shares of the Fund 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.
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METHOD STEPS TO FOLLOW
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BY MAIL 1. For an initial investment, complete and sign 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.
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METHOD STEPS TO FOLLOW
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BY WIRE 1. Call Institutional Services at 1-800/321-8563 or
See "Holiday Schedule" under 650/312-3600 to advise of your intention to wire funds
"Transaction Procedures and for investment. We must receive your call before 11:15
Special Requirements" a.m. Pacific time. The Fund will supply a wire control
number for the investment. You will need a new number
every time you wire money into your account. If we
receive wire money which is not identified with a
currently effective wire control number, we will return
it to the bank from which it was wired and it will not be
credited to your account.
2. On the same day, wire the funds to Bank of America, ABA
routing number 121000358, for credit to Institutional
Fiduciary Trust-Franklin Cash Reserves Fund, A/C
1493-3-04779. Be sure to include your account number,
account registration, and wire control number. The bank
must receive the wired funds and report the receipt of
wired funds to the Fund by 3:00 p.m. Pacific time. Later
wires are credited the following business day. You should
place and wire your investment as early in the day as
possible.
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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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.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the Fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the Fund on arbitrage rebate calculations.
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
Wire trades placed by the above deadline 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 will not be in proper form
for that day's purchase and will receive credit on the next 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, its investment objective
and policies, 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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THROUGH YOUR DEALER Call your investment representative
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</TABLE>
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 processed
at the Net Asset Value the day your request is received before 11:15 a.m.
Pacific time, with payment for the shares bought 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 processed at the respective Net Asset Value or offering price
of the funds involved on the day your request is received in proper form before
11:15 a.m. Pacific time. Requests received after 11:15 a.m. will be processed on
the following business day.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. The
transactions will be processed as a liquidation from the other fund at its Net
Asset Value on the day the exchange 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 money for the purchase is available and the purchase order
is considered 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, except as noted below.
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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
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 other requirements.
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BY PHONE Call Institutional Services at 1-800/321-8563
See "Holiday Schedule"
under "Transaction o You may exceed $50,000 by completing a separate agreement. Call
Procedures and Special Institutional Services to receive a copy.
Requirements"
o Telephone requests will be accepted unless the address on your
account was changed by phone within the last 15 days.
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THROUGH YOUR DEALER Call your investment representative
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</TABLE>
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, 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 recently 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
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if 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 charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will 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
SHARE PRICE
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.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day that both the NYSE 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.
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 NYSE and/or the San Francisco Fed observe the
following holidays: New Year's Day, 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 NYSE may modify its holiday schedule at any time. On any
day before or after a NYSE 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 NYSE 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 shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
registered owners, with a signature guarantee if necessary.
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 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 are 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. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. 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.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
We will not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
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 us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by phone, 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
The IRS requires us to 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
CUMULATIVE QUANTITY DISCOUNTS
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.
For additional information regarding these programs, please call Institutional
Services at 1-800/321-8563.
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.
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
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account, the Fund may
not be able to offer these services directly to you. 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.
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.
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.
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
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different 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. 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."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
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 TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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.
NYSE - New York Stock Exchange
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.
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, 1997
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"). It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated November 1,
1997, which may be amended from time to time. It 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.
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 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, JURISDICTION OR COUNTRY 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 Taxation Affects the Fund and its Shareholders 6
How is the Trust Organized? 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 12
Services to Help You Manage Your Account 15
What If I Have Questions About My Account? 16
GLOSSARY
Useful Terms and Definitions 16
- --------------------------------------------------------------------------------
When reading this prospectus, you will see certain terms beginning with capital
letters. 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, 1997. The Fund's 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 0.08%
Total Fund Operating Expenses 0.33%**
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
---------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$3 $11 $19 $42
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.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.12% and total Fund operating
expenses were 0.20%.
***These fees may not exceed 0.15% per year. The Fund has not been required to
make payments for Rule 12b-1 plan 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 covering 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, 1997. 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>
- ------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994 1993 1992+
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------------
Net Investment Income .050 .052 .051 .032 .031 .035
------------------------------------------------------------------
Distributions from Net Investment Income (.050) (.052) (.051) (.032) (.031) (.035)
------------------------------------------------------------------
Net Asset Value at End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
==================================================================
Total Return** 5.09% 5.29% 5.17% 3.23% 3.14% 3.59%
Net Assets at End of Period (in 000's) $68,815 $123,157 $200,935 $195,135 $179,232 $194,223
RATIOS/SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets++ 0.20% 0.19% 0.10% 0.05% 0.05% 0.02%*
Ratio of Net Investment Income to
Average Net Assets 4.97% 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 at Net Asset Value.
+For the period August 2, 1991 (effective date) to June 30, 1992.
++During the periods indicated, Advisers 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:
Ratio of Expenses
TO AVERAGE NET ASSETS
---------------------
1992 0.31%*
1993 0.35
1994 0.30
1995 0.30
1996 0.30
1997 0.33
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to obtain as high a level of current income
(in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The 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 will achieve its
objective. The Fund also attempts to maintain a stable Net Asset Value of $1 per
share, although there is no assurance that this will be achieved.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The Fund follows certain
procedures required by federal securities laws with respect to the quality,
maturity and diversification of its investments. These procedures are designed
to help maintain a stable $1 share price. Generally, they require the Fund to
maintain a dollar-weighted average portfolio maturity of 90 days or less and to
limit its investments to U.S. dollar denominated instruments that:
o the Board determines present minimal credit risks;
o are rated by nationally recognized rating services in one of the two
highest rating categories, or are unrated but are considered to be
comparable in quality to securities that have been rated in one of the two
highest rating categories; and
o have remaining maturities of 397 calendar 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.
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. 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.
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.
Each of the Fund's policies and restrictions discussed in this prospectus and in
the SAI is considered at the time the Fund makes an investment. The Fund is
generally not required to sell a security because of a change in circumstances.
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 manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. Advisers
also provides certain administrative services and facilities for 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. Together, Advisers and
its affiliates manage over $212 billion in assets. 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. During the fiscal year ended June 30, 1997 management fees,
before any advance waiver, totaled 0.25% of the average daily net assets of the
Fund. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.33%. Under an agreement by Advisers to limit its fees,
the Fund paid management fees totaling 0.12%. Total expenses of the Fund were
0.20%. 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, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy
Securities for its Portfolio?" in the SAI for more information.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for the expenses of activities that are
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; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
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. Commonly used measures
of performance include 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 guarantee 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 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 generally 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 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 its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes.
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 investment in 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.
HOW IS THE TRUST ORGANIZED?
The Fund is a no-load, diversified series of Institutional Fiduciary Trust (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. 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. Additional series may be offered in the future.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
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.
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METHOD STEPS TO FOLLOW
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BY MAIL 1. For an initial investment, complete and sign 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.
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BY WIRE 1. Call Institutional Services at 1-800/321-8563 or
See "Holiday Schedule" under 650/312-3600 to advise of your intention to wire funds for
"Transaction Procedures and investment. We must receive your call before 11:15 a.m.
Special Requirements" Pacific time. The Fund will supply a wire control number
for the investment. You will need a new number every time
you wire money into your account. If we receive wire money
which is not identified with a currently effective wire
control number, we will return it to the bank from which
it was wired and it will not be credited to your account.
2. On the same day, 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. Be sure to include your
account number, account registration, and wire control
number. The bank must receive the wired funds and report
the receipt of wired funds to the Fund by 3:00 p.m.
Pacific time. Later wires are credited the following
business day. You should place and wire your investment as
early in the day as possible.
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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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.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the Fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the Fund on arbitrage rebate calculations.
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
Wire trades placed by the above deadline 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 will not be in proper form
for that day's purchase and will receive credit on the next 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, its investment objective
and policies, 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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THROUGH YOUR DEALER Call your investment representative
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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 processed
at the Net Asset Value the day your request is received before 11:15 a.m.
Pacific time, with payment for the shares bought 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 processed at the respective Net Asset Value or offering price
of the funds involved on the day your request is received in proper form before
11:15 a.m. Pacific time. Requests received after 11:15 a.m. will be processed on
the following business day.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. The
transactions will be processed as a liquidation from the other fund at its Net
Asset Value on the day the exchange 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 money for the purchase is available and the purchase order
is considered 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, except as noted below.
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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
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 other requirements.
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BY PHONE Call Institutional Services at 1-800/321-8563
See "Holiday Schedule" under
"Transaction Procedures and o You may exceed $50,000 by completing a separate agreement.
Special Requirements" Call Institutional Services to receive a copy.
o Telephone requests will be accepted unless the address on your
account was changed by phone within the last 15 days.
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</TABLE>
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, 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 recently 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
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if 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 charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will 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
SHARE PRICE
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.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day that both the NYSE 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.
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 NYSE and/or the San Francisco Fed observe the
following holidays: New Year's Day, 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 NYSE may modify its holiday schedule at any time. On any
day before or after a NYSE 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 NYSE 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 shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
registered owners, with a signature guarantee if necessary.
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 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 are 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. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. 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.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
We will not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
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 us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by phone, 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.
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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
The IRS requires us to 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
CUMULATIVE QUANTITY DISCOUNTS
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.
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 for Franklin accounts.
You will need the Fund's code number to use TeleFACTS. The Fund's code number 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.
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
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account, the Fund may
not be able to offer these services directly to you.
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.
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
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different 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. 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."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
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 TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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.
NYSE - New York Stock Exchange
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
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, 1997
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"). It contains information you should know before investing in the
Fund. Please keep it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated November 1,
1997, which may be amended from time to time. It 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.
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 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, JURISDICTION OR COUNTRY 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? 7
How Taxation Affects the Fund and its Shareholders 7
How is the Trust Organized? 8
ABOUT YOUR ACCOUNT
How Do I Buy Shares? 8
May I Exchange Shares for Shares of Another Fund? 10
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
What If I Have Questions About My Account? 16
GLOSSARY
Useful Terms and Definitions 16
- --------------------------------------------------------------------------------
When reading this prospectus, you will see certain terms beginning with capital
letters. 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, 1997. The Fund's 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 0.29%***
Other Expenses 0.04%
Total Fund Operating Expenses 0.48%**
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
---------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$5 $15 $27 $60
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.
**For the period shown, Advisers had agreed in advance to limit its management
fees. With this reduction, management fees were 0.12% and total Fund operating
expenses were 0.45%.
***These fees may not exceed 0.30%.
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering the periods shown below appears in the financial
statements in the Trust's Annual Report to Shareholders for the fiscal year
ended June 30, 1997. 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>
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994+
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $1.00 $1.00 $1.00 $1.00
------------------------------------------------------------
Net Investment Income 0.49 .051 .051 .013
------------------------------------------------------------
Distributions From Net Investment Income (0.49) (.051) (.051) (.013)
------------------------------------------------------------
Net Asset Value at End of Period $1.00 $1.00 $1.00 $1.00
============================================================
Total Return** 5.06% 5.23% 5.22% 1.31%
RATIOS/SUPPLEMENTAL DATA
Net Assets at End of Period (in 000's) $134,362 $71,694 $34,285 $5,065
Ratio of Expenses to Average Net Assets++ .45% .44% .30% .40%*
Ratio of Net Investment Income to Average Net Assets 4.95% 5.04% 5.39% 3.32%*
</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, if any, at Net Asset Value.
+For the period February 8, 1994 (effective date) to June 30, 1994.
++During the periods indicated, Advisers agreed in advance to waive a portion of
its management fees. 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
---------------------
1994+ 1.43*
1995 0.47
1996 0.47
1997 0.48
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
will achieve its objectives. The Fund also attempts to maintain a stable Net
Asset Value of $1 per share, although there is no assurance that this will be
achieved.
TYPES OF SECURITIES IN WHICH THE FUND MAY INVEST
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The Fund follows certain
procedures required by federal securities laws with respect to the quality,
maturity and diversification of its investments. These procedures are designed
to help maintain a stable $1 share price. Generally, they require the Fund to
maintain a dollar-weighted average portfolio maturity of 90 days or less and to
limit its investments to U.S. dollar denominated instruments that:
o the Board determines present minimal credit risks;
o are rated by nationally recognized rating services in one of the two
highest rating categories, or are unrated but are considered to be
comparable in quality to securities that have been rated in one of the two
highest rating categories; and
o have remaining maturities of 397 calendar 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 various instrumentalities which have been
established or sponsored by the U.S. government. The Fund invests at least 65%
of its net assets 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, its
yields will be generally lower 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 which are not readily marketable if, as a
result, more than 10% 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. 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.
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.
Each of the Fund's policies and restrictions discussed in this prospectus and in
the SAI is considered at the time the Fund makes an investment. The Fund is
generally not required to sell a security because of a change in circumstances.
CREDIT, MARKET AND INTEREST RATE 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 that affect the market as a whole. A security's maturity length
also affects its price. In addition, changes in interest rates may affect the
value of a security. Generally, when interest rates rise the value of a security
falls, and vice versa. Interest rates have increased and decreased in the past.
These changes are unpredictable. The short duration and high credit quality of
the securities in which the Fund invests may generally reduce these risks.
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 manages the Fund's assets and makes its investment
decisions. Advisers also performs similar services for other funds. Advisers
also provides certain administrative services and facilities for 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. Together, Advisers and
its affiliates manage over $212 billion in assets. 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. During the fiscal year ended June 30, 1997, management fees,
before any advance waiver, totaled 0.15% of the average daily net assets of the
Fund. Total operating expenses, including fees paid to Advisers before any
advance waiver, were 0.48%. Under an agreement by Advisers to limit its fees,
the Fund paid management fees totaling 0.12%. Total expenses of the Fund were
0.45%. 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, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Fund Buy
Securities for its Portfolio?" in the SAI for more information.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for the expenses of activities that are
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; a prorated portion of Distributors' overhead expenses; and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
Payments by the Fund under the plan may not exceed 0.30% 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. Commonly used measures
of performance include 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 guarantee 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 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 generally 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 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 its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of 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.
HOW IS THE TRUST ORGANIZED?
The Fund is a no-load, diversified series of Institutional Fiduciary Trust (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. 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. Additional series may be offered in the future.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
As of October 2, 1997, Republic Bank of California, N.A. owned of record and
beneficially more than 25% of the outstanding shares of the Fund.
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 no minimum
initial investment. We may refuse any order to buy shares or waive the minimum
investment requirement.
<TABLE>
<CAPTION>
- ------------------------------ ------------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- ------------------------------ ------------------------------------------------------------------------------
<S> <C>
BY MAIL 1. For an initial investment, complete and sign 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 1. Call Institutional Services at 1-800/321-8563 or 1-650/312-3600 to advise
See "Holiday Schedule" under of your intention to wire funds for investment. We must receive your
"Transaction Procedures and call before 11:15 a.m. Pacific time. The Fund will supply a wire
Special Requirements" control number for the investment. You will need a new number every
time you wire money into your account. If we receive wire money which
is not identified with a currently effective wire control number, we
will return it to the bank from which it was wired and it will not be
credited to your account.
2. On the same day, 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 1493304779. Be sure to include
your account number, account registration, and wire control number. The
bank must receive the wired funds and report the receipt of wired funds
to the Fund by 3:00 p.m. Pacific time. Later wires are credited the
following business day. To maximize efficient Fund management, you
should place and wire your investment as early in the day as possible.
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.
- ------------------------------ ------------------------------------------------------------------------------
</TABLE>
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.
The investment authority of certain investors may be restricted by law. If you
are such an investor, you should consult your legal advisor to determine whether
and to what extent shares of the Fund are legal investments for you. If you are
a municipal investor considering investing proceeds of bond offerings, you
should consult with expert counsel to determine the effect, if any, of payments
by the Fund on arbitrage rebate calculations.
MORE INFORMATION ABOUT BUYING SHARES BY WIRE
Wire trades placed by the above deadline 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 will not be in proper form
for that day's purchase and will receive credit on the next 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, its investment objective
and policies, and its rules and requirements for exchanges. For example, some
Franklin Templeton Funds do not accept exchanges and others may have different
investment minimums.
<TABLE>
<CAPTION>
- ------------------------ --------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- ------------------------ --------------------------------------------------------------------------
<S> <C>
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.
- ------------------------ --------------------------------------------------------------------------
</TABLE>
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 employee benefit 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 processed
at the Net Asset Value the day your request is received 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 Fund.
FROM THE FUND INTO CLASS I SHARES OF OTHER FRANKLIN TEMPLETON FUNDS. 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 in proper form before
11:15 a.m. Pacific time. Requests received after 11:15 a.m. will be processed on
the following business day.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. The
transactions will be processed as a liquidation from the other fund at its Net
Asset Value on the day the exchange 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 money for the purchase is available and the purchase order
is considered 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, except as noted below.
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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
<TABLE>
<CAPTION>
- ------------------------------- -----------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- ------------------------------- -----------------------------------------------------------------------------
<S> <C>
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 other requirements.
- ------------------------------- -----------------------------------------------------------------------------
- ------------------------------- -----------------------------------------------------------------------------
BY PHONE 1. Call Institutional Services at 1-800/321-8563
See "Holiday Schedule" under
"Transaction Procedures and 2. For requests over $50,000, you must complete an Institutional Telephone
Special Requirements" 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 15 days.
- ------------------------------- -----------------------------------------------------------------------------
</TABLE>
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, 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 recently 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
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if 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 charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will 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 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
SHARE PRICE
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.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day that both the NYSE 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.
HOLIDAY SCHEDULE
In order to receive same-day credit for transactions, you need to transmit your
request to buy, sell, or exchange shares before 11:15 a.m. Pacific time, except
on holidays or the day before or after a holiday.
The Fund is informed that the NYSE and/or the San Francisco Fed observe the
following holidays: New Year's Day, 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 NYSE may modify its holiday schedule at any time. On any
day before or after a NYSE 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 the Fund's portfolio securities are traded in other markets on days
the San Francisco Fed or the NYSE 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 shareholder
application and check or wired funds. Written requests to sell or exchange
shares are in proper form when we receive written instructions signed by all
registered owners, with a signature guarantee if necessary.
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 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 are 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. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. 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.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
We will not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
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 us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by phone, 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
The IRS requires us to 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
CUMULATIVE QUANTITY DISCOUNTS
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.
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(R) 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 for Franklin accounts.
You will need the Fund's code number to use TeleFACTS(R). The Fund's code number
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.
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
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account, the Fund may
not be able to offer these services directly to you.
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.
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
ADVISERS - Franklin Advisers, Inc., the Fund's investment manager
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different 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. 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."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
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 TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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.
NYSE - New York Stock Exchange
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
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, 1997
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"). Each series may individually or together be referred to as the
"Fund(s)." It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated November 1,
1997, which may be amended from time to time. It 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.
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 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, JURISDICTION OR COUNTRY 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? 5
What are the Fund's Potential Risks? 10
Who Administers the Fund? 11
How does the Fund Measure Performance? 12
How Taxation Affects the Fund
and its Shareholders 12
How is the Trust Organized? 13
ABOUT YOUR ACCOUNT
How Do I Buy Shares? 13
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 22
What If I Have Questions
About My Account? 23
GLOSSARY
Useful Terms and Definitions 23
- --------------------------------------------------------------------------------
When reading this prospectus, you will see certain terms beginning with capital
letters. 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, 1997. The
Fund's actual expenses may vary.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
MONEY U.S. SECURITIES
FUND FUND
A. SHAREHOLDER TRANSACTION EXPENSES+
<S> <C> <C>
Exchange Fee (per transaction)* $5.00 $5.00
B. ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management and Administration Fees** 0.20% 0.20%
12b-1 Fees*** 0.00% 0.00%
Other Expenses of the Fund
and the Portfolio 0.04% 0.06%
Total Fund Operating Expenses** 0.24% 0.26%
</TABLE>
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
-------------------------------------------------------------------------
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Money Fund $2 $8 $14 $31
U.S. Securities Fund $3 $8 $15 $33
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.
**For the period shown, Advisers agreed in advance to waive or limit the
Portfolio's management and the Fund's administration fee and make certain other
payments of expenses so that total Fund operating expenses would not exceed
0.20%. With this reduction, Money Fund's proportionate share of the Portfolio
management and administration fee, and total operating expenses was 0.16% and
0.20%, respectively, and U.S. Securities Fund's proportionate share of the
Portfolio management and administration fee, and total operating expenses was
0.14% and 0.20%, 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. Advisers may end this arrangement at any time upon notice to the
Board. For more information on the fees and expenses of the Fund and the
Portfolio, please see "Who Administers the Fund?"
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Trust's Annual Report to Shareholders for the fiscal
year ended June 30, 1997. The Annual Report to Shareholders also includes more
information about the Fund's performance. For a free copy, please call
Institutional Services at 1-800/321-8563.
<TABLE>
<CAPTION>
MONEY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value at
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net Investment Income .053 .055 .053 .033 .033 .046 .071 .083 .086 .070
Distributions From Net
Investment Income (.053) (.055) (.053) (.033) (.033) (.046) (.071) (.083) (.086) (.070)
-------------------------------------------------------------------------------------------------
Net Asset Value at
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================
Total Return** 5.42% 5.61% 5.46% 3.35% 3.30% 4.72% 7.28% 8.65% 8.97% 7.23%
RATIOS/SUPPLEMENTAL DATA
Net Assets at End
of Period (in millions) $185 $341 $272 $218 $222 $189 $232 $236 $122 $102
Ratio of Expenses to
Average Net Assets++ .20%+ .19%+ .15%+ .15%+ .20%+ .25% .25% .25% .25% .05%
Ratio of Net Investment
Income to Average Net Assets 5.27% 5.45% 5.40% 3.24% 3.25% 4.69% 7.11% 8.27% 8.68% 7.00%
U.S. SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988***
PER SHARE OPERATING PERFORMANCE
Net Asset Value at
Beginning of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
Net Investment Income .052 .054 .052 .032 .031 .045 .070 .084 .080 .024
Distributions From Net
Investment Income (.052) (.054) (.052) (.032) (.031) (.045) (.070) (.084) (.080) (.024)
-------------------------------------------------------------------------------------------------
Net Asset Value at
End of Period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
=================================================================================================
Total Return** 5.29% 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 Period (in millions) $137 $152 $335 $219 $310 $195 $373 $203 $54 $22
Ratio of Expenses to
Average Net Assets++ 0.20%+ 0.19%+ 0.15%+ 0.15%+ 0.19%+ 0.25% 0.25% 0.21% - -
Ratio of Net Investment
Income to Average
Net Assets 5.14% 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.
***For the period January 19, 1988 (effective date) to June 30, 1988.
+Includes the Fund's share of the Portfolio's allocated expenses.
++During the periods indicated, Advisers agreed in advance to waive a portion of
its administration fees and the management fees of 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
---------------------
MONEY FUND
1988 0.079%
1989 0.078
1990 0.074
1991 0.71
1992 0.74
1993 0.49+
1994 0.25+
1995 0.24+
1996 0.24+
1997 0.24+
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
---------------------
U.S. GOVERNMENT FUND
1988 0.57%*
1989 0.70
1990 0.62
1991 0.56
1992 0.59
1993 0.45+
1994 0.25+
1995 0.23+
1996 0.26+
1997 0.26+
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The investment objective of the Money Fund is to obtain as high a level of
current income (in the context of the type of investments available to the Fund)
as is consistent with capital preservation and liquidity. The investment
objective of the U.S. Securities Fund is to obtain as high a level of current
income (in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The Money Fund seeks to
achieve its objective 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 objective of the Portfolio is the same as the Fund's.
The investment policies of the Fund are also substantially similar to the
Portfolio's except, in all cases, the Fund may pursue its policies by investing
in an open-end management investment company with the same investment objective
and substantially similar policies and restrictions as the Fund. Any additional
exceptions are noted below.
The Fund also attempts to maintain a stable Net Asset Value of $1 per share,
although there is no assurance that this will be achieved.
The Fund acquires shares of the Portfolio at Net Asset Value. An investment in
the Fund is an indirect investment in the Portfolio. The investment objective of
both the Fund and the Portfolio is fundamental and may not be changed without
shareholder approval. Of course, there is no assurance that the Fund's will
achieve its objective.
TYPES OF SECURITIES IN WHICH THE PORTFOLIO MAY INVEST
Quality, Diversification and Maturity Standards. The Portfolio follows certain
procedures required by federal securities laws with respect to the quality,
maturity and diversification of its investments. These procedures are designed
to help maintain a stable $1 share price. Generally, they require the Portfolio
to maintain a dollar-weighted average portfolio maturity of 90 days or less and
to limit its investments to U.S. dollar denominated instruments that:
o the Board of Trustees of Money Market determines present minimal credit
risks;
o are rated by nationally recognized rating services in one of the two
highest rating categories, or are unrated but are considered to be
comparable in quality to securities that have been rated in one of the two
highest rating categories; and
o have remaining maturities of 397 calendar days or less.
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.
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 or in repurchase agreements (as described below) collateralized
by such securities. 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 (popularly called "GNMAs" or "Ginnie
Maes") and the Federal Housing Administration, which are 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 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 are included within this fundamental policy.
At the present time, it is the U.S. Securities Portfolio's policy to limit its
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.
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 corporate obligations,
taxable municipal securities and repurchase agreements (secured by U.S.
government securities).
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"). Some of these securities, including
U.S. Treasury bills, notes, and bonds, GNMAs and securities of 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. For example, some securities are supported by the right of the
issuer to borrow from the U.S. Treasury, such as obligations of the Federal Home
Loan Bank, and some securities are supported by the credit of the
instrumentality, such as Federal National Mortgage Association bonds.
BANK OBLIGATIONS. The Money Portfolio may invest in bank obligations or
instruments secured by bank obligations. These include fixed, floating or
variable rate CDs, letters of credit, time deposits, bank notes, and bankers'
acceptances issued by banks and savings institutions with assets of at least $1
billion. Time deposits are non-negotiable deposits maintained in a 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. Bank obligations may be obligations
of U.S. banks, foreign branches of U.S. banks, U.S. branches of foreign banks
and foreign branches of foreign banks. When investing in a bank obligation
issued by a branch, the parent bank must have assets of at least $5 billion. The
Money Portfolio may invest no more than 25% of its assets in obligations of
foreign branches of U.S. or foreign banks. The Money 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.
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 only invest in notes of U.S. issuers.
CORPORATE OBLIGATIONS. The corporate obligations that the Money Portfolio may
buy are fixed, floating and variable rate bonds, debentures or notes.
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. 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
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 U.S. government securities from a bank or broker-dealer
at one price and agrees to sell them back to the bank or broker-dealer at a
higher price on a specified date. The securities subject to resale are held on
behalf of the Portfolio by a custodian bank approved by the Money Market Board
of Trustees. The bank or broker-dealer must transfer to the underwriter
securities with an initial market value of at least 102% of the repurchase price
to help secure the obligation to repurchase the securities at a later date. The
securities are then marked-to-market daily to maintain coverage of at least
100%. If the bank or broker-dealer does not repurchase the securities as agreed,
the Portfolio may experience a loss or delay in the liquidation of the
securities underlying the repurchase agreement and may also incur liquidation
costs. The Portfolio, however, intends to enter into repurchase agreements only
with banks or broker-dealers that are considered 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 federal securities laws.
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 guidelines approved by the Board
of Trustees of Money Market, 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 Portfolio, however, currently intends to limit
its lending of securities to no more than 5% of its total assets.
ILLIQUID INVESTMENTS. The Portfolio's policy is not to invest more than 10% of
its net assets 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 securities subject to legal or contractual restrictions on resale
and repurchase agreements and master demand notes with more than seven days to
maturity.
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 from banks for such purposes 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.
THE FUND'S MASTER/FEEDER FUND STRUCTURE
The Fund's structure, whereby it invests all of its assets in the Portfolio, is
sometimes known as a "Master/Feeder Fund Structure." This 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 Templeton Funds have three other funds that invest in the Money
Portfolio and one other that invests in the U.S. 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 Institutional Services at 1-800/321-8563.
The Portfolio is a diversified series of Money Market, an open-end management
investment company. Money Market was organized as a Delaware business trust on
June 16, 1992, and is registered with the SEC. 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?"
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.
Each of the Fund's and the Portfolio's policies and restrictions discussed in
this prospectus and in the SAI is considered at the time the Fund or the
Portfolio makes an investment. The Fund and the Portfolio are generally not
required to sell a security because of a change in circumstances.
WHAT ARE THE FUND'S POTENTIAL RISKS?
FOREIGN SECURITIES RISK. Investments in securities of foreign issuers, including
obligations of foreign banks, U.S. branches of foreign banks and foreign
branches of U.S. banks, and investments in commercial paper of foreign issuers
involve risks that are different from investments in securities and obligations
of domestic issuers. 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, MARKET AND INTEREST RATE 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 that affect the market as a whole. A security's maturity length
also affects its price. In addition, changes in interest rates may affect the
value of a security. Generally, when interest rates rise the value of a security
falls, and vice versa. Interest rates have increased and decreased in the past.
These changes are unpredictable. The short duration and high credit quality of
the securities in which the Portfolio, and thus the Fund, invests may generally
reduce these risks.
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 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 the Portfolio changes its objective, or any of its
fundamental policies and shareholders of the Fund do not approve the change for
the Fund, 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
Fund's assets 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.
WHO ADMINISTERS THE FUND?
THE BOARD. The Board oversees the management of the Fund and elects its
officers. The officers are responsible for the Fund's day-to-day operations.
The Board, with approval of all disinterested and interested Board members, has
adopted written procedures designed to deal with potential conflicts of interest
that may arise from the 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 manages the Portfolio's assets
and makes its investment decisions. Advisers also performs similar services for
other funds. 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.
Together, Advisers and its affiliates manage over $212 billion in assets.
Advisers is also the administrator of the Fund. 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, 1997, 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, absent a fee waiver, would have been 0.15% and 0.05%,
respectively, of the average daily net assets of the U.S. Securities Fund, with
total operating expenses of 0.26%.
Under an agreement by Advisers to limit its fees and make certain payments to
reduce Fund expenses, each Fund paid a proportionate share of the Portfolio's
management fees totaling 0.14%. The Money Fund paid administration fees totaling
0.02% and the U.S. Securities Fund paid no administration fees. Total expenses
of each Fund were 0.20%. 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, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Portfolio
Buy Securities for its Portfolio?" in the SAI for more information.
THE RULE 12B-1 PLAN
The Fund has a distribution plan or "Rule 12b-1 Plan" under which it may
reimburse Distributors or others for the expenses of activities that are
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, a prorated portion of Distributors' overhead expenses, and the
expenses of printing prospectuses and reports used for sales purposes, and
preparing and distributing sales literature and advertisements.
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. Commonly used measures
of performance include 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 guarantee 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 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 generally 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 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 its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes.
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.
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.
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. Additional series may be
offered in the future.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
ABOUT YOUR ACCOUNT
HOW DO I BUY SHARES?
OPENING YOUR ACCOUNT
The Fund is available for investment by institutional investors, such as
corporations, banks, savings and loan associations, trust companies, and other
institutional and 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. 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. 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 which 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.
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<CAPTION>
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METHOD STEPS TO FOLLOW
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<S> <C>
BY MAIL 1. For an initial investment, complete an Institutional 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.
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BY WIRE 1. Call the Fund at 1-800/321-8563 or 1-650/312-3600 by 11:15 a.m. Pacific
See "Holiday Schedule" under time for the Money Fund and by 1:30 p.m. Pacific time for the U.S.
"Transactions Procedures and Securities Fund to receive that day's credit and be eligible to receive
Special Requirements" that day's dividend. The Fund will supply a wire control number for the
investment. A new number is needed every time you wire money into your
account. Wire money which is not identified with a currently effective
wire control number will be returned to the bank from which it was wired
and it will not be credited to your account.
2. On the same day, 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
account number, account registration, name and wire control number must
be included. Wired funds must be received by the bank and reported by the
bank to the Fund by 3:00 p.m. Pacific time. Later wires are credited the
following business day. To maximize efficient Fund management, you are
urged to place your order and wire your investments as early in the day
as possible.
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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</TABLE>
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.
The investment authority of certain institutional investors may be restricted by
law. If you are such an investor, you should consult your legal advisor to
determine whether and to what extent shares of the Fund are legal investments
for you. If you are a municipal investor considering investing proceeds of bond
offerings, you should consult with expert counsel to determine the effect, if
any, of payments by the Fund on arbitrage rebate calculations.
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. 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, its investment objective
and policies, 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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<S> <C>
BY MAIL Send us written instructions signed by all account owners
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METHOD STEPS TO FOLLOW
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BY PHONE Call Institutional Services at 1-800/321-8563 or 1-650/312-3567
- For requests over $50,000, you must complete an Institutional Telephone
Privileges Agreement. Call Institutional Services to receive a copy.
- ------------------------ -------------------------------------------------------------------------
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THROUGH YOUR DEALER Call your investment representative
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</TABLE>
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 employee benefit 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 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, 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 prior to the above deadlines. Requests received after the deadlines
will be effective at the next day's price.
FROM ANOTHER FUND IN THE FRANKLIN TEMPLETON FUNDS INTO THE FUND. 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.
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, except as noted below.
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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
HOW DO I SELL SHARES?
You may sell (redeem) your shares at any time.
<TABLE>
<CAPTION>
- --------------------------------- ----------------------------------------------------------------------------
METHOD STEPS TO FOLLOW
- --------------------------------- ----------------------------------------------------------------------------
<S> <C>
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 other
requirements.
- --------------------------------- ----------------------------------------------------------------------------
- --------------------------------- ----------------------------------------------------------------------------
BY PHONE 1. Call Institutional Services at 1-800/321-8563
See "Holiday Schedule" under
"Transactions Procedures and 2. For requests over $50,000, you must complete an Institutional Telephone
Special Requirements" Privileges Agreement. Call Institutional Services to receive a copy.
o Telephone requests will be accepted unless:
The address on your account was changed by phone within the last 15 days.
- --------------------------------- ----------------------------------------------------------------------------
- --------------------------------- ----------------------------------------------------------------------------
THROUGH YOUR DEALER Call your investment representative
- --------------------------------- ----------------------------------------------------------------------------
</TABLE>
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 for the Money Fund and 1:30 p.m.
Pacific time for the U.S. Securities Fund. 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 (regardless of 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, 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 recently 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
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if 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 charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will 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 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 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
SHARE PRICE
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.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day that both the NYSE and the San Francisco
Fed are open. We determine the Net Asset Value per share at 12:30 p.m. Pacific
time for the Money Fund and 3.00 p.m. Pacific time 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.
HOLIDAY SCHEDULE
In order to receive same day credit for transactions, you need to transmit your
request to buy, sell or exchange shares before 11:15 a.m. Pacific time for the
Money Fund and before 1:30 p.m. Pacific time for the U.S. Securities Fund,
except on holidays or the day before or after a holiday.
The Funds are informed that the NYSE 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
Funds expect the same holiday schedule to be observed in the future, the San
Francisco Fed or the NYSE may modify its holiday schedule at any time. On any
day before or after a NYSE 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 the Fund's portfolio securities are traded in other markets on days
the San Francisco Fed or the NYSE 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. 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.
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
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 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 are 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. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. 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.
When you call, we will request personal, corporate or other identifying
information, to confirm that instructions are genuine. We may also record calls.
We will not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
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 us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by phone, 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.
ACCOUNT REGISTRATIONS AND REQUIRED DOCUMENTS
When you open an account, we need you 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, we cannot accept
instructions 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. You should register your account as a trust only if you have a valid
written trust document. This avoids 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.
<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>
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 cannot 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.
IMPORTANT INFORMATION IF YOU HAVE AN INVESTMENT REPRESENTATIVE
If there is a Securities Dealer or other representative of record on your
account, we are authorized: (1) to provide confirmations, account statements and
other information about your account directly to your dealer and/or
representative; and (2) to accept telephone and electronic instructions directly
from your dealer or representative, including instructions to exchange or redeem
your shares. Electronic instructions may be processed through established
electronic trading systems and programs used by the Fund. Telephone instructions
directly from your representative will be accepted unless you have let us know
that you do not want telephone privileges to apply to your account.
TAX IDENTIFICATION NUMBER
The IRS requires us to have your correct Social Security or 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 ($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 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 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.
CUMULATIVE QUANTITY DISCOUNTS
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.
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(R) 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 deposits slips for Franklin accounts.
You will need the Fund's code number to use TeleFACTS(R). 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 Institutional Services if you
would like an additional free copy of the Fund's financial reports.
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
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.
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.
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
ADVISERS - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
BOARD - The Board of Trustees of the Trust
CDS - Certificates of Deposit
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different 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."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
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 TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
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
NYSE - New York Stock Exchange
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
U.S. - United States
WE/OUR/US - Unless the context indicates a different meaning, these terms refer
to the Fund and/or Institutional Services, Investor Services, Distributors, or
other wholly owned subsidiaries of Resources.
INSTITUTIONAL
FIDUCIARY TRUST
PROSPECTUS
NOVEMBER 1, 1997
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 series may individually or together be referred to as the
"Fund(s)." It contains information you should know before investing in the Fund.
Please keep it for future reference.
The Fund has a Statement of Additional Information ("SAI"), dated November 1,
1997, which may be amended from time to time. It 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.
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 seeks to achieve its investment objective by investing all of
its assets in shares of the U.S. Government Adjustable Rate Mortgage Portfolio
(the "Mortgage Portfolio"), and the Adjustable Rate Securities Fund seeks to
achieve its investment objective by investing all of its assets in the
Adjustable Rate Securities Portfolio (the "Securities Portfolio"). The Mortgage
Portfolio and the Securities Portfolio, each a series of the Adjustable Rate
Securities Portfolios, may individually or together be referred to as the
"Portfolio(s)." The investment objective of the Fund is the same as the
investment objective of the Portfolio in which it invests.
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN ANY
STATE, JURISDICTION OR COUNTRY 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 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? 19
How Taxation Affects the Fund
and its Shareholders 20
How is the Trust Organized? 21
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 26
Services to Help You
Manage Your Account 28
What If I Have Questions
About My Account? 28
GLOSSARY
Useful Terms and Definitions 28
- --------------------------------------------------------------------------------
When reading this prospectus, you will see certain terms beginning with capital
letters. 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, 1997. The
Portfolio's expenses are based on its expenses for the eight months ended June
30, 1997, and are annualized. The Fund's actual expenses may vary.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
ADJUSTABLE U.S. ADJUSTABLE RATE
GOVERNMENT FUND SECURITIES FUND
<S> <C> <C>
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 0.45%** 0.45%**
Other Expenses of the Fund and the Portfolio 0.16% 0.17%
Total Fund Operating Expenses 0.61%** 0.62%**
</TABLE>
C. EXAMPLE
Assume the Fund's annual return is 5%, operating expenses are as described
above, and you sell your shares after the number of years shown. These are
the projected expenses for each $1,000 that you invest in the Fund.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Adjustable U.S. Government Fund $6 $20 $34 $76
Adjustable Rate Securities Fund $6 $20 $35 $77
</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 Portfolio and administration fees of the Fund were
0.40% and 0.05%, respectively. Advisers had agreed in advance to limit its
management fees. With this reduction, management fees of the Adjustable U.S.
Government Fund and the Adjustable Rate Securities Fund were 0.22% and 0.20%,
respectively. Total operating expenses of the Adjustable U.S. Government Fund
and the Adjustable Rate Securities Fund, including expenses of the Portfolio,
were 0.43% and 0.42%, 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. Advisers may
end this arrangement at any time upon notice to the Board. For more information
on the fees and expenses of the Fund and the Portfolio, please see "Who
Administers the Fund?"
FINANCIAL HIGHLIGHTS
This table summarizes the Fund's financial history. The information has been
audited by Coopers & Lybrand L.L.P., the Fund's independent auditors. Their
audit report covering each of the most recent five years appears in the
financial statements in the Trust's Annual Report to Shareholders for the fiscal
year ended June 30, 1997. 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>
ADJUSTABLE U.S. GOVERNMENT SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994 1993 1992+
PER SHARE OPERATING PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value at Beginning of Period $9.28 $9.25 $9.40 $9.86 $9.99 $10.00
------------------------------------------------------------------------------
Net Investment Income .57 .60 .55 .36 .48 .37
Net Realized & Unrealized Gain (Loss) on Securities .09 .03 (.15) (.47) (.13) (.01)
------------------------------------------------------------------------------
Total From Investment Operations .66 .63 .40 (.11) .35 .36
------------------------------------------------------------------------------
Distributions from Net Investment Income (.58) (.60) (.55) (.35) (.48) (.37)
------------------------------------------------------------------------------
Net Asset Value at End of Period $9.36 $9.28 $9.25 $9.40 $9.86 $9.99
==============================================================================
Total Return** 7.37% 6.98% 4.41% (1.11)% 4.01% 3.70%
RATIOS/SUPPLEMENTAL DATA
Net Assets at End of Year (in 000's) $7,471 $9,448 $25,020 $51,738 $861,311 $1,265,392
Ratio of Expenses to Average Net Assets*** .43% .38% .23% .07% .35% .35%*
Ratio of Net Investment Income to Average Net Assets 6.12% 5.90% 5.81% 3.49% 4.89% 6.24%*
Portfolio Turnover Rate 6.78% 102.66% 14.86% 29.47% 66.55% 62.79%
ADJUSTABLE RATE SECURITIES FUND
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JUNE 30 1997 1996 1995 1994 1993 1992++
PER SHARE OPERATING PERFORMANCE
Net Asset Value at Beginning of Period $9.79 $9.78 $9.77 $10.04 $10.04 $10.00
------------------------------------------------------------------------------
Net Investment Income .59 .60 .59 .44 .56 .24
Net Realized & Unrealized Gain (Loss) on Securities .14 .01 .01 (.27) - .04
------------------------------------------------------------------------------
Total From Investment Operations .73 .61 .60 .17 .56 .28
------------------------------------------------------------------------------
Distributions from Net Investment Income (.59) (.60) (.59) (.44) (.56) (.24)
------------------------------------------------------------------------------
Net Asset Value at End of Period $9.93 $9.79 $9.78 $9.77 $10.04 $10.04
==============================================================================
Total Return** 7.66% 6.41% 6.35% 1.65% 5.72% 2.82%
RATIOS/SUPPLEMENTAL DATA
Net Assets at End of Year (in 000's) $4,754 $4,453 $8,596 $31,198 $44,734 -
Ratio of Expenses to Average Net Assets*** .42% .36% .31% .25% - -
Ratio of Net Investment Income to Average Net Assets 6.03% 6.16% 5.84% 4.32% 5.56% 7.13%*
Portfolio Turnover Rate 18.02% 45.98% 12.44% 197.22% 74.77% -
</TABLE>
+For the period November 1, 1991 (effective date) to June 30, 1992.
++For the period January 3, 1992 (effective date) 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 and the
Fund. 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
-----------------------
ADJUSTABLE U.S. GOVERNMENT FUND
1997 0.61%
1996 0.55
1995 0.54
1994 0.45
1993 0.46
1992+ 0.49*
RATIO OF EXPENSES
TO AVERAGE NET ASSETS
-----------------------
ADJUSTABLE RATE SECURITIES FUND
1997 0.62%
1996 0.61
1995 0.59
1994 0.50
1993 0.60
1992++ 0.69*
HOW DOES THE FUND INVEST ITS ASSETS?
THE FUND'S INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of current income,
consistent with lower volatility of principal. The Adjustable U.S. Government
Fund seeks to achieve its objective by investing all of its assets in the
Mortgage Portfolio, and the Adjustable Rate Securities Fund seeks to achieve its
investment objective by investing all of its assets in the Securities Portfolio.
The investment objective of the Fund is the same as the investment objective of
the Portfolio. The investment policies of the Fund are also substantially
similar to the corresponding 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 corresponding Portfolio. The
investment objectives of the Fund and the Portfolio are fundamental and may not
be changed without shareholder approval. Of course, there is no assurance that
the Fund and the Portfolio will achieve their objectives.
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 having 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 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 Securities Portfolio's investment objective.
Privately issued mortgage securities are generally structured with one or more
types of credit enhancement. The Securities Portfolio will only invest in
securities rated at least AA by S&P or Aa by 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 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. The Portfolio's investments in time
deposits will not exceed 10% of its total assets.
For temporary defensive purposes, the 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 they issue 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
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 Securities Portfolio's quality standards. The
Securities 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 Securities 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 prepayments of
mortgages, and the Fund may have to reinvest the proceeds from the prepayments
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 securities interest paid on ARS
and, therefore, the current income earned by the Securities 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. (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 Securities Portfolio and of the Net Asset Value of
the Securities Portfolio's and thus the Adjustable Rate Securities 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 Securities Portfolio does not seek to maintain an
overall average cap or floor, although Advisers will consider caps or floors in
selecting ARS for the Securities Portfolio.
While the Securities 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 Securities Portfolio, the
fluctuation in market value of the ARS held by the Securities Portfolio is
expected to be relatively limited, since the interest rates on the ARS 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 Securities Portfolio's
holdings may fluctuate more substantially since the caps and floors of its ARS
may not permit the interest rates to adjust to the full extent of the movements
in the market 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 Securities Portfolio's and thus the Adjustable Rate
Securities Fund's Net Asset Value.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"), REAL ESTATE MORTGAGE INVESTMENT
CONDUITS ("REMICS"), AND MULTI-CLASS PASS-THROUGHS. The Portfolio may invest in
CMOs and REMICs issued and guaranteed by U.S. government agencies or
instrumentalities.
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 predict more accurately 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.
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 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 Securities 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 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 Securities 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
Securities 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 (a) per reset or
adjustment interval and (b) 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 Securities 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 Securities 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
Securities Portfolio. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Securities Portfolio may fail to
recoup fully 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. Because 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, to increase liquidity, and/or to 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. In a repurchase agreement, the Portfolio buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Portfolio by a
custodian bank approved by the Board. The bank or broker-dealer must transfer to
the custodian securities with an initial market value of at least 102% of the
repurchase price to help secure the obligation to repurchase the securities at a
later date. The securities are then marked-to-market daily to maintain coverage
of at least 100%. If the bank or broker-dealer does not repurchase the
securities as agreed, the Portfolio may experience a loss or delay in the
liquidation of the securities underlying the repurchase agreement and may also
incur liquidation costs. The Portfolio, however, intends to enter into
repurchase agreements only with banks or broker-dealers that are considered
creditworthy by Advisers.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS. The Portfolio may buy U.S.
government obligations (or any securities in the case of the Securities
Portfolio) 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 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 securities on a when-issued
basis with the intention of acquiring the securities, it may sell the securities
before the settlement date if the Portfolio deems it to be 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 does 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
Adjustable Rate Securities Portfolios' 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 Securities 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 Securities
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 Securities
Portfolio's Net Asset Value may increase or decrease at a greater rate than if
the Securities Portfolio were not leveraged. The interest payable on the amount
borrowed increases the Securities Portfolio's expenses (and thus reduces the
income to the Adjustable Rate Securities Fund), and if the appreciation and
income produced by the investments purchased with the borrowings exceed the cost
of the borrowing, leveraging may reduce the investment performance of the
Securities Portfolio.
The Fund may not 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 the Fund's 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's policy is not to invest more than 10% of
its net assets 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.
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 policies, please see "How does the Fund Invest its Assets?" and
"Investment Restrictions" in the SAI.
Each of the Fund's and the Portfolio's policies and restrictions discussed in
this prospectus and in the SAI is considered at the time the Fund makes an
investment. The Fund and the Portfolio are generally not required to sell a
security because of a change in circumstances.
THE FUND'S MASTER/FEEDER FUND STRUCTURE
The Fund's structure, whereby it invests all of its assets in the Portfolio, is
sometimes known as a "Master/Feeder Fund Structure." This 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 Templeton Funds have one other fund that invests in the Mortgage
Portfolio and one other 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 Fund Information.
The Portfolio is a 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. The Adjustable 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 Fund believes that by investing in the respective
Portfolio, which in turn invests primarily in securities that provide for
variable interest rates, it 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
the 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?"
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.
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 the Fund invests its assets in shares of the
corresponding 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.
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 shareholders in the corresponding 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 diminish. Institutional investors in the
Portfolio that have a greater pro rata ownership interest in the Portfolio than
the corresponding Fund could also have effective voting control over the
operation of the Portfolio. Furthermore, if the Portfolio changes its objective
or any of its fundamental policies and shareholders of the Fund do not approve
the change for the Fund, 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 corresponding Portfolio at any time. In that
event, the Board would consider what action to take, including the investment of
all of the Fund's assets 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.
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 you should
consider before investing in the Adjustable Rate Securities Fund. As indicated
above, the interest rate reset features of ARS held by the Securities Portfolio
will reduce the effect on the Securities Portfolio's Net Asset Value per share
caused by changes in market interest rates. The market value of ARS and,
therefore, the Securities Portfolio's and the Adjustable Rate Securities 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
Securities Portfolio, the greater the potential for fluctuations in the
Securities Portfolio's and thus the Adjustable Rate Securities Fund's Net Asset
Value.
As an investor in the Adjustable Rate Securities Fund, you will receive
increased income as a result of upward adjustments of the interest rates on ARS
held by the Securities Portfolio in response to market interest rates. The
Adjustable Rate Securities 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 Adjustable Rate
Securities Fund and its shareholders from an increase in the Securities
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
Securities Portfolio. The Adjustable Rate Securities 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, because 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 prices. 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 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 the Adjustable Rate Securities Portfolios
having substantially the same boards. These procedures call for an annual review
of the Fund's relationship with the corresponding 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 manages the Portfolio's assets
and makes its investment decisions. Advisers also performs similar services for
other funds. 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.
Together, Advisers and its affiliates manage over $212 billion in assets.
Advisers is also the administrator of the Fund. 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 TEAM. The team responsible for the day-to-day management of the
Portfolio in which the 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.
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, 1997, the Adjustable U.S. Government
Fund's proportionate share of the Mortgage Portfolio's management fees was 0.40%
and the Fund's administration fees, before any advance waiver, was 0.05% of the
average daily net assets of the Fund. The Adjustable Rate Securities Fund's
proportionate share of the Securities Portfolio's management fees was 0.40% and
the Fund's administration fees, before any advance waiver, was 0.05% of the
average daily net assets of the Fund. Total operating expenses, including the
expenses of the Portfolio, before any advance waiver, totaled 0.61% for the
Adjustable U.S. Government Fund and 0.62% for the Adjustable Rate Securities
Fund.
Under an agreement by Advisers to limit its fees, the Adjustable U.S. Government
Fund and the Adjustable Rate Securities Fund paid a proportionate share of their
corresponding Portfolio's management fees totaling 0.22% and 0.20%,
respectively. Total expenses of the Adjustable U.S. Government Fund and the
Adjustable Rate Securities Fund were 0.43% and 0.42%, 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, as well as shares of other funds in the Franklin Templeton Group
of Funds, when selecting a broker or dealer. Please see "How does the Portfolio
Buy Securities for its Portfolio?" in the SAI for more information.
HOW DOES THE FUND MEASURE PERFORMANCE?
From time to time, the Fund advertises its performance. Commonly used measures
of performance include 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 Offering Price. 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 guarantee 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 TAXATION AFFECTS THE FUND AND ITS SHAREHOLDERS
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 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 generally 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, 1997, 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 its dividends and distributions at the
time they are paid and will, promptly after the close of each calendar year,
advise you of the tax status for federal income tax purposes of 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.
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. 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.
Additional series may be offered in the future.
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. The Trust or a
series of the Trust may hold special meetings, however, for matters requiring
shareholder approval. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares. In
certain circumstances, we are required to help you communicate with other
shareholders about the removal of a Board member.
As of October 2, 1997, Dai-Ichi Kangyo Bank of California owned of record and
beneficially more than 25% of the outstanding shares of the Adjustable Rate
Securities Fund.
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.
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METHOD STEPS TO FOLLOW
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<S> <C>
BY MAIL 1. For an initial investment, complete and sign an account 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.
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BY WIRE 1. Call the Fund at 1-800/321-8563 or 650/312-3600 to advise of your intention to wire
funds for investment. We must receive your call before 1:00 p.m. Pacific time. The
Fund will supply a wire control number for the investment. You will need a new
number every time you wire money into your account. If we receive wire money which
is not identified with a currently effective wire control number, we will return it
to the bank from which it was wired and we will not credit it to your account.
2. On the same 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 1493304779. Be sure
to include your account number, account registration, and wire control number. The
bank must receive the wired funds and report the receipt of wired funds to the Fund
by 3:00 p.m. Pacific time. Later wires are credited the following business day. To
maximize efficient Fund management, you should place and wire your investment as
early in the day as possible.
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 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.
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, its investment objective
and policies, 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 or 1-650/312-3567.
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, certain 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, except as noted below.
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 have: (i) requested an
exchange out of the Fund within two weeks of an earlier exchange request,
(ii) exchanged shares out of the Fund more than twice in a calendar
quarter, or (iii) exchanged 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 have exchanged 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, operations 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 EXCHANGES BETWEEN DIFFERENT CLASSES OF SHARES
Certain funds in the Franklin Templeton Funds offer classes of shares not
offered by the Fund, such as "Advisor Class" or "Class Z" shares. Because the
Fund does not currently offer an Advisor Class, you may exchange Advisor Class
shares of any Franklin Templeton Fund for shares of the Fund at Net Asset Value.
If you do so and you later decide you would like to exchange into a fund that
offers an Advisor Class, you may exchange your Fund shares for Advisor Class
shares of that fund. Certain shareholders of Class Z shares of Franklin Mutual
Series Fund Inc. may also exchange their Class Z shares for shares of the Fund
at Net Asset Value.
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 other 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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THROUGH YOUR DEALER Call your investment representative
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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 the Fund about this on the prior business day.
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, 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 recently 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
Most Franklin Templeton Funds impose a Contingent Deferred Sales Charge on
certain investments if you sell all or a part of the investment within the
Contingency Period. While the Fund generally does not impose a Contingent
Deferred Sales Charge, it will do so if 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 charge is 1%
of the value of the shares sold or the Net Asset Value at the time of purchase,
whichever is less. The time the shares are held in the Fund does not count
towards the completion of any Contingency Period.
We will first redeem any shares in your account that are not subject to the
charge. If there are not enough of these to meet your request, we will 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 are not guaranteed, are subject to the Board's discretion, and
may vary with each payment. 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. 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
SHARE PRICE
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.
HOW AND WHEN SHARES ARE PRICED
The Fund is open for business each day the NYSE is open. We determine the Net
Asset Value per share as of the scheduled close of the NYSE, 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.
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.
Many of the Fund's investments, through the Portfolio, must be paid for in
federal funds, which are monies held by the Fund's custodian bank on deposit at
the Federal Reserve Bank of San Francisco and elsewhere. The Fund generally
cannot invest money received from you until it is converted into and is
available to the Fund in federal funds. Therefore, your purchase order may not
be considered in proper form until the money received from you is available in
federal funds, which may take up to two days. If the Fund is able to make
investments immediately (within one business day), it may accept your order with
payment in other than federal funds.
WRITTEN INSTRUCTIONS
Written instructions must be signed by all registered owners. To avoid any delay
in processing your transaction, they should include:
o Your name,
o The Fund's name,
o A description of the request,
o For exchanges, the name of the fund you are 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. You should be
able to obtain a signature guarantee from a bank, broker, credit union, savings
association, clearing agency, or securities exchange or association. 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.
When you call, we will request personal, corporate, or other identifying
information to confirm that instructions are genuine. We may also record calls.
We will not be liable for following instructions communicated by telephone if we
reasonably believe they are genuine. For your protection, we may delay a
transaction or not implement one if we are not reasonably satisfied that the
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 us written
instructions, as described elsewhere in this prospectus. If you are unable to
execute a transaction by phone, 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.
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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
The IRS requires us to 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
CUMULATIVE QUANTITY DISCOUNTS
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.
AVAILABILITY OF THESE SERVICES
The services above are available to most shareholders. If, however, your shares
are held by a financial institution or in a street name account the Fund may not
be able to offer these services directly to you.
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
ADVISERS - Franklin Advisers, Inc., the Portfolio's investment manager and the
Fund's administrator
BOARD - The Board of Trustees of the Trust
CLASS I - Certain funds in the Franklin Templeton Funds offer multiple classes
of shares. The different 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. 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."
FRANKLIN TEMPLETON FUNDS - The U.S. registered mutual funds in the Franklin
Group of Funds(R) and the Templeton Group of Funds except Franklin Valuemark
Funds, Franklin Government Securities Trust, Templeton Capital Accumulator Fund,
Inc., Templeton Variable Annuity Fund, and Templeton Variable Products Series
Fund
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
INSTITUTIONAL SERVICES - Franklin Templeton Institutional Services Department
IRS - Internal Revenue Service
MARKET TIMERS - Market Timers generally include market timing or asset
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 or whose transactions include
frequent or large exchanges.
MOODY'S - Moody's Investors Service, 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.
NYSE - New York Stock Exchange
RESOURCES - Franklin Resources, Inc.
S&P - Standard & Poor's Corporation
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.
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, 1997
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 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 15
Financial Statements 17
Useful Terms and Definitions 17
Appendices
Summary of Procedures to
Monitor Conflicts of Interest 18
Description of Ratings 18
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When reading this SAI, you will see certain terms beginning with 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 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, 1997, 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.
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.
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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?
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 are substantially similar 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.
DIVERSIFICATION. The Portfolio is a diversified fund. As fundamental policies,
the Portfolio may not buy a security if, with respect to 75% of its total
assets, more than 5% would be invested in the securities of any one issuer, and
the Portfolio may not invest in a security if the Portfolio would own more than
10% of the outstanding voting securities of any one issuer. These limitations do
not apply to obligations issued or guaranteed by the U.S. government or its
instrumentalities.
As a money market fund, however, the Portfolio is required by federal securities
laws to follow certain procedures that may be more restrictive than some of the
Portfolio's other policies or investment restrictions. With respect to
diversification, these procedures require that the Portfolio not invest more
than 5% of its total assets in securities of a single issuer, other than U.S.
government securities, although it may invest up to 25% of its total assets in
securities of a single issuer that are rated in the highest rating category for
a period of up to three business days after purchase. The Portfolio also may not
invest more than (a) the greater of 1% of its total assets or $1 million in
securities issued by a single issuer that are rated in the second highest rating
category; and (b) 5% of its total assets in securities rated in the second
highest rating category. These procedures are fundamental policies of the
Portfolio and the Fund, except to the extent that the Fund invests all of its
assets in another registered investment company with the same investment
objectives and substantially similar policies as the Fund.
OTHER LIMITATIONS. The Portfolio may not invest more than 5% of its total assets
in securities of companies, including predecessors, that have been in continuous
operation for less than three years. The Portfolio also may not invest more than
25% of its total assets in any particular industry, although it may invest more
than 25% of its assets in certain domestic bank obligations. These limitations
do not apply to U.S. government securities, federal agency obligations, or
repurchase agreements fully collateralized by government securities. There are,
however, certain tax diversification requirements that may apply to investments
in repurchase agreements and other securities that are not treated as U.S.
government securities under the Code.
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, if 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. 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 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.
BANK OBLIGATIONS. As discussed in the Prospectus, the Portfolio may invest in
certain bank obligations or instruments secured by bank obligations. These
obligations may include deposits that are fully insured by the U.S. government,
its agencies or instrumentalities, such as deposits in banking and savings
institutions up to the current limit of the insurance on principal provided by
the Federal Deposit Insurance Corporation. 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.
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 Advisers 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.
The investment restrictions of the Portfolio are substantially similar to the
investment restrictions of the Fund, 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 the value or liquidity 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 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
Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton (65)
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 (a meat packing company); and director or
trustee, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (65)
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, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 54 of the investment companies in the Franklin Templeton Group of
Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman
of the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief Investment
Officer and Director, Franklin Institutional Services Corporation; Chairman and
Director, Templeton Investment Counsel, Inc.; Vice President, Franklin Advisers,
Inc.; officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 36 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (57)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 57 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 26 of the investment companies in the Franklin
Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 49 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 57 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.; Treasurer,
Franklin Advisory Services, Inc.; Treasurer and Chief Financial Officer,
Franklin Investment Advisory Services, Inc.; President, Franklin Templeton
Services, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of 57 of the
investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 57 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer
and Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 34 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The officers and Board members 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 Money Market but not the Trust.
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH MONEY MARKET DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 29 of the investment companies in the
Franklin Templeton Group of Funds.
R. Martin Wiskemann (70)
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 and Director,
ILA Financial Services, Inc.; and officer and/or director or trustee, as the
case may be, of 17 of the investment companies in the Franklin Templeton Group
of Funds.
The tables above show the officers, Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. Nonaffiliated members
of the Board 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, the nonaffiliated Board members and
trustees of Money Market also serve as directors or trustees 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>
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***
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank H. Abbott, III $4,600 $1,150 $165,236 28
Harris J. Ashton $4,600 $1,150 343,591 52
S. Joseph Fortunato $4,600 $1,150 360,411 54
David W. Garbellano**** $4,200 $1,050 148,916 27
Frank W.T. LaHaye $4,400 $1,100 139,233 26
Gordon S. Macklin $4,600 $1,150 335,541 49
</TABLE>
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***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 58 registered investment companies, with
approximately 170 U.S. based funds or series.
****Deceased, September 27, 1997.
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 or trustee. 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 2, 1997, the officers and Board members did not own 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 and its officers, directors and
employees are covered by fidelity insurance for the protection of the Fund and
the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. 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. 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 0.15% of the
Fund's average daily net assets.
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 0.25% of the value of the Fund's
average daily net assets.
For the fiscal years ended June 30, 1995, 1996 and 1997, management fees of the
Portfolio, before any advance waiver, totaled $1,823,637, $2,162,519 and
$2,547,891, respectively. Administration fees of the Fund, before any advance
waiver totaled $23,461, $61,531 and $148,055. Under an agreement by Advisers to
waive its fees, the Portfolio paid management fees totaling $1,730,028,
$2,034,014 and $2,429,509, and the Fund paid administration fees totaling $0,
$5,315 and $43,899, for the same periods.
The management agreement for the Portfolio is in effect until February 28, 1998.
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 at any time by the
Board of Trustees of Money Market or by a vote of the holders of a majority of
the Portfolio's outstanding voting securities on 30 days' written notice to
Advisers, or by Advisers on 60 days' written notice to the Fund, 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. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Investor Services, in its capacity as the transfer agent for the
Portfolio, effectively acts as the Fund's custodian and holds the Fund's shares
of the Portfolio on its books. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286, acts as custodian of the Fund's
cash, pending investment in shares of the Portfolio. The custodian does 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, 1997, their auditing services consisted of rendering an opinion on the
financial statements of the Fund included in the Fund's Annual Report to
Shareholders for the fiscal year ended June 30, 1997.
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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Trust's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute portfolio transactions.
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 before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Portfolio paid
no brokerage commissions.
As of June 30, 1997, 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 of the Fund may be suspended at any time and resumed at any time
thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
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 NYSE is closed for periods other than weekends
and holidays; (2) trading on the NYSE 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.
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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
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 any 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, 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.
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, 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
securities that the Board of Trustees of Money Market determines present minimal
credit risks and that are rated in one of the two highest rating categories by
nationally recognized rating services, or if unrated are deemed comparable in
quality, or are 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 established procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1, as computed for the purpose of sales and redemptions. These procedures
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 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. If 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, it will take corrective action that it
regards as necessary and appropriate, which may include selling portfolio
instruments before 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 $1
Net Asset Value per share and may result in under or over distributions of
investment company taxable income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Portfolio's portfolio is composed of short-term securities,
the Fund does not expect to realize any long-term capital gains or losses. Any
net short-term or long-term capital gains that are realized by the Fund
(adjusted for any daily amounts of unrealized appreciation or depreciation and
taking into account any capital loss carryforward or post-October loss deferral)
will generally be distributed once each year and may be distributed more
frequently if necessary to avoid federal excise taxes. Any distributions of
capital gain will be reinvested in additional shares of the Fund at Net Asset
Value, unless you have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected 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 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 of the Fund's shares. 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. Distributors may be entitled to
reimbursement under the Rule 12b-1 plan, as discussed below. Except as noted,
Distributors received no other compensation from the Fund for acting as
underwriter.
THE 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 NASD.
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
administration agreement between the Trust and Advisers or the management
agreement between Money Market and 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, 1997, Distributors had eligible expenditures
of $132,792 for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the plan, of which the Fund paid Distributors
$115,560.
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 does not
guarantee 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, 1997,
was 5.15%.
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, 1997, was 5.28%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 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
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin 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 AND 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. 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 49 years and
now services more than 2.7 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, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $212 billion in assets under
management for more than 5.6 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 120 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
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 Templeton 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, the Franklin Templeton Group currently manages over $46
billion in municipal bond assets. Its municipal bond experience and knowledge of
municipal issuers allows the Franklin Templeton Group 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 2, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
- --------------------------------------------------------------------------
FTTC Ttee for ValuSelect 6,287,903.490 6.39%
Westfield Corporation, Inc.
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Ttee for ValuSelect 8,372,729.660 8.51%
Ponderosa Homes Inc.
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438
FTTC Ttee for ValuSelect 11,331,782.980 11.52%
CACI-MMF
Attn: Trading
P.O. Box 2438
Rancho Cordova, CA 95741-2438
City National Bank as Ttee 11,259,861.870 11.44%
c/o BAC/Plan Member Services
Attn: Kerry Dunbar
1200 5th Avenue, Suite 600
Seattle WA 98101-1188
Dai-Ichi Kangyo Bank of
California, Ttee 5,039,186.020 5.12%
c/o BAC/Plan Member Services
Attn: Kerry Dunbar
1200 5th Avenue, Suite 600
Seattle WA 98101-1188
Republic Bank California NA 5,429,517.960 5.52%
445 N. Bedford Dr.
2nd Floor
Beverly Hills, CA 90210-4302
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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group 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 by the close of the business day following the day clearance is
granted; (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 Fund for the fiscal year ended June 30, 1997, 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
FITCH - Fitch Investors Service, Inc.
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies 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
MOODY'S - Moody's Investors Service, Inc.
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.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated November 1, 1997 as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
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.
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 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 before 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, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - 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 that 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 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.
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 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: Municipal 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 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 signs
are not used with 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
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, CDs, 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 an 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, 1997
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? 7
How are Fund Shares Valued? 9
Additional Information on
Distributions and Taxes 9
The Fund's Underwriter 10
How does the Fund
Measure Performance? 12
Miscellaneous Information 13
Financial Statements 14
Useful Terms and Definitions 15
- --------------------------------------------------------------------------------
When reading this SAI, you will see certain terms beginning with 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 Institutional Fiduciary Trust (the "Trust"), an open-end
management investment company. The Fund's investment objective is to obtain as
high a level of current income (in the context of the type of investments
available to the Fund) as is consistent with capital preservation and liquidity.
The Fund seeks to achieve its objective by investing only in U.S. Treasury
securities.
The Prospectus, dated November 1, 1997, 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.
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.
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.
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 Advisers 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 the value or liquidity 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 PAST FIVE YEARS
- --------------------------------------------------------------------------------
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 28 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton (65)
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 (a meat packing company); and director or
trustee, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (65)
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, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 54 of the investment companies in the Franklin Templeton Group of
Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of
the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 53 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief Investment
Officer and Director, Franklin Institutional Services Corporation; Chairman and
Director, Templeton Investment Counsel, Inc.; Vice President, Franklin Advisers,
Inc.; officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 36 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (57)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 57 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 26 of the investment companies in the Franklin
Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 49 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 57 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.; Treasurer,
Franklin Advisory Services, Inc.; Treasurer and Chief Financial Officer,
Franklin Investment Advisory Services, Inc.; President, Franklin Templeton
Services, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of 57 of the
investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 57 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer
and Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 34 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently paid
$200 per month plus $200 per meeting attended. As shown above, the nonaffiliated
Board members also serve as directors or trustees 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>
NUMBER OF
TOTAL FEES BOARDS IN THE
TOTAL FEES RECEIVED FROM THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
NAME THETRUST* GROUP OF FUNDS** WHICH EACH SERVES***
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Frank H. Abbott, III $4,600 $165,236 28
Harris J. Ashton 4,600 343,591 52
S. Joseph Fortunato 4,600 360,411 54
David Garbellano**** 4,200 148,916 27
Frank W.T. LaHaye 4,400 139,233 26
Gordon S. Macklin 4,600 335,541 49
</TABLE>
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***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 58 registered investment companies, with approximately 170 U.S. based
funds or series.
****Deceased, September 27, 1997.
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 or trustee.
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 2, 1997, the officers and Board members did not own 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 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 also provides various administrative, statistical, and
other services to the Fund. Advisers and its officers, directors and employees
are covered by fidelity insurance for the protection of the Fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. 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. 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. Please
see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee (payable at the request of Advisers),equal to an annual rate of
0.25 of 1% of the Fund's average daily net assets.
For the fiscal years ended June 30, 1995, 1996, and 1997, management fees,
before any advance waiver, totaled $554,196, $393,481 and $165,739,
respectively. Under an agreement by Advisers to limit its fees, the Fund paid
management fees totaling $127,141, $227,079 and $81,993 for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until February 28,
1998. 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 on 30 days' written notice to Advisers, or by Advisers on 30 days'
written notice to the Fund, 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. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. 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. The custodian does 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 Trust's independent auditors. During the fiscal year ended June
30, 1997, 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, 1997.
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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
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 before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Fund paid no
brokerage commissions.
As of June 30, 1997, 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.
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 at any time.
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 NYSE is closed for periods other than weekends and holidays or when trading
on the NYSE 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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
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 any 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 the Fund maintain its Net Asset
Value per share of $1, 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 securities that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized rating services, or if
unrated are deemed comparable in quality, or are 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 established procedures designed to stabilize, to the extent
reasonably possible, the Fund's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
Fund's 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 per share based on amortized cost. The extent of any
deviation will be examined by the Board. If a deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. If 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 before 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
Net Asset Value per share 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 distributions of capital gain
will be reinvested in additional shares of the Fund at Net Asset Value, unless
you have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected 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 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 of the Fund's shares. 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.
Distributors may be entitled to reimbursement under the Rule 12b-1 plan, as
discussed below. Except as noted, Distributors receives no other compensation
from the Fund for acting as underwriter.
THE 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 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 NASD.
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.
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 does not
guarantee 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, 1997,
was 4.87%.
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, 1997, was 4.99%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-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
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin 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. 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 $46 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 49 years and
now services more than 2.7 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, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $212 billion in assets under
management for more than 5.6 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 120 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
As of October 2, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------
First Priority Treasury 4,672,045.550 9.25%
Money Market Portfolio
c/o Fist Alabama Bankshares
417 North 20th Street
Birmingham AL 35203-3203
Perry Baker & Co 4,663,883.400 9.24%
c/o The Washington
Trust Company
23 Broad Street
Westerly RI 02891-1827
Visa International 2,782,559.430 5.51%
Collateral Posted by
Bin # 454500 Credit Union
900 Metro Center Blvd.
Foster City CA 94404-2172
Visa International 9,169,260.360 18.17%
Special Account 5
900 Metro Center
Foster City CA 94404-2172
Carroll County Bank 6,094,222.410 12.08%
and Trust Co
Trust Division
45 West Main Street
P.O. Box 1100
Westminster MD 21158-0199
L & W Co 2,929,092.660 5.80%
North Dallas Bank
& Trust Co
P.O. Box 679001
Dallas TX 75367-9001
Sachem Trust 4,450,150.600 8.82%
National Assoc
c/o Webster Trust
P.0. Box 2980
New Britain CT 06051
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, before 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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group 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 by the close of the business day following the day clearance is
granted; (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, 1997, 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
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies 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
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.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated November 1, 1997, 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 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.
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 INFORMATION
NOVEMBER 1, 1997
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 14
Useful Terms and Definitions 15
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
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The Franklin U.S. Government Agency Money Market 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 capital
preservation and liquidity while seeking high current income consistent with
capital preservation and liquidity. The Fund 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 various instrumentalities which have been
established or sponsored by the U.S. government.
The Prospectus, dated November 1, 1997, 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.
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.
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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?
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. The Fund will invest least 65% of
its net assets 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 values 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.
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 Advisers 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.
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 Advisers 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.
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 or liquidity 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
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
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Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton (65)
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 (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (65)
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, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 55 of the investment companies in the Franklin Templeton Group of
Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman
of the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 54 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief Investment
Officer and Director, Franklin Institutional Services Corporation; Chairman and
Director, Templeton Investment Counsel, Inc.; Vice President, Franklin Advisers,
Inc.; officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 36 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (57)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 58 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 50 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 58 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.; Treasurer,
Franklin Advisory Services, Inc.; Treasurer and Chief Financial Officer,
Franklin Investment Advisory Services, Inc.; President, Franklin Templeton
Services, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of 58 of the
investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 58 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer
and Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently paid
$200 per month plus $200 per meeting attended. As shown above, the nonaffiliated
Board members also serve as directors or trustees 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>
NUMBER OF
TOTAL FEES BOARDS IN THE
TOTAL FEES RECEIVED FROM THE FRANKLIN TEMPLETON
RECEIVED FROM FRANKLIN TEMPLETON GROUP OF FUNDS ON
NAME THE TRUST* GROUP OF FUNDS** WHICH EACH SERVES***
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<S> <C> <C> <C>
Frank H. Abbott, III $4,600 $165,236 28
Harris J. Ashton 4,600 343,591 52
S. Joseph Fortunato 4,600 360,411 54
David Garbellano**** 4,200 148,916 27
Frank W.T. LaHaye 4,400 139,233 26
Gordon S. Macklin 4,600 335,541 49
</TABLE>
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***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 58 registered investment companies, with approximately 170 U.S. based
funds or series.
****Deceased, September 27, 1997.
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 or trustee.
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 2, 1997, the officers and Board members did not own 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 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 also provides various administrative, statistical, and
other services to the Fund. Advisers and its officers, directors and employees
are covered by fidelity insurance for the protection of the Fund.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. 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. 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. Please
see "Miscellaneous Information - Summary of Code of Ethics."
MANAGEMENT FEES. Under its management agreement, the Fund pays Advisers a
management fee equal to an annual rate of 0.15% 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, 1996, and 1997, management fees,
before any advance waiver, totaled $21,314, $115,022 and $161,912, respectively.
Under an agreement by Advisers to limit its fees, the Fund paid management fees
totaling $0, $94,095 and $129,722 for the same periods.
MANAGEMENT AGREEMENT. The management agreement is in effect until February 28,
1998. 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 on 60 days' written notice to Advisers, or by Advisers on 60 days'
written notice to the Fund, 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. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. 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. The custodian does 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, 1997, 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, 1997.
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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
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 before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Fund paid no
brokerage commissions.
As of June 30, 1997, 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 NYSE is closed for periods other than weekends and holidays or when trading
on the NYSE 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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
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 any 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 the Fund maintain its Net Asset
Value per share of $1, 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 securities that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized rating services, or if
unrated are deemed comparable in quality, or are 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 established procedures designed to stabilize, to the extent
reasonably possible, the Fund's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
Fund's 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 per share based on amortized cost. The extent of any
deviation will be examined by the Board. If a deviation exceeds 1/2 of 1%, the
Board will promptly consider what action, if any, will be initiated. If 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 before 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
Net Asset Value per share 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 distributions of capital gain
will be reinvested in additional shares of the Fund at Net Asset Value, unless
you have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected 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 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 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 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 of the Fund's shares. 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.
Distributors may be entitled to reimbursement under the Rule 12b-1 plan, as
discussed below. Except as noted, Distributors received no other compensation
from the Fund for acting as underwriter.
THE 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%
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 NASD.
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, 1997, Distributors had eligible expenditures
of $314,740 for advertising, printing, and payments to underwriters and
broker-dealers pursuant to the Plan, of which the Fund paid Distributors
$298,953.
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 does not
guarantee 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, 1997,
was 5.09%.
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, 1997, was 5.23%.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ]-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
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin 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. 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 $46 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 49 years and
now services more than 2.7 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, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $212 billion in assets under
management for more than 5.6 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 120 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
As of October 2, 1997, the principal shareholders of the Fund, beneficial or of
record, were as follows:
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
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Republic Bank of
California, NA
N. Bedford Dr., 2nd Floor
Beverly Hills, CA
90210-4302 106,155,905.270 70.00%
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, before 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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group 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 by the close of the business day following the day clearance is
granted; (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, 1997, 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
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies 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
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.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated November 1, 1997, 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 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.
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
FRANKLIN U.S. GOVERNMENT SECURITIES
MONEY MARKET PORTFOLIO
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1997
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 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? 10
How are Fund Shares Valued? 12
Additional Information on
Distributions and Taxes 12
The Fund's Underwriter 13
How does the Fund
Measure Performance? 15
Miscellaneous Information 16
Financial Statements 18
Useful Terms and Definitions 18
Appendices
Summary of Procedures to Monitor
Conflicts of Interest 18
California Government Code
Section 53601 19
California Government Code
Section 53635 22
Description of Ratings 25
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When reading this SAI, you will see certain terms beginning with capital
letters. 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"). Each
series may be referred to, individually or together, as the "Fund(s)." The
investment objective of the Money Fund is to obtain as high a level of current
income (in the context of the type of investments available to the Fund) as is
consistent with capital preservation and liquidity. The investment objective of
the U.S. Securities Fund is to obtain as high a level of current income (in the
context of the type of investments available to the Fund) as is consistent with
capital preservation and liquidity.
The 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"), two diversified series of
the Money Market Portfolios ("Money Market"). References to the "Portfolio" are
to both the Money Portfolio and the U.S. Securities Portfolio, unless the
context indicates that an individual portfolio is being referenced.
The Prospectus, dated November 1, 1997, 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.
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.
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.
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
substantially similar 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 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. Consistent with procedures approved by Money
Market'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 such loans do not exceed 25% of the value of
the Money Portfolio's total assets and 10% of the value of the U.S. Securities
Portfolio's 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 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%. For the Money Portfolio, this collateral shall consist of cash; for
the U.S. Securities Portfolio, 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 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.
OTHER LIMITATIONS
The Money Portfolio may not invest more than 5% of its total assets in the
securities of companies (including predecessors) which have been in continuous
operation for less than three years, nor invest more than 25% of its total
assets in any particular industry. The Money Portfolio may, however, invest more
than 25% of its assets in certain domestic bank obligations. The foregoing
limitations do not apply to U.S. government securities and federal agency
obligations, or to repurchase agreements 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.
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 Money Fund's
total asset value and up to 10% of the U.S. Securities 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 ("GNMA") 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 the value or liquidity 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 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 (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton (65)
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 (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (65)
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, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 55 of the investment companies in the Franklin Templeton Group of
Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman
of the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 54 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief Investment
Officer and Director, Franklin Institutional Services Corporation; Chairman and
Director, Templeton Investment Counsel, Inc.; Vice President, Franklin Advisers,
Inc.; officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 36 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (57)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 58 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 50 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 58 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37)
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 and Director, Templeton Worldwide,
Inc.; Executive Vice President, Chief Operating Officer and Director, Templeton
Investment Counsel, Inc.; Senior Vice President and Treasurer, Franklin
Advisers, Inc.; Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief
Financial Officer, Franklin Investment Advisory Services, Inc.; President,
Franklin Templeton Services, Inc.; Senior Vice President, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of 58 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 58 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and
Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The officers and trustees 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
NAME, AGE AND ADDRESS WITH MONEY MARKET DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Group of Funds.
*R. Martin Wiskemann (70)
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 and Director,
ILA Financial Services, Inc.; and officer and/or director or trustee, as the
case may be, of 17 of the investment companies in the Franklin Templeton Group
of Funds.
The tables above show the officers and Board members and the trustees of Money
Market who are affiliated with Distributors and Advisers. Nonaffiliated members
of the Board 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, the nonaffiliated Board members and
trustees of Money Market also serve as directors or trustees 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>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME THE TRUST* MONEY MARKET* GROUP OF FUNDS** EACH SERVES***
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank H. Abbott, III $4,600 $1,150 $165,236 29
Harris J. Ashton 4,600 1,150 343,591 53
S. Joseph Fortunato 4,600 1,150 360,411 55
David W. Garbellano+ 4,200 1,050 148,916 28
Frank W.T. LaHaye 4,400 1,100 139,233 27
Gordon S. Macklin 4,600 1,150 335,541 50
</TABLE>
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***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 58 registered investment companies, with
approximately 170 U.S. based funds or series.
+Deceased, September 27, 1997.
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 or trustee. 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 2, 1997, the officers and Board members, as a group, owned of
record and beneficially approximately 4,486,500.560 shares, or 2.26% of the
Money 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 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 and its officers, directors and
employees are covered by fidelity insurance for the protection of the Fund and
the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. 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. 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 .15 of 1% of
the Portfolio's average daily net assets. Advisers provides various
administrative, statistical, and other services to the Fund. Under its
administration agreement, the Fund pays Advisers an administration fee equal to
a rate of 5/100 of 1% of the value of the Fund's average daily net assets. The
fees are computed at the close of business on the last business day of each
month.
For the fiscal years ended June 30, 1995, 1996 and 1997 the management fees of
the Money Portfolio, before any advance waiver, totaled $1,823,637, $3,162,519
and $2,547,891, respectively. For the fiscal years ended June 30, 1995, 1996 and
1997, the management fees of the U.S. Securities Portfolio, before any advance
waiver, totaled $634,994, $484,615 and $404,358, respectively. For the same
periods, administration fees for the Money Fund, before any advance waiver,
totaled $123,118, $154,740 and $150,356, respectively. The administration fees
for the U.S. Securities Fund, during the same periods, before any advance
waiver, totaled $139,800, $98,326 and $70,196, respectively.
For the fiscal years ended June 30, 1995, 1996 and 1997, under an agreement by
Advisers to limit its fees, the Money Portfolio paid management fees totaling
$1,730,028, $2,034,014 and $2,429,509, respectively and the U.S. Securities
Portfolio paid management fees totaling $581,495, $424,848 and $364,509,
respectively. For the same periods, administration fees totaling $0, $28,073,
and $70,428 were paid to Advisers by the Money Fund and $0, $74,881 and $1,694
were paid by the U.S. Securities Fund.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1998. 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 at any time without penalty
by the Board of Trustees of Money Market or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities on 30 days' written
notice to Advisers, or by Advisers on 60 days' written notice to the Portfolio,
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. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Investor Services, in its capacity as the transfer agent for the
Portfolio, effectively acts as the Fund's custodian and holds the Fund's shares
of the Portfolio on its books. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286, acts as custodian of the Fund's
cash, pending investment in shares of the Portfolio. The custodian does 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, 1997, 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, 1997.
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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
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 before maturity to meet redemptions or as a result of a revised
management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Portfolio paid
no brokerage commissions.
As of June 30, 1997, 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 offering of shares of the Fund may be suspended at any time and
resumed at any time thereafter.
ADDITIONAL INFORMATION ON EXCHANGING SHARES
If a substantial number of shareholders should, within a short period, sell
their shares of the Fund under the exchange privilege, the Fund might have to
sell portfolio securities it might otherwise hold and incur the additional costs
related to such transactions.
The proceeds from the sale of shares of an investment company are generally not
available until the fifth business day following the sale. The funds you are
seeking to exchange into may delay issuing shares pursuant to an exchange until
that fifth business day. The sale of Fund shares to complete an exchange will be
effected at Net Asset Value at the close of business on the day the request for
exchange is received in proper form. Please see "May I Exchange Shares for
Shares of Another Fund?" in the Prospectus.
ADDITIONAL INFORMATION ON SELLING SHARES
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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
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 any 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. 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 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 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, 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
securities that the Board of Trustees of Money Market determines present minimal
credit risks and that are rated in one of the two highest rating categories by
nationally recognized rating services, or if unrated are deemed comparable in
quality, or are 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 established procedures designed to
stabilize, to the extent reasonably possible, the Portfolio's price per share at
$1, as computed for the purpose of sales and redemptions. These procedures
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 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. If 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, it will take corrective action that it
regards as necessary and appropriate, which may include selling portfolio
instruments before 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 $1
Net Asset Value per share and may result in under or over distributions of
investment company taxable income.
The Fund may derive capital gains or losses in connection with sales or other
dispositions of its portfolio securities. However, because under normal
circumstances the Portfolio's portfolio is composed of short-term securities,
the Fund does not expect to realize any long-term capital gains or losses. Any
net short-term or long-term capital gains that are realized by the Fund
(adjusted for any daily amounts of unrealized appreciation or depreciation and
taking into account any capital loss carryforward or post-October loss deferral)
will generally be distributed once each year and may be distributed more
frequently if necessary to avoid federal excise taxes. Any distributions of
capital gain will be reinvested in additional shares of the Fund at Net Asset
Value, unless you have previously elected to have them paid in cash.
If you withdraw the entire amount in your account at any time during a month,
all dividends accrued with respect to your account during that month up to the
time of withdrawal will be paid in the same manner and at the same time as your
withdrawal proceeds. You will receive a monthly summary of your account,
including information about dividends reinvested or paid.
The Board may revise the Fund's dividend policy or postpone the payment of
dividends, if warranted in its judgment, due to unusual circumstances such as a
large expense, loss or unexpected fluctuation in net assets.
TAXES
As stated in the Prospectus, the Fund has elected 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 or Federal National Mortgage
Association 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 of the Fund's shares. 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.
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 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 NASD.
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, 1997, 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 does not
guarantee 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, 1997 was
5.46% for the Money Fund and 5.29% 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 effective yield for the seven
day period ended June 30, 1997 was 5.61% for the Money Fund and 5.43% for the
U.S. Securities Fund.
This figure was obtained using the following SEC formula:
365/7
Effective Yield = [(Base Period Return + 1) ] - 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
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin 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 AND 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 49 years and
now services more than 2.7 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, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $212 billion in assets under
management for more than 5.6 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 120 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
As of October 2, 1997, the principal shareholders of each Fund, beneficial or of
record, were as follows:
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------
MONEY FUND
Bank of Stockton
Trust Department
P.O. Box 1110
Stockton,
CA 95201-1110 25,748,648.910 12.97%
Franklin Resources, Inc.
Attn: Corporate
Accounting #95
777 Mariners Island Blvd.
San Mateo,
CA 94404-1584 23,275,897.390 11.72%
Templeton Worldwide, Inc.
c/o Mike Corcoran
1850 Gateway, 6th Flr.
San Mateo,
CA 94404-2467 20,169,624.040 10.16%
Franklin Templeton
Distributors, Inc.
Attn: Corporate Accounting
Darren Yu
777 Mariners Island Blvd.
San Mateo,
CA 94404-1584 18,860,067.450 9.50%
CARECO
c/o Sunflower Bank
2090 S. Ohio
P.O. Box 800
Salina,
KS 67402-0800 14,215,322.880 7.16%
Suffolk County
National Bank
Trust & Investment Division
295 N. Sea Rd.
Southampton,
NY 11968-2038 13,202,108.700 6.65%
SHARE
NAME AND ADDRESS AMOUNT PERCENTAGE
- --------------------------------------------------------------------------------
U.S. SECURITIES FUND
Carroll County Bank
& Trust, Co.
Trust Division
45 W. Main St.
P.O. Box 1100
Westminster,
MD 21158-0199 13,193,118.090 10.87%
Franklin Resources, Inc.
Attn: Corporate
Accounting #95
P.O. Box 7777
San Mateo,
CA 94403-7777 11,827,360.600 9.74%
Visa USA, Inc.
Collateral Posted
By BID #10002033
P.O. Box 8999
San Francisco,
CA 94128-8999 11,303,865.000 9.31%
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.
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, before 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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group 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 by the close of the business day following the day clearance is
granted; (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, 1997, 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
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies in
the Franklin Group of Funds(R) and the Templeton Group of Funds
FITCH - Fitch Investors Service, Inc.
INVESTOR SERVICES - Franklin/Templeton Investor Services, Inc., the Fund's
shareholder servicing and transfer agent
IRS - Internal Revenue Service
MOODY'S - Moody's Investors Service, Inc.
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.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated November 1, 1997 as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
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.
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 Money Market, on behalf of its series ("master funds"),
and the Board of the Fund ("feeder fund"), (both of which, except in the case of
one director and two trustees, are composed of the same individuals) recognize
that there is the potential for certain conflicts of interest to arise between
the master fund and the feeder 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 before 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
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, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
AA - 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 that 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 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.
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: Municipal 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 signs
are not used with 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
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, CDs, 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 an 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 commer- cial bank.
INSTITUTIONAL
FIDUCIARY TRUST
FRANKLIN INSTITUTIONAL ADJUSTABLE
U.S. GOVERNMENT SECURITIES FUND
FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
STATEMENT OF
ADDITIONAL INFORMATION
NOVEMBER 1, 1997
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 12
The Fund's Underwriter 13
How does the Fund Measure Performance? 13
Miscellaneous Information 15
Useful Terms and Definitions 17
Appendices
Summary of Procedures to Monitor
Conflicts of Interest 17
Description of Ratings 18
Financial Statements 19
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When reading this SAI, you will see certain terms beginning with capital
letters. This means the term is explained under "Useful Terms and Definitions."
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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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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 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 Fund's investment objective is to seek a high level of current income,
consistent with lower volatility of principal. The Adjustable U.S. Government
Fund seeks to achieve its objective by investing all of its assets in shares of
the U.S. Government Adjustable Rate Mortgage Portfolio (the "Mortgage
Portfolio"), and the Adjustable Rate Securities Fund seeks to achieve its
objective by investing its assets in shares of the Adjustable Rate Securities
Portfolio (the "Securities Portfolio"). The Mortgage Portfolio and the
Securities Portfolio are series of the Adjustable Rate Securities Portfolios.
The investment objective of the Fund is the same as the investment objective of
the Portfolio. 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, 1997, 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.
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 substantially similar to those described below for the corresponding
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.
Securities issued by these agencies and instrumentalities are supported by 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 Templeton 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 and are secured by pools of mortgages backed by
residential or various types of commercial properties. 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
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 the value or liquidity 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 the 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
Fund under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
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Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and director
or trustee, as the case may be, of 29 of the investment companies in the
Franklin Templeton Group of Funds.
Harris J. Ashton (65)
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 (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (65)
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, General Host
Corporation (nursery and craft centers); and director or trustee, as the case
may be, of 55 of the investment companies in the Franklin Templeton Group of
Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman
of the Board
and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin Advisory
Services, Inc., Franklin Investment Advisory Services, Inc. and Franklin
Templeton Distributors, Inc.; Director, Franklin/Templeton Investor Services,
Inc., Franklin Templeton Services, Inc. and General Host Corporation (nursery
and craft centers); and officer and/or director or trustee, as the case may be,
of most of the other subsidiaries of Franklin Resources, Inc. and of 54 of the
investment companies in the Franklin Templeton Group of Funds.
*Charles E. Johnson (41)
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.; President, Chief Executive Officer, Chief Investment
Officer and Director, Franklin Institutional Services Corporation; Chairman and
Director, Templeton Investment Counsel, Inc.; Vice President, Franklin Advisers,
Inc.; officer and/or director of some of the subsidiaries of Franklin Resources,
Inc.; and officer and/or director or trustee, as the case may be, of 36 of the
investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (57)
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.;
Senior Vice President and Director, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case may
be, of most of the other subsidiaries of Franklin Resources, Inc. and of 57 of
the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
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 Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the Franklin
Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund American
Enterprises Holdings, Inc., MCI Communications Corporation, CCC Information
Services Group, Inc. (information services), MedImmune, Inc. (biotechnology),
Shoppers Express (home shopping), and Spacehab, Inc. (aerospace services); and
director or trustee, as the case may be, of 50 of the investment companies in
the Franklin Templeton Group of Funds; formerly Chairman, Hambrecht and Quist
Group, Director, H & Q Healthcare Investors, and President, National Association
of Securities Dealers, Inc.
Harmon E. Burns (52)
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. and
Franklin Templeton Services, Inc.; Executive Vice President, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director or trustee, as the case may be, of most of the other subsidiaries of
Franklin Resources, Inc. and of 58 of the investment companies in the Franklin
Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
and Chief
Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive Vice
President, Chief Operating Officer and Director, Templeton Investment Counsel,
Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.; Treasurer,
Franklin Advisory Services, Inc.; Treasurer and Chief Financial Officer,
Franklin Investment Advisory Services, Inc.; President, Franklin Templeton
Services, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; and officer and/or director or trustee, as the case may be, of 58 of the
investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
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 Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief Operating
Officer, Franklin Investment Advisory Services, Inc.; and officer of 58 of the
investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and
Principal
Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35 of
the investment companies in the Franklin Templeton Group of Funds.
Thomas J. Runkel (39)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Vice President, Franklin Advisers, Inc.; and officer of four of the investment
companies in the Franklin Templeton Group of Funds.
The officers and Board members of the Trust are also officers and trustees of
the Portfolios, except that Thomas J. Runkel is not an officer or trustee of the
Adjustable Rate Securities Portfolios. The following trustee and officer of the
Adjustable Rate Securities Portfolios are not officers or trustees of the Trust:
POSITIONS AND OFFICES PRINCIPAL OCCUPATION
NAME, AGE AND ADDRESS WITH THE PORTFOLIOS DURING THE PAST FIVE YEARS
- --------------------------------------------------------------------------------
William J. Lippman (72)
One Parker Plaza
Fort Lee, NJ 07024
Trustee
Senior Vice President, Franklin Resources, Inc. and Franklin Management, Inc.;
President and Director, Franklin Advisory Services, Inc.; and officer and/or
director or trustee, as the case may be, of seven of the investment companies in
the Franklin Templeton Group of Funds.
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Templeton 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
Adjustable Rate Securities Portfolios who are affiliated with Distributors and
Advisers. Nonaffiliated members of the Board are currently paid $200 per month
plus $200 per meeting attended. Nonaffiliated trustees of the Adjustable Rate
Securities Portfolios are currently paid $50 per month plus $50 per meeting
attended. As shown above, the nonaffiliated Board members and trustees of the
Adjustable Rate Securities Portfolios also serve as directors or trustees 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
Adjustable Rate Securities Portfolios by the Trust, by the Adjustable Rate
Securities Portfolios, and by other funds in the Franklin Templeton Group of
Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS
TOTAL FEES IN THE FRANKLIN
TOTAL FEES TOTAL FEES RECEIVED FROM THE TEMPLETON GROUP
RECEIVED FROM RECEIVED FROM FRANKLIN TEMPLETON OF FUNDS ON WHICH
NAME THE TRUST* THE PORTFOLIOS** GROUP OF FUNDS*** EACH SERVES****
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Frank H. Abbott, III $4,600 $800 $165,236 29
Harris J. Ashton $4,600 $800 $343,591 53
S. Joseph Fortunato $4,600 $800 $360,411 55
David W. Garbellano+ $4,200 $700 $148,916 28
Frank W.T. LaHaye $4,400 $750 $139,233 27
Gordon S. Macklin $4,600 $800 $335,541 50
</TABLE>
*For the fiscal year ended June 30, 1997.
**For the eight months ended June 30, 1997.
***For the calendar year ended December 31, 1996.
****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 Adjustable Rate Securities Portfolios are
responsible. The Franklin Templeton Group of Funds currently includes 58
registered investment companies, with approximately 170 U.S. based funds or
series. +Deceased, September 27, 1997.
Nonaffiliated members of the Board and trustees of the Adjustable Rate
Securities 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 or trustee. No officer or Board
member or trustee of the Adjustable Rate Securities Portfolios received any
other compensation, including pension or retirement benefits, directly or
indirectly from the Fund, the Adjustable Rate Securities Portfolios, or other
funds in the Franklin Templeton Group of Funds. Certain officers or Board
members and trustees of the Adjustable Rate Securities 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 2, 1997, the officers and Board members did not own of record or
beneficially any of the Fund's 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 Adjustable Rate Securities Portfolios to whom Advisers
renders periodic reports of the Portfolio's investment activities. Advisers and
its officers, directors and employees are covered by fidelity insurance for the
protection of the Fund and the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. 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. 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.
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.
For the fiscal years ended October 31, 1994, 1995 and 1996, and the eight month
period ended June 30, 1997, management fees, before any advance waiver, totaled
$4,787,133, $2,456,413, $1,891,159, and $1,019,002, respectively, for the
Mortgage Portfolio and $372,319, $119,324, $89,969, and $63,491, respectively,
for the Securities Portfolio. Under an agreement by Advisers to waive or limit
its fees, management fees paid for the same periods were $0, $968,077,
$1,090,876, and $570,999, respectively, for the Mortgage Portfolio and $205,735,
$55,384, $41,378, and $32,332, respectively, for the Securities Portfolio.
For the fiscal years ended June 30, 1995, 1996 and 1997, administration fees,
before any advance waiver, totaled $18,855, $7,276, and $4,327, respectively,
for the Adjustable U.S. Government Fund and $7,453, $4,313, and $2,368,
respectively, for the Adjustable Rate Securities Fund. Under an agreement by
Advisers to waive or limit its fees, administration fees paid for the same
periods were $7,825, $7,276, and $4,327, respectively, for the Adjustable U.S.
Government Fund and $0, $4,313, and $2,368, respectively, for the Adjustable
Rate Securities Fund.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1998. 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 Adjustable Rate Securities 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 Adjustable Rate
Securities 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 Adjustable Rate Securities 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 Adjustable Rate
Securities 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. The Fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the Fund. The amount of reimbursements for these services
per benefit plan participant Fund account per year may not exceed the per
account fee payable by the Fund to Investor Services in connection with
maintaining shareholder accounts.
CUSTODIAN. Investor Services, in its capacity as the transfer agent for the
Portfolio, effectively acts as the Fund's custodian and holds the Fund's shares
of the Portfolio on its books. Bank of New York, Mutual Funds Division, 90
Washington Street, New York, New York 10286, acts as custodian of the Fund's
cash, pending investment in shares of the Portfolio. The custodian does 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, 1997, 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, 1997.
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 Advisers receives from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staffs of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients. If the Fund's
officers are satisfied that the best execution is obtained, the sale of Fund
shares, as well as shares of other funds in the Franklin Templeton Group of
Funds, may also be considered a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
Because Distributors is a member of the National Association of Securities
Dealers, Inc., it may sometimes receive certain fees when the Portfolio tenders
portfolio securities pursuant to a tender-offer solicitation. As a means of
recapturing brokerage for the benefit of the Portfolio, any portfolio securities
tendered by the Portfolio will be tendered through Distributors if it is legally
permissible to do so. In turn, the next management fee payable to Advisers will
be reduced by the amount of any fees received by Distributors in cash, less any
costs and expenses incurred in connection with the tender.
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, 1994, 1995, and 1996 and the eight
months ended June 30, 1997, the Portfolio paid no brokerage commissions.
As of June 30, 1997, 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.
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 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.
Distribution or redemption checks sent to you do not earn interest or any other
income during the time the checks remain uncashed. Neither the Fund nor its
affiliates will be liable for any loss caused by your failure to cash such
checks.
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 any 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. 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.
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
NYSE, generally 1:00 p.m. Pacific time, each day that the NYSE is open for
trading. As of the date of this SAI, the Fund is informed that the NYSE observes
the following holidays: New Year's Day, Martin Luther King Jr. 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.
Over-the-counter portfolio securities are valued within the range of the most
recent quoted bid and ask prices. Portfolio securities that are traded both in
the over-the-counter market and on a stock exchange are valued according to the
broadest and most representative market as determined by Advisers.
Generally, trading in corporate bonds, U.S. government securities and money
market instruments is substantially completed each day at various times before
the scheduled close of the NYSE. The value of these securities used in computing
the Net Asset Value of the Fund's shares is determined as of such times.
Occasionally, events affecting the values of these securities may occur between
the times at which they are determined and the scheduled close of the NYSE that
will not be reflected in the computation of the Fund's Net Asset Value. If
events materially affecting the values of these securities occur during this
period, the securities will be valued at their fair value as determined in good
faith by the Board.
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 Adjustable Rate
Securities 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, interest and other income derived from its investments. This 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 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 of the Fund's shares. 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.
Average annual total return and current 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 does not
guarantee future results, and 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 the periods indicated below 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 period and the deduction of all
applicable charges and fees.
The average annual total return for the one- and five-year period ended June 30,
1997, and the period from inception to June 30, 1997, was 7.37%, 4.20%, and
4.40%, respectively, for the Adjustable U.S. Government Fund and 7.66%, 5.55%,
and 5.57%, respectively, for the Adjustable Rate Securities Fund. The Adjustable
U.S. Government Fund and Adjustable Rate Securities Fund commenced operations on
November 1, 1991, and January 3, 1992, respectively.
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 each periods at the end of each period
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, is based on the actual return
for a specified period rather than on the average return over the periods
indicated above. The cumulative total return for the one- and five-year periods
ended June 30, 1997, and the period from inception to June 30, 1997, was 7.37%,
22.84%, and 27.17%, respectively, for the Adjustable U.S. Government Fund and
7.66%, 30.98%, and 34.68%, 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, 1997, was 6.30% for the Adjustable U.S. Government
Fund and 5.88% 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.
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. The current distribution rate for
the 30-day period ended June 30, 1997, was 6.32% for the Adjustable U.S.
Government Fund and 6.11% for the Adjustable Rate Securities Fund.
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
Franklin Templeton Group of Funds. Resources is the parent company of the
advisors and underwriter of the Franklin 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, 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, AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY MAGAZINES - provide
performance statistics over specified time periods.
e) Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics - a statistical measure of change, over time, in the price
of goods and services in major expenditure groups.
f) Stocks, Bonds, Bills, and Inflation, published by Ibbotson Associates -
historical measure of yield, price, and total return for common and small
company stock, long-term government bonds, Treasury bills, and inflation.
g) Savings and Loan Historical Interest Rates - as published in the U.S. Savings
& Loan League Fact Book.
h) Salomon Brothers Broad Bond Index or its component indices - 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) Lehman Brothers Short 1-2 Year Government Index - total return index which
includes fixed rate debt securities issued by the U.S. government rated
investment grade or higher by Moody's, S&P, or Fitch with one- to two-year
maturity range.
l) Other taxable investments, including CDs, money market deposit accounts,
checking accounts, savings accounts, money market mutual funds, and repurchase
agreements.
m) Standard & Poor's Bond Indices - measure yield and price of corporate,
municipal, and government bonds.
n) IBC/Donoghue's Money Fund Report(R) - industry averages for seven-day
annualized and compounded yields of taxable, tax-free and government money
funds.
o) 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.
p) 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, 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 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, the Adjustable U.S. Government Fund may advertise offers for
the general public to attend free seminars where a guest speaker will discuss
the benefits of investing in Franklin's professionally managed portfolio of U.S.
government securities.
In addition, 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 49 years and
now services more than 2.7 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, a pioneer in international
investing. The Mutual Series team, known for its value-driven approach to
domestic equity investing, became part of the organization four years later.
Together, the Franklin Templeton Group has over $212 billion in assets under
management for more than 5.6 million U.S. based mutual fund shareholder and
other accounts. The Franklin Templeton Group of Funds offers 120 U.S. based
open-end investment companies to the public. The Fund may identify itself by its
NASDAQ symbol or CUSIP number.
As of October 2, 1997, the principal shareholders of each Fund, beneficial or of
record, were as follows:
Share
Name and Address Amount Percentage
- --------------------------------------------------------------------
Adjustable U.S.
Government Fund
Key Trust Company
of the West Ttee
FBO Laurel W. Murphy
#30103000130180
Attn: Mutual Funds
P.O. Box 94871
Cleveland,
OH 44101-4871 38,646.570 5.57%
ISTCO A Partnership
c/o Magna Trust Co.
222 E. Main St.
P.O. Box 523
Belleville,
IL 62222-0523 109,193.676 15.74%
City of Stockton
General Pool
Attn: Accounting Dept
425 N. El Dorado St.
Stockton,
CA 95202-1951 150,000.000 21.63%
Bank of Stockton
Trust Department
P.O. Box 1110
Stockton,
CA 95201-1110 166,975.755 24.07%
Adjustable Rate
Securities Fund
WEBAT & Co.
107 Post Rd. E.
P.O. Box 5177
Westport,
CT 06881-5177 15,122.248 11.55%
WEBAT & Co.
107 Post Rd. E.
P.O. Box 5177
Westport,
CT 06881-5177 28,970.659 22.13%
Dai-Ichi Kangyo
Bank of CA Ttee
for the Employees
Retirement Plan of the
Dai-Ichi Kangyo Bank Ltd.
c/o BAC/Plan Member Services
1200 5th Ave., Ste. 600
Seattle,
WA 98101-1188 85,920.846 65.64%
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, before 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.
Distributors and/or its affiliates provide financial support to various
Securities Dealers that sell shares of the Franklin Templeton Group of Funds.
This support is based primarily on the amount of sales of fund shares. The
amount of support may be affected by: total sales; net sales; levels of
redemptions; the proportion of a Securities Dealer's sales and marketing efforts
in the Franklin Templeton Group of Funds; a Securities Dealer's support of, and
participation in, Distributors' marketing programs; a Securities Dealer's
compensation programs for its registered representatives; and the extent of a
Securities Dealer's marketing programs relating to the Franklin Templeton Group
of Funds. Financial support to Securities Dealers may be made by payments from
Distributors' resources, from Distributors' retention of underwriting
concessions and, in the case of funds that have Rule 12b-1 plans, from payments
to Distributors under such plans. In addition, certain Securities Dealers may
receive brokerage commissions generated by fund portfolio transactions in
accordance with the NASD's rules.
SUMMARY OF CODE OF ETHICS. Employees of the Franklin Templeton Group 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 by the close of the business day following the day clearance is
granted; (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
FRANKLIN TEMPLETON GROUP - Franklin Resources, Inc., a publicly owned holding
company, and its various subsidiaries
FRANKLIN TEMPLETON GROUP OF FUNDS - All U.S. registered investment companies 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
MOODY'S - Moody's Investors Services, Inc.
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.
NYSE - New York Stock Exchange
PROSPECTUS - The prospectus for the Fund dated November 1, 1997, as may be
amended from time to time
RESOURCES - Franklin Resources, Inc.
SAI - Statement of Additional Information
S&P - Standard & Poor's Corporation
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.
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 Adjustable Rate Securities 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 Adjustable Rate Securities 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) 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 before 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, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such 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 that 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 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.
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, 1997, including the auditors'
report and the unaudited financial statements of the Adjustable Rate Securities
Portfolios for the period ended June 30, 1997, are incorporated herein by
reference. Following are the audited financial statements for the Portfolios for
the fiscal year ended October 31, 1996, including the auditors' report.
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
===========================================================================================================================
Statement of Investments in Securities and Net Assets, October 31, 1996
Face Value
Amount U.S. Government Adjustable Rate Mortgage Portfolio (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Mortgage Securities 93.7%
Federal Home Loan Mortgage Corp. (FHLMC) 24.6%
$ 5,469,835 FHLMC, Cap 11.253%, Margin 1.75% + CMT, Resets Annually, 7.375%, 11/01/16 ..... $ 5,618,157
2,021,013 FHLMC, Cap 11.939%, Margin 2.127% + CMT, Resets Annually, 7.675%, 07/01/20 .... 2,073,337
713,733 FHLMC, Cap 12.176%, Margin 2.015% + CMT, Resets Annually, 7.351%, 04/01/20 .... 729,314
3,399,699 FHLMC, Cap 12.177%, Margin 2.265% + CMT, Resets Annually, 7.558%, 07/01/20 .... 3,501,554
730,730 FHLMC, Cap 12.68%, Margin 2.195% + CMT, Resets Annually, 7.851%, 02/01/19 ..... 759,696
2,343,248 FHLMC, Cap 12.723%, Margin 2.189% + CMT, Resets Annually, 7.667%, 04/01/19 .... 2,433,932
5,163,270 FHLMC, Cap 12.744%, Margin 2.00% + CMT, Resets Annually, 7.259%, 07/01/18 ..... 5,317,961
821,472 FHLMC, Cap 12.80%, Margin 2.05% + CMT, Resets Annually, 7.804%, 11/01/18 ...... 838,123
7,409,661 FHLMC, Cap 12.806%, Margin 2.23% + CMT, Resets Annually, 7.74%, 04/01/18 ...... 7,745,096
6,214,618 FHLMC, Cap 13.006%, Margin 2.00% + CMT, Resets Annually, 7.577%, 09/01/19 ..... 6,397,283
2,999,572 FHLMC, Cap 13.156%, Margin 1.915% + CMT, Resets Annually, 7.587%, 12/01/16 .... 3,083,384
2,096,459 FHLMC, Cap 13.16%, Margin 2.115% + CMT, Resets Annually, 7.673%, 07/01/19 ..... 2,161,653
3,094,767 FHLMC, Cap 13.246%, Margin 2.175% + CMT, Resets Annually, 7.956%, 10/01/18 .... 3,199,599
1,068,116 FHLMC, Cap 13.269%, Margin 2.249% + CMT, Resets Annually, 7.553%, 05/01/19 .... 1,111,130
421,352 FHLMC, Cap 13.286%, Margin 2.164% + CMT, Resets Annually, 7.651%, 10/01/19 .... 431,599
2,347,713 FHLMC, Cap 13.292%, Margin 2.115% + CMT, Resets Annually, 7.653%, 03/01/19 .... 2,419,919
745,516 FHLMC, Cap 13.302%, Margin 2.04% + CMT, Resets Annually, 7.615%, 04/01/18 ..... 767,574
1,461,323 FHLMC, Cap 13.306%, Margin 2.057% + CMT, Resets Annually, 7.569%, 12/01/18 .... 1,504,027
2,158,401 FHLMC, Cap 13.36%, Margin 2.242% + CMT, Resets Annually, 7.587%, 07/01/20 ..... 2,244,629
4,489,233 FHLMC, Cap 13.364%, Margin 2.225% + CMT, Resets Annually, 7.587%, 07/01/19 .... 4,625,730
4,793,233 FHLMC, Cap 13.366%, Margin 2.102% + CMT, Resets Annually, 7.546%, 03/01/18 .... 4,931,669
9,712,385 FHLMC, Cap 13.37%, Margin 2.04% + CMT, Resets Annually, 7.542%, 04/01/19 ...... 10,094,276
6,994,333 FHLMC, Cap 13.65%, Margin 2.249% + CMT, Resets Annually, 7.669%, 07/01/20 ..... 7,275,995
447,209 FHLMC, Cap 13.77%, Margin 2.057% + CMT, Resets Annually, 7.561%, 02/01/19 ..... 456,408
3,540,768 FHLMC, Cap 13.793%, Margin 2.214% + CMT, Resets Annually, 7.788%, 11/01/19 .... 3,682,222
8,712,759 FHLMC, Cap 13.879%, Margin 2.089% + CMT, Resets Annually, 7.63%, 04/01/18 ..... 9,063,622
2,174,620 FHLMC, Cap 14.307%, Margin 1.957% + 3CMT, Resets Every 3 Years, 8.597%,
12/01/21 ..................................................................... 2,252,668
1,547,308 FHLMC, Cap 14.451%, Margin 2.00% + CMT, Resets Annually, 7.771%, 12/01/18 ..... 1,603,336
3,545,491 FHLMC, Cap 14.90%, Margin 2.546% + CMT, Resets Annually, 7.955%, 02/01/19 ..... 3,721,489
------------
Total Federal Home Loan Mortgage Corp. (Cost $99,710,019) ............... 100,045,382
------------
Federal National Mortgage Association (FNMA) 65.1%
2,682,655 FNMA, Cap 12.605%, Margin 2.536% + 6 Month DR, Resets Semi-Annually,
7.606%, 11/01/18 ............................................................. 2,793,181
17,354,190 FNMA, Cap 12.637%, Margin 2.00% + NCI, Resets Annually, 6.924%, 11/01/17 ...... 17,537,798
4,666,968 FNMA, Cap 12.64%, Margin 2.00% + CMT, Resets Annually, 7.655%, 03/01/19 ....... 4,830,125
12,607,069 FNMA, Cap 12.66%, Margin 1.75% + 6 Month DR, Resets Semi-Annually,
6.902%, 01/01/19 ............................................................. 12,858,580
3,019,706 FNMA, Cap 12.662%, Margin 1.25% + COFI, Resets Monthly, 6.888%, 01/01/19 ...... 3,016,717
11,457,003 FNMA, Cap 12.705%, Margin 1.25% + COFI, Resets Monthly, 6.059%, 09/01/18 ...... 11,392,042
4,761,287 FNMA, Cap 12.787%, Margin 1.25% + COFI, Resets Monthly, 7.486%, 01/01/19 ...... 4,816,089
4,141,631 FNMA, Cap 12.788%, Margin 2.11% + CMT, Resets Annually, 7.587%, 11/01/20 ...... 4,331,690
6,161,824 FNMA, Cap 12.804%, Margin 1.75% + CMT, Resets Annually, 7.321%, 05/01/19 ...... 6,363,273
3,446,028 FNMA, Cap 12.84%, Margin 2.762% + 6 Month DR, Resets Semi-Annually,
7.846%, 06/01/17 ............................................................. 3,616,021
6,019,772 FNMA, Cap 12.85%, Margin 2.078% + 5CMT, Resets Every 5 Years, 7.984%,
10/01/17 ..................................................................... 6,186,941
7,717,445 FNMA, Cap 12.89%, Margin 2.125% + 6 Month DR, Resets Semi-Annually,
7.197%, 07/01/17 ............................................................. 7,914,857
2,038,793 FNMA, Cap 12.911%, Margin 2.00% + 6 Month DR, Resets Semi-Annually,
7.34%, 02/01/18 .............................................................. 2,085,216
10,387,280 FNMA, Cap 12.938%, Margin 1.25% + COFI, Resets Monthly, 6.059%, 02/01/19 ...... 10,328,384
$ 3,916,387 FNMA, Cap 12.993%, Margin 2.092% + CMT, Resets Annually, 7.671%, 12/01/19 ..... $ 4,062,722
5,918,532 FNMA, Cap 13.005%, Margin 1.97% + 3CMT, Resets Every 3 Years, 8.167%,
11/01/17 ..................................................................... 6,092,064
5,867,747 FNMA, Cap 13.01%, Margin 2.10% + CMT, Resets Annually, 7.699%, 06/01/19 ....... 6,089,627
8,935,414 FNMA, Cap 13.03%, Margin 1.25% + COFI, Resets Monthly, 6.917%, 02/01/20 ....... 8,926,567
5,801,536 FNMA, Cap 13.03%, Margin 1.75% + 6 Month TB, Resets Semi-Annually,
7.025%, 12/01/20 ............................................................. 5,922,730
6,719,383 FNMA, Cap 13.063%, Margin 2.175% + CMT, Resets Annually, 7.646%, 04/01/19 ..... 7,046,415
6,097,744 FNMA, Cap 13.083%, Margin 2.005% + CMT, Resets Annually, 7.445%, 06/01/19 ..... 6,300,582
4,970,448 FNMA, Cap 13.147%, Margin 1.895% + CMT, Resets Annually, 7.435%, 04/01/19 ..... 5,135,550
2,998,185 FNMA, Cap 13.202%, Margin 2.478% + 6 Month DR, Resets Semi-Annually,
7.64%, 11/01/26 .............................................................. 3,120,781
3,186,936 FNMA, Cap 13.249%, Margin 2.00% + CMT, Resets Annually, 7.222%, 06/01/19 ...... 3,292,360
8,384,545 FNMA, Cap 13.281%, Margin 2.00% + CMT, Resets Annually, 7.756%, 10/01/19 ...... 8,712,883
8,349,234 FNMA, Cap 13.32%, Margin 1.25% + COFI, Resets Monthly, 7.425%, 04/01/03 ....... 8,414,024
13,470,394 FNMA, Cap 13.452%, Margin 2.148% + CMT, Resets Annually, 7.626%, 09/01/22 ..... 14,029,685
6,517,556 FNMA, Cap 13.457%, Margin 1.903% + CMT, Resets Annually, 7.581%, 06/01/18 ..... 6,745,274
6,419,986 FNMA, Cap 13.662%, Margin 2.177% + CMT, Resets Annually, 7.649%, 03/01/21 ..... 6,660,198
9,093,045 FNMA, Cap 13.791%, Margin 2.143% + CMT, Resets Annually, 7.651%, 12/01/20 ..... 9,521,690
3,341,243 FNMA, Cap 13.797%, Margin 2.20% + CMT, Resets Annually, 7.515%, 03/01/19 ...... 3,485,184
5,081,477 FNMA, Cap 13.80%, Margin 0.94% + 6 Month DR, Resets Semi-Annually,
6.793%, 07/01/24 ............................................................. 5,084,425
4,724,670 FNMA, Cap 13.887%, Margin 2.25% + CMT, Resets Annually, 7.756%, 02/01/19 ...... 4,940,020
3,408,935 FNMA, Cap 13.896%, Margin 2.25% + CMT, Resets Annually, 7.89%, 12/01/18 ....... 3,543,201
6,827,171 FNMA, Cap 14.069%, Margin 2.089% + CMT, Resets Annually, 7.639%, 01/01/19 ..... 7,076,138
2,176,616 FNMA, Cap 14.142%, Margin 2.118% + CMT, Resets Annually, 7.699%, 03/01/21 ..... 2,265,618
11,539,668 FNMA, Cap 14.354%, Margin 2.07% + 5CMT, Resets Every 5 Years, 8.026%,
05/01/21 ..................................................................... 11,820,312
3,491,653 FNMA, Cap 14.42%, Margin 2.099% + CMT, Resets Annually, 7.646%, 03/01/20 ...... 3,648,638
9,064,700 FNMA, Cap 14.887%, Margin 1.72% + CMT, Resets Annually, 7.073%, 01/01/16 ...... 9,262,491
3,469,132 FNMA, Cap 14.952%, Margin 2.523% + CMT, Resets Annually, 7.838%, 05/01/19 ..... 3,639,155
1,679,183 FNMA, Cap 15.381%, Margin 2.168% + CMT, Resets Annually, 7.681%, 02/01/20 ..... 1,742,952
------------
Total Federal National Mortgage Association (Cost $265,816,131).......... 264,652,200
------------
Government National Mortgage Association (GNMA) 4.0%
8,050,679 GNMA, Cap 10.00%, Margin 1.50% + CMT, Resets Annually, 6.50%, 01/20/24 ........ 8,200,342
7,649,805 GNMA, Cap 11.00%, Margin 2.50% + CMT, Resets Annually, 6.00%, 07/20/25 ........ 7,859,793
------------
Total Government National Mortgage Association (Cost $15,841,011)........ 16,060,135
------------
Total Long Term Investments (Cost $381,367,161).......................... 380,757,717
------------
c,dReceivables from Repurchase Agreements 5.6%
$22,683,326 Joint Repurchase Agreement, 5.529%, 11/01/96 (Maturity Value $22,786,276)
(Cost $22,782,777)
B.A. Securities, Inc., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $2,023,692)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $2,023,692)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $2,360,973)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $188,389)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities, L.L.C., (Maturity Value $2,698,255)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 ....... $ 22,782,777
------------
Total Investments (Cost $404,149,938) 99.3% ........................ 403,540,494
Other Assets and Liabilities, Net 0.7% ............................. 2,890,503
------------
Net Assets 100.0% .................................................. $406,430,997
============
At October 31, 1996, the net unrealized depreciation based on the cost of investment
for income tax purposes of $404,149,938 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was
an excess of value over tax cost ........................................... $ 2,073,103
Aggregate gross unrealized depreciation for all investments in which there was
an excess of tax cost over value ........................................... (2,682,547)
------------
Net unrealized depreciation ................................................. $ (609,444)
============
PORTFOLIO ABBREVIATIONS :
3CMT - 3 Year Constant Maturity Treasury Index
5CMT - 5 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
DR - Discount Rate
L.L.C. - Limited Liability Corp.
NCI - National Median Cost of Funds Index
TB - Treasury Bill Rate
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(g) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
===========================================================================================================================
Statement of Investments in Securities and Net Assets, October 31, 1996
Face Value
Amount Adjustable Rate Securities Portfolio (Note 1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Mortgage Securities 74.2%
$ 859,602 FNMA, Cap 12.65%, Margin 1.75% + NCI, Resets Monthly, 6.625%,
10/01/28 ...................................................................... $ 859,027
421,576 FNMA, Cap 13.86%, Margin 1.84% + CMT, Resets Annually, 7.304%, 08/01/16 ........ 434,767
1,043,468 Homeowners Federal Savings, Cap 13.00%, Margin 1.75% + CMT, Resets Annually,
7.269%, 01/25/18 .............................................................. 1,060,099
1,273,625 PHMS, Cap 11.67%, Margin 2.67% + CMT, Resets Annually, 7.811%, 07/25/22 ........ 1,269,645
814,539 PHMS, Cap 12.02%, Margin 2.55% + CMT, Resets Annually, 8.049%, 04/25/22 ........ 833,885
1,787,466 RFC, Cap 11.46%, Margin 2.25% + CMT, Resets Annually, 7.984%, 11/25/22 ......... 1,839,912
1,307,837 RTC, Cap 12.66%, Margin 1.75% + 6 Month TB, Resets Semi-Annually, 7.377%,
04/26/21 ...................................................................... 1,244,898
1,880,129 RTC, Cap 14.69%, Margin 1.55% + 3CMT, Resets Every 3 Years, 7.607%, 06/25/22 ... 1,872,492
1,303,687 RTC, Cap 16.48%, Margin NACR -0.15%, Resets Annually, 7.507%, 07/25/20 ......... 1,244,126
870,156 Ryland Mortgage Securities Corp., Cap 11.00%, Margin 1.00% + COFI, Resets
Monthly, 5.819%, 04/25/21...................................................... 865,805
2,021,632 Salomon Brothers Mortgage Securities, Cap 14.00%, Margin 0.96% + NACR,
Resets Annually, 7.897%, 10/25/16 ............................................. 2,017,842
777,566 Saxon Mortgage Securities Corp., Cap 10.78%, Margin 2.78% + 6 Month LIBOR,
Resets Semi-Annually, 8.378%, 05/25/24 ........................................ 803,109
875,376 Travelers Mortgage Services, Inc., Cap 13.95%, Margin 2.25% + CMT, Resets
Annually, 7.932%, 12/25/18 .................................................... 889,875
------------
Total Adjustable Rate Mortgage Securities (Cost $15,650,299) ............. 15,235,482
------------
Fixed Rate Mortgage Securities 5.6%
1,176,027 Countrywide Mortgage-Backed Securities, Inc., Series 1994-I, Class A8, 6.25%,
07/25/09 (Cost $1,143,687)..................................................... 1,148,909
------------
Other Adjustable Rate Securities 6.2%
1,186,041 SBA, Cap 12.625%, Margin -0.125% + Prime, Resets Quarterly, 8.125%, 08/25/20
(Cost $1,278,701).............................................................. 1,278,701
------------
U.S. Government Securities 4.8%
1,000,000 U.S. Treasury Notes, 4.75%, 08/31/98 (Cost $977,366) ........................... 982,810
------------
Total Long Term Investments (Cost $19,050,053) ........................... 18,645,902
------------
c,dReceivables from Repurchase Agreements 8.7%
1,770,715 Joint Repurchase Agreement, 5.529%, 11/01/96 (Maturity Value $1,779,370)
(Cost $1,779,097)
B.A. Securities, Inc., (Maturity Value $210,706)
Collateral: U.S. Treasury Bills, 03/06/97
U.S. Treasury Notes, 5.25% - 8.75%, 12/31/96 - 05/31/98
Bear, Stearns & Co., Inc., (Maturity Value $210,706)
Collateral: U.S. Treasury Notes, 5.625% - 8.875%, 10/31/97 - 08/15/98
B.T. Securities Corp., (Maturity Value $158,029)
Collateral: U.S. Treasury Notes, 5.875%, 10/31/98
CIBC Wood Gundy Securities Corp., (Maturity Value $158,029)
Collateral: U.S. Treasury Notes, 4.75% - 5.625%, 10/31/97 - 09/30/98
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $210,706)
Collateral: U.S. Treasury Notes, 4.75% - 6.875%, 07/31/97 - 07/31/99
Fuji Securities, Inc., (Maturity Value $184,367)
Collateral: U.S. Treasury Bills, 02/06/97
U.S. Treasury Notes, 5.625% - 6.875%, 02/28/97 - 08/31/97
Lehman Brothers, Inc., (Maturity Value $210,706)
Collateral: U.S. Treasury Notes, 5.625% - 8.00%, 11/30/00 - 06/30/01
SBC Warburg, Inc., (Maturity Value $14,709)
Collateral: U.S. Treasury Notes, 5.625% - 5.875%, 10/31/97 - 04/30/98
The Nikko Securities Co. International, Inc., (Maturity Value $210,706)
Collateral: U.S. Treasury Notes, 4.75% - 8.75%, 08/31/98 - 04/30/01
UBS Securities L.L.C., (Maturity Value $210,706)
Collateral: U.S. Treasury Notes, 5.875% - 7.75%, 04/30/98 - 09/30/00 ........ $ 1,779,097
------------
Total Investments (Cost $20,829,150) 99.5% .......................... 20,424,999
Other Assets and Liabilities, Net 0.5%............................... 109,248
------------
Net Assets 100.0%.................................................... $20,534,247
============
At October 31, 1996, the net unrealized depreciation based on the cost of investments
for income tax purposes of $20,829,150 was as follows:
Aggregate gross unrealized appreciation for all investments in which there was an
excess of value over tax cost ............................................... $ 32,899
Aggregate gross unrealized depreciation for all investments in which there was an
excess of tax cost over value ............................................... (437,050)
------------
Net unrealized depreciation .................................................. $ (404,151)
============
PORTFOLIO ABBREVIATIONS:
3CMT - 3 Year Constant Maturity Treasury Index
CMT - 1 Year Constant Maturity Treasury Index
COFI - Eleventh District Cost of Funds Index
FNMA - Federal National Mortgage Association
LIBOR - London Interbank Offered Rate
L.L.C. - Limited Liability Corp.
NACR - National Average Contract Rate
NCI - National Median Cost of Funds Index
PHMS - Prudential Home Mortgage Securities
RFC - Residential Finance Corp.
RTC - Resolution Trust Corp.
SBA - Small Business Administration
TB - Treasury Bill Rate
cFace amount for repurchase agreements is for the underlying collateral.
dSee Note 1(g) regarding joint repurchase agreement.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
=============================================================================================================
Financial Statements
Statements of Assets and Liabilities
October 31, 1996
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
------------ ------------
Assets:
Investments in securities:
<S> <C> <C>
At identified cost ........................................ $ 381,367,161 $19,050,053
============ ============
At value .................................................. 380,757,717 18,645,902
Receivables from repurchase agreements, at value and cost... 22,782,777 1,779,097
Receivables:
Interest .................................................. 2,899,056 109,504
Investment securities sold ................................ 1,223,499 --
Capital shares sold ....................................... -- 31,797
------------ ------------
Total assets .......................................... 407,663,049 20,566,300
------------ ------------
Liabilities:
Payables:
Capital shares repurchased ................................ 1,105,688 20,795
Management fees ........................................... 67,001 8,104
Accrued expenses and other liabilities ..................... 59,363 3,154
------------ ------------
Total liabilities ..................................... 1,232,052 32,053
------------ ------------
Net assets, at value ........................................ $ 406,430,997 $20,534,247
============ ============
Net assets consist of:
Net unrealized depreciation on investments ................. $ (609,444) $ (404,151)
Net realized loss .......................................... (137,820,589) (2,743,716)
Capital shares ............................................. 544,861,030 23,682,114
------------ ------------
Net assets, at value ........................................ $ 406,430,997 $20,534,247
============ ============
Shares outstanding .......................................... 43,397,073 2,083,336
============ ============
Net asset value per share.................................... $9.37 $9.86
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
===========================================================================================================================
Financial Statements (cont.)
Statements of Operations
for the year ended October 31, 1996
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
------------ ------------
Investment income:
<S> <C> <C>
Interest .......................................................... $30,994,231 $1,447,481
------------ ------------
Expenses:
Management fees (Note 5) .......................................... 1,891,159 89,969
Professional fees ................................................. 49,542 7,416
Custodian fees .................................................... 15,719 837
Trustees' fees and expenses ....................................... 7,003 336
Reports to shareholders ........................................... 1,231 550
Other ............................................................. 16,043 5,855
Management fees waived by manager (Note 5) ........................ (800,283) (48,591)
------------ ------------
Total expenses ............................................... 1,180,414 56,372
------------ ------------
Net investment income ........................................ 29,813,817 1,391,109
------------ ------------
Realized and unrealized gain (loss) on investments:
Net realized loss ................................................. (419,303) (37,828)
Net unrealized appreciation ....................................... 2,011,283 139,862
------------ ------------
Net realized and unrealized gain on investments .................... 1,591,980 102,034
------------ ------------
Net increase in net assets resulting from operations ............... $31,405,797 $1,493,143
============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
ADJUSTABLE RATE SECURITIES PORTFOLIOS
===========================================================================================================================
Financial Statements (cont.)
Statements of Changes in Net Assets
for the years ended October 31, 1996 and 1995
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
---------------------------------- --------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
Increase (decrease) in net assets:
Operations:
<S> <C> <C> <C> <C>
Net investment income ......................... $ 29,813,817 $ 37,919,267 $ 1,391,109 $ 1,896,437
Net realized loss from security transactions .. (419,303) (7,672,691) (37,828) (602,782)
Net unrealized appreciation on investments .... 2,011,283 16,342,196 139,862 913,301
---------- ---------- ---------- ----------
Net increase in net assets from operations 31,405,797 46,588,772 1,493,143 2,206,956
Distributions to shareholders from undistributed
net investment income (Note 1) ................ (29,813,817) (37,919,267) (1,391,109) (1,896,437)
Decrease in net assets from capital share
transactions (Note 3) ......................... (117,962,940) (233,338,662) (6,646,687) (14,850,372)
---------- ---------- ---------- ----------
Net decrease in net assets ................ (116,370,960) (224,669,157) (6,544,653) (14,539,853)
Net assets (there is no undistributed net investment
income at beginning or end of the year):
Beginning of year ............................. 522,801,957 747,471,114 27,078,900 41,618,753
---------- ---------- ---------- ----------
End of year ................................... $406,430,997 $ 522,801,957 $20,534,247 $ 27,078,900
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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 investment objective of each Portfolio is to seek current income.
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 Valuation:
Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
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. The Portfolios may
utilize a pricing service, bank or broker/dealer experienced in such matters to
perform any of the pricing functions, under procedures approved by the Board of
Trustees (the Board). Securities for which market quotations are not available
are valued in accordance with procedures established by the Board.
b. Income Taxes:
The Portfolios intend 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 shareholders which will be sufficient to relieve the
Portfolios from income and excise taxes. Each Portfolio is treated as a separate
entity in the determination of compliance with the Internal Revenue Code.
c. Security Transactions:
Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.
d. Investment Income, Expenses and Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Interest
income and estimated expenses are accrued daily. The Portfolios normally declare
dividends from their net investment income daily and distribute monthly. Daily
allocations of net investment income will commence on the date following receipt
of an investor's funds. Dividends declared by the Portfolios equal their net
investment income.
e. Accounting Estimates:
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
f. 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.
g. Repurchase Agreements:
The Portfolios may enter into a joint repurchase agreement whereby their
uninvested cash balances are deposited into a joint cash account to be used to
invest in one or more repurchase agreements with government securities dealers
recognized by the Federal Reserve Board and/or member banks of the Federal
Reserve System. The value and face amount of the joint repurchase agreement are
allocated to the Portfolios based on their pro-rata interest. A repurchase
agreement is accounted for as a loan by the Portfolios to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Portfolios' custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Portfolios, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. At October 31, 1996, all
outstanding repurchase agreements held by the Portfolios had been entered into
on that date.
2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS
At October 31, 1996, 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
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
2004................... 419,303 37,828
----------- ------------
$137,820,589 $2,743,716
=========== ============
For tax purposes, the aggregate cost of securities and unrealized depreciation
of the Portfolios are the same as for financial statement purposes at October
31, 1996.
<TABLE>
<CAPTION>
3. TRUST SHARES
At October 31, 1996, there was an unlimited number of $.01 par value shares of
beneficial interest authorized. Transactions in each of the Portfolios' shares
for the years ended October 31, 1996 and 1995 were as follows:
U.S. Government Adjustable Rate
Adjustable Rate Mortgage Portfolio Securities Portfolio
---------------------------------- --------------------------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
1996
<S> <C> <C> <C> <C>
Shares sold ....................................... 8,516,434 $ 79,504,622 741,450 $ 7,267,077
Shares issued in reinvestment of distributions .... 3,196,067 29,832,645 141,790 1,391,107
Shares redeemed ................................... (24,351,072) (227,300,207) (1,560,875) (15,304,871)
---------- ---------- ---------- ----------
Net decrease.................................. (12,638,571) $(117,962,940) (677,635) $ (6,646,687)
========== ========== ========== ==========
U.S. Government Adjustable Rate
Adjustable 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)
========== ========== ========== ==========
</TABLE>
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended October 31, 1996, were as follows:
U.S. Government
Adjustable Rate Adjustable Rate
Mortgage Portfolio Securities Portfolio
-------------- ----------------
Purchases ................. $111,882,444 $10,068,072
Sales ..................... $235,782,991 $17,653,846
5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
a. Management Agreement:
Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to each Portfolio, and receives fees computed monthly based on the average daily
net assets of each Portfolio as follows:
Annualized Fee Rate Average Daily Net Assets
------------------- -------------------------------------------------
0.400% First $5 billion
0.350% Over $5 billion, up to and including $10 billion
0.330% Over $10 billion, up to and including $15 billion
Fees are further reduced on net assets over $15 billion. Advisers agreed in
advance to waive management fees for the Portfolios aggregating $848,874.
b. Other Affiliated Parties and Transactions:
As of October 31, 1996, 42,420,398 shares of the Mortgage Portfolio were owned
by the Franklin Adjustable U.S. Government Securities Fund, and 976,675 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, 1996, 1,596,361 shares of the Securities Portfolio were owned
by the Franklin Adjustable Rate Securities Fund and 485,550 shares were owned by
the Franklin Institutional Adjustable Securities Fund. This represents 77% and
23%, respectively, of the outstanding shares of the Securities Portfolio. The
remaining 1,425 shares of the Securities Portfolio were owned by Franklin
Resources, Inc. (Resources).
Certain officers and trustees of the Trust are also officers and/or directors of
Advisers (a wholly-owned subsidiary of Resources), and of the Franklin
Adjustable U.S. Government Securities Fund and the Franklin Adjustable Rate
Securities Fund.
<TABLE>
<CAPTION>
6. FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period by Portfolio are as follows:
Per Share Operating Performance Ratios/Supplemental Data
------------------------------------------------------------- --------------------------------------------
Ratio
Net of Net
Asset Net Distri- Net Ratio of Invest-
Value at Realized & butions Asset Net Expenses ment
Begin- Net Unrealized Total From Net Value Assets to Income to
Year ning Invest- Gain From Invest- at at End Average Average Portfolio
Ended of ment (Loss) on Investment ment End of Total of Period Net Net Turnover
Oct. 31, Period Income Securities Operations Income Period Return+ (in 000's) Assest++ Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government Adjustable Rate Mortgage Portfolio:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
19931 $10.01 $.544 $(.100) $ .444 $(.544) $ 9.91 4.53% $4,201,411 .30% 5.49% 66.44%
19932 9.91 .313 (.090) .223 (.313) 9.82 2.28 2,130,229 .27* 4.15* 76.55
1994 9.82 .415 (.630) (.215) (.415) 9.19 (2.22) 747,471 .02 4.01 56.43
1995 9.19 .572 .140 .712 (.572) 9.33 7.99 522,802 .18 6.17 20.16
1996 9.33 .589 .040 .629 (.589) 9.37 6.95 406,431 .25 6.31 24.63
Adjustable Rate Securities Portfolio:
19931 10.00 .599 .020 .619 (.599) 10.02 6.36 44,656 -- 5.80 88.92
19932 10.02 .368 .010 .378 (.368) 10.03 3.83 124,309 .11* 4.76* 158.70
1994 10.03 .469 (.340) .129 (.469) 9.69 1.32 41,619 .25 4.55 192.06
1995 9.69 .625 .120 .745 (.625) 9.81 7.94 27,079 .25 6.36 50.29
1996 9.81 .607 .050 .657 (.607) 9.86 6.91 20,534 .25 6.19 46.78
*Annualized
1For the year ended January 31, 1993.
2For 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 capital gains, if any, at net asset value.
++During the periods indicated, Advisers agreed in advance to waive a portion of its management fees and to make 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:
</TABLE>
Ratio of Expenses to
Average Net Assets
------------------------
U.S. Government Adjustable
Rate Mortgage Portfolio:
19931................................. .42%
19932................................. .41*
1994.................................. .42
1995.................................. .43
1996.................................. .42
Ratio of Expenses to
Average Net Assets
------------------------
Adjustable Rate Securities Portfolio:
19931................................. .64%
19932................................. .47*
1994.................................. .43
1995.................................. .47
1996.................................. .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, 1996, 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 presented. 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, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the two Portfolios comprising the Adjustable Rate Securities Portfolios as of
October 31, 1996, the results of their operations for the year then ended, the
changes in their net assets for each of the two years in the period then ended,
and the financial highlights for the periods presented, in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
December 4, 1996
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, 1997 as
filed with the SEC electronically on Form Type N-30D
on September 10, 1997:
(A) Franklin Cash Reserves Fund
(i) Statement of Investments in Securities and Net Assets - June
30, 1997
(ii) Statement of Assets and Liabilities - June 30, 1997
(iii) Statement of Operations - for the year ended June 30, 1997
(iv) Statements of Changes in Net Assets - for the years
ended June 30, 1997 and 1996
(v) Notes to Financial Statements
(vi) Report of Independent Auditors
(vii) Statement of Investments in Securities and Net Assets of The
Money Market Portfolios - June 30, 1997
(viii) Statement of Assets and Liabilities of The Money
Market Portfolios - June 30, 1997
(ix) Statement of Operations of The Money Market
Portfolios - for the year ended June 30, 1997
(x) Statements of Changes in Net Assets of The Money
Market Portfolios - for the years ended June 30, 1997
and 1996
(xi) Notes to Financial Statements
(xii) Report of Independent Auditors of The Money Market
Portfolios
(B) Money Market Portfolio, Franklin U.S. Government
Securities Money Market Portfolio, Franklin U.S.
Treasury Money Market Portfolio, and Franklin U.S.
Government Agency Money Market Fund
(i) Statement of Investments in Securities and Net Assets
- June 30, 1997
(ii) Statements of Assets and Liabilities - June 30, 1997
(iii) Statements of Operations - for the year ended June 30,
1997
(iv) Statements of Changes in Net Assets - for the years
ended June 30, 1997 and 1996
(v) Notes to Financial Statements
(vi) Report of Independent Auditors
(vii) Statement of Investments in Securities and Net Assets
of The Money Market Portfolios - June 30, 1997
(viii) Statements of Assets and Liabilities of The Money
Market Portfolios - June 30, 1997
(ix) Statements of Operations of The Money Market
Portfolios - for the year ended June 30, 1997
(x) Statements of Changes in Net Assets of The Money
Market Portfolios - for the years ended June 30, 1997 and 1996
(xi) Notes to Financial Statements
(xii) Report of Independent Auditors of The Money Market
Portfolios
(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, 1997
(ii) Statements of Assets and Liabilities - June 30, 1997
(iii) Statements of Operations - for the year ended June 30, 1997
(iv) Statements of Changes in Net Assets - for the years
ended June 30, 1997 and 1996
(v) Notes to Financial Statements
(vi) Report of Independent Auditors
(vii) Statement of Investments in Securities and Net Assets
of the Adjustable Rate Securities Portfolios - June
30, 1997 (unaudited)
(viii) Statements of Assets and Liabilities of the Adjustable
Rate Securities Portfolios - June 30, 1997 (unaudited)
(ix) Statements of Operations of the Adjustable Rate
Securities Portfolios - for the eight months ended
June 30, 1997 (unaudited)
(x) Statements of Changes in Net Assets of the Adjustable
Rate Securities Portfolios - for the eight months
ended June 30, 1997 (unaudited) and the year ended
October 31, 1996
(xi) Notes to Financial Statements (unaudited)
(2) Filed in Part B
(i) Statement of Investments in Securities and Net Assets
of the Adjustable Rate Securities Portfolios - October 31, 1996
(ii) Statements of Assets and Liabilities of the Adjustable
Rate Securities Portfolios - October 31, 1996
(iii) Statements of Operations of the Adjustable Rate
Securities Portfolios - for the year ended October 31,
1996
(iv) Statements of Changes in Net Assets of the Adjustable
Rate Securities Portfolios - for the years ended
October 31, 1996 and 1995
(v) Notes to Financial Statements
(vi) Report of Independent Auditors
b) Exhibits
The following exhibits are incorporated by reference
herein, except exhibits 5(iii), 5(viii), 5(ix), 5(x),
5(xi), 5(xii), 5(xiii), 5(xiv), 8(iii), 11(i),
17(iii), 17(vi), 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 of 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 of 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 of 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 of 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 of 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
(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
(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 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 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 Administration Agreement between
Registrant, on behalf of Franklin U.S. Government
Securities Money Market Portfolio, and Franklin
Advisers, Inc. dated August 1, 1995
(x) Amendment to Management Agreement between
Registrant, on behalf of Franklin U.S. Treasury
Money Market Portfolio, and Franklin Advisers,
Inc. dated August 1, 1995
(xi) Amendment to Administration Agreement between
Registrant, on behalf of Franklin Institutional
Adjustable Rate Securities Fund, and Franklin
Advisers, Inc. dated August 1, 1995
(xii) Amendment to Administration Agreement between
Registrant, on behalf of Franklin Institutional
Adjustable U.S. Securities Fund, and Franklin
Advisers, Inc. dated August 1, 1995
(xiii) 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
(xiv) 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) Forms 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 of
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) Master Custody Agreement between Registrant and
Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: October 31, 1996
(ii) Terminal Link Agreement between Registrant and
Bank of New York dated February 16, 1996
Filing: Post-Effective Amendment No. 25 to
Registration Statement on Form N-1A
File No. 2-96634
Filing Date: October 31, 1996
(iii) Amendment to Master Custody Agreement between
Registrant and Bank of New York dated May 7, 1997
(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;
Not Applicable
(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
Registrant: Franklin High Income Trust
Filing: Post-Effective Amendment No. 26 to
Registration Statement on Form N-1A
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 Franklin U. S.
Government Agency Money Market Fund, and
Franklin/Templeton Distributors, 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 Franklin Cash
Reserves Fund, and Franklin/Templeton
Distributors, 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/Templeton Distributors, 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/Templeton Distributors,
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/Templeton
Distributors, 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 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
(iii) The Money Market Portfolios dated September 18,
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
(18) Copies of any plan entered into by Registrant pursuant to Rule
18f-3 under the 1940 Act
Not Applicable
(27) Financial Data Schedules
(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 Portfolio
(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 August 31, 1997 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 488
Money Market Portfolio 321
Franklin U.S. Government Securities
Money Market Portfolio 279
Franklin U.S. Treasury Money
Market Portfolio 125
Franklin U.S. Government Agency
Money Market Fund 69
Franklin Institutional Adjustable
U.S. Government Securities Fund 40
Franklin Institutional Adjustable
Rate Securities Fund 6
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 the 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 of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Please see the Declaration of Trust, By-Laws, Management, Administration,
and Distribution Agreements, previously filed as exhibits and incorporated
herein by reference.
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant to
said By-Laws, any indemnification under said Article shall be made by Registrant
only if authorized in the manner provided in such By-Laws.
ITEM 28 BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
The officers and directors of Franklin Advisers, Inc. ("Advisers"), the
investment advisor of the Registrant's Franklin U.S. Treasury Money Market
Portfolio and Franklin U.S. Government Agency Money Market Fund, administrator
of Money Market Portfolio, Franklin U. S. Government Securities Money Market
Portfolio, Franklin Cash Reserves Fund, Franklin Institutional Adjustable U.S.
Government Securities Fund and Franklin Institutional Adjustable Rate Securities
Fund, and investment advisor of the Master Funds also serve as officers and/or
directors for (1) Advisers corporate parent, Franklin Resources, Inc., and/or
(2) other investment companies in the Franklin Templeton Group of Funds. In
addition, Mr. Charles B. Johnson is a director of General Host Corporation. For
additional information please see Part B and Schedules A and D of Form ADV of
Advisers (SEC File 801-26292), incorporated herein by reference, which sets
forth the officers and directors of Advisers and information as to any business,
profession, vocation or employment of a substantial nature engaged in by those
officers and directors during the past two years.
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 Floating Rate Trust
Franklin Gold Fund
Franklin High Income Trust
Franklin Investors Securities Trust
Franklin Managed Trust
Franklin Money Fund
Franklin Mutual Series Fund Inc.
Franklin Municipal Securities Trust
Franklin New York Tax-Free Income Fund
Franklin New York Tax-Free Trust
Franklin Real Estate Securities Trust
Franklin Strategic Mortgage Portfolio
Franklin Strategic Series
Franklin Tax-Exempt Money Fund
Franklin Tax-Free Trust
Franklin Templeton Fund Allocator Series
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 Annuity Fund
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 Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this 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 29th day
of October, 1997.
INSTITUTIONAL FIDUCIARY TRUST
(Registrant)
By: CHARLES E. JOHNSON *
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated:
Charles E. Johnson* Trustee and Principal
Charles E. Johnson Executive Officer
Dated: October 29, 1997
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: October 29, 1997
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 29, 1997
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: October 29, 1997
Harris J. Ashton* Trustee
Harris J. Ashton Dated: October 29, 1997
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: October 29, 1997
Charles B. Johnson* Trustee
Charles B. Johnson Dated: October 29, 1997
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: October 29, 1997
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: October 29, 1997
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: October 29, 1997
*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 and has
duly caused this 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 29th day of October, 1997.
THE MONEY MARKET PORTFOLIOS
By: CHARLES E. JOHNSON*
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following Officers and Trustees of The
Money Market Portfolios in the capacities and on the dates indicated:
Charles E. Johnson* Trustee and Principal
Charles E. Johnson Executive Officer
Dated: October 29, 1997
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: October 29, 1997
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 29, 1997
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: October 29, 1997
Harris J. Ashton* Trustee
Harris J. Ashton Dated: October 29, 1997
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: October 29, 1997
Charles B. Johnson* Trustee
Charles B. Johnson Dated: October 29, 1997
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: October 29, 1997
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: October 29, 1997
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: October 29, 1997
*By /s/ Larry L. Greene
Larry L. Greene, Attorney-in-Fact
(Pursuant to Power of Attorney filed herewith)
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 and has
duly caused this 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 29th day of October, 1997.
ADJUSTABLE RATE SECURITIES PORTFOLIOS
By: CHARLES E. JOHNSON*
Charles E. Johnson
President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following Officers and Trustees of
Adjustable Rate Securities Portfolios in the capacities and on the dates
indicated:
Charles E. Johnson* Trustee and Principal
Charles E. Johnson Executive Officer
Dated: October 29, 1997
Martin L. Flanagan* Principal Financial Officer
Martin L. Flanagan Dated: October 29, 1997
Diomedes Loo-Tam* Principal Accounting Officer
Diomedes Loo-Tam Dated: October 29, 1997
Frank H. Abbott III* Trustee
Frank H. Abbott III Dated: October 29, 1997
Harris J. Ashton* Trustee
Harris J. Ashton Dated: October 29, 1997
S. Joseph Fortunato* Trustee
S. Joseph Fortunato Dated: October 29, 1997
Charles B. Johnson* Trustee
Charles B. Johnson Dated: October 29, 1997
Rupert H. Johnson, Jr.* Trustee
Rupert H. Johnson, Jr. Dated: October 29, 1997
Frank W.T. LaHaye* Trustee
Frank W.T. LaHaye Dated: October 29, 1997
William J. Lippman* Trustee
William J. Lippman Dated: October 29, 1997
Gordon S. Macklin* Trustee
Gordon S. Macklin Dated: October 29, 1997
*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.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 Attached
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 Attached
Agreement between Registrant, on
behalf of Money Market Portfolio,
and Franklin Advisers, Inc. dated
August 1, 1995
EX-99.B5(ix) Amendment to Administration Attached
Agreement between Registrant, on
behalf of Franklin U.S. Government
Securities Money Market Portfolio,
and Franklin Advisers, Inc. dated
August 1, 1995
EX-99.B5(x) 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(xi) Amendment to Administration Attached
Agreement between Registrant, on
behalf of Franklin Institutional
Adjustable Rate Securities Fund,
and Franklin Advisers, Inc. dated
August 1, 1995
EX-99.B5(xii) Amendment to Administration Attached
Agreement between Registrant, on
behalf of Franklin Institutional
Adjustable U.S. Securities Fund,
and Franklin Advisers, Inc. dated
August 1, 1995
EX-99.B5(xiii) 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(xiv) Amendment to Administration Attached
Agreement 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) Forms of Dealer Agreements between *
Franklin/Templeton Distributors,
Inc. and dealers
EX-99.B8(i) Master Custody Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(ii) Terminal Link Agreement between *
Registrant and Bank of New York
dated February 16, 1996
EX-99.B8(iii) Amendment to Master Custody Attached
Agreement between Registrant and
Bank of New York dated May 7, 1997
EX-99.B11(i) Consent of Independent Auditors Attached
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 Franklin U. S. Government Agency
Money Market Fund, and
Franklin/Templeton Distributors,
Inc. dated February 8, 1994
EX-99.B15(ii) Distribution Plan pursuant to Rule *
12b-1 between Registrant, on behalf
of Franklin Cash Reserves Fund, and
Franklin/Templeton Distributors,
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/Templeton
Distributors, 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/Templeton Distributors,
Inc. dated December 1, 1993
EX-99.B15(v) Amended and Restated Distribution *
Plan pursuant to Rule 12b-1 between
Registrant, on behalf of Money
Market Portfolio, and
Franklin/Templeton Distributors,
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 Attached
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 Attached
Money Market Portfolios dated
September 18, 1995
EX-27.B-1 Financial Data Schedule for Attached
Franklin Cash Reserves Fund
EX-27.B-2 Financial Data Schedule for Money Attached
Market Portfolio
EX-27.B-3 Financial Data Schedule for Attached
Franklin U.S. Government Securities
Money Market Portfolio
EX-27.B-4 Financial Data Schedule for Attached
Franklin U.S. Treasury Money Market
Portfolio
EX-27.B-5 Financial Data Schedule for Attached
Franklin U.S. Government Agency
Money Market Fund
EX-27.B-6 Financial Data Schedule for Attached
Franklin Institutional Adjustable
U.S. Government Securities Fund
EX-27.B-7 Financial Data Schedule for Attached
Franklin Institutional Adjustable
Rate Securities Fund
*Incorporated by Reference
INSTITUTIONAL FIDUCIARY TRUST
FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made between INSTITUTIONAL FIDUCIARY
TRUST, a Massachusetts business trust hereinafter called the "Trust," on behalf
of FRANKLIN INSTITUTIONAL ADJUSTABLE RATE SECURITIES FUND (the "Fund"), a
separate series of the Trust, and FRANKLIN ADVISERS, INC., a California
Corporation, hereinafter called the "Administrator."
WHEREAS, the Trust has been organized and operates as an investment
company registered under the Investment Company Act of 1940 for the purpose of
investing and reinvesting its assets in securities, as set forth in its
Agreement and Declaration of Trust, its By-Laws and its Registration Statements
under the Investment Company Act of 1940 and the Securities Act of 1933, all as
heretofore amended and supplemented;
WHEREAS, the Fund, as a separate series of the Trust, desires to avail
itself of the services, assistance and facilities of an administrator and to
have an administrator perform various administrative and other services for it;
and,
WHEREAS, the Administrator is engaged in the business of rendering
administrative services to investment companies, and desires to provide these
services to the Fund;
NOW THEREFORE, in consideration of the terms and conditions
hereinafter set forth, it is agreed as follows:
1. EMPLOYMENT OF THE ADMINISTRATOR. The Fund hereby employs the
Administrator to administer its affairs, subject to the direction of the Board
of Trustees and the officers of the Trust, for the period and on the terms
hereinafter set forth.
The Administrator hereby accepts such employment and agrees during such period
to render the services and to assume the obligations herein set forth for the
compensation herein provided. The Administrator shall for all purposes herein be
deemed to be an independent contractor and shall, except as expressly provided
or authorized (whether herein or otherwise), have no authority to act for or
represent the Fund or the Trust in any way or otherwise be deemed an agent of
the Fund or the Trust.
2. OBLIGATIONS OF AND SERVICES TO BE PROVIDED BY THE ADMINISTRATOR.
The Administrator undertakes to provide the services hereinafter set forth and
to assume the following obligations:
A. OFFICE SPACE, FURNISHINGS, FACILITIES, EQUIPMENT, AND
PERSONNEL.
The Administrator shall furnish to the Fund adequate (i) office
space, which may be space within the offices of the Administrator
or in such other place as may be agreed upon from time to time,
and (ii) office furnishings, facilities and equipment as may be
reasonably required for managing the affairs and conducting the
business of the Fund, including complying with the securities
reporting requirements of the United States and the various
states in which the Fund does business, conducting
correspondence and other communications with the shareholders of
the Fund, maintaining all internal bookkeeping, accounting,
auditing services and records in connection with the Fund's
investment and business activities, and computing its net asset
value. The Administrator shall employ or provide and compensate
the executive, secretarial and clerical personnel necessary to
provide such services. The Administrator shall also compensate
all officers and employees of the Trust who are officers or
employees of the Administrator.
B. PROVISION OF INFORMATION NECESSARY FOR PREPARATION OF
SECURITIES REGISTRATION STATEMENTS, AMENDMENTS AND OTHER
MATERIALS.
The Administrator, its officers and employees will make available
and provide accounting and statistical information required by
the Fund or its Underwriter in the preparation of registration
statements, reports and other documents required by Federal and
state securities laws and with such information as the Fund or
its Underwriter may reasonably request for use in the preparation
of such documents or of other materials necessary or helpful for
the underwriting and distribution of the Fund's shares.
C. OTHER OBLIGATIONS AND SERVICES.
The Administrator shall make available its officers and employees
to the Board of Trustees and officers of the Trust for
consultation and discussions regarding the administration of the
Fund and its activities.
3. EXPENSES OF THE FUND. It is understood that the Fund will pay all
of its own expenses other than those expressly assumed by the Administrator
herein, which expenses payable by the Fund shall include:
A. Fees to the Administrator as provided herein;
B. Expenses of all audits by independent public
accountants;
C. Expenses of transfer agent, registrar, custodian,
dividend disbursing agent and shareholder record-keeping services;
D. Expenses, if any, of obtaining quotations for
calculating the value of the Fund's net assets;
E. Salaries and other compensation of any of its
executive officers who are not officers, trustees, stockholders
or employees of theAdministrator;
F. Taxes levied against the Trust or the Fund;
G. Costs, including the interest expense, of borrowing
money;
H. Costs incident to meetings of the Board of Trustees,
reports to the Trust to its shareholders, the filing of reports
with regulatory bodies and the maintenance of the Trust's legal
existence;
I. Legal fees, including the legal fees related to the
registration and continuedqualification of the Fund's shares for
sale;
J. Costs of printing share certificatesrepresenting
shares of the Fund;
K. Trustees' fees and expenses to trustees who are not
directors, officers, employees or stockholders of the
Administrator or any of its affiliates;
L. Trade association dues; and
M. Its pro rata portion of the fidelity bond insurance
premium and trustees and officers errors and omissions
insurance premium.
4. COMPENSATION OF THE ADMINISTRATOR. The Fund shall pay a monthly
administration fee in cash to the Administrator based upon a percentage of the
value of the Fund's net assets, calculated as set forth below, on the first
business day of each month in each year as compensation for the services
rendered and obligations assumed by the Administrator during the preceding
month. The initial administration fee under this Agreement shall be payable on
the first business day of the first month following the effective date of this
Agreement, and shall be reduced by the amount of any advance payments made by
the Trust relating to the previous month.
A. For purposes of calculating such fee, the value of the net
assets of the Fund shall be the average daily net assets during
the month for which the payment is being made, determined in the
same manner as the Fund uses to compute the value of its net
assets in connection with the determination of the daily net
asset value of its shares, all as set forth more fully in the
Fund's current prospectus. The annual rate of the administration
fee payable by the Fund shall be 5/100 of 1% of the value of its
net assets.
B. If this Agreement is terminated prior to the end of any
month, the monthly administration fee for the Fund shall be
prorated for the portion of any month in which this Agreement is
in effect which is not a complete month according to the
proportion which the number of calendar days in the fiscal
quarter during which the Agreement is in effect bears to the
number of calendar days in the month, and shall be payable within
10 days after the date of termination.
5. ACTIVITIES OF THE ADMINISTRATOR. The services of the Administrator
to the Fund hereunder are not to be deemed exclusive, and the Administrator and
any of its affiliates shall be free to render similar services to others.
Subject to and in accordance with the Agreement and Declaration of Trust and
By-Laws of the Trust and to Section 10(a) of the Investment Company Act of 1940,
it is understood that Trustees, officers, agents and shareholders of the Trust
are or may be interested in the Administrator or its affiliates as trustees,
directors, officers, agents or stockholders, and that directors, officers,
agents or stockholders of the Administrator or its affiliates are or may be
interested in the Trust as Trustees, officers, agents, shareholders or
otherwise, and that the Administrator or its affiliates may be interested in the
Fund as shareholders or otherwise; and that the effect of any such interests
shall be governed by said Agreement and Declaration of Trust, the By-Laws and
the Investment Company Act of 1940.
6. LIABILITIES OF THE ADMINISTRATOR.
A. In the absence of willful misfeasance, bad faith, gross
negligence, or reckless disregard of obligation or duties
hereunder on the part of the Administrator, the Administrator
shall not be subject to liability to the Trust or the Fund or to
any shareholder of the Fund for any act or omission in the course
of, or connected with, rendering services hereunder.
B. Notwithstanding the foregoing, the Administrator agrees to
reimburse the Fund for any and all costs, expenses, and counsel
and trustees' fees reasonably incurred by the Fund in the
preparation, printing and distribution of proxy statements,
amendments to its Registration Statement, holdings of meetings of
its shareholders or Trustees, the conduct of
factualinvestigations, any legal or administrative proceedings
(including any applications for exemptions or determinations by
the Securities and Exchange Commission) which the Fund incurs as
the result of action or inaction of the Administrator or any of
its affiliates or any oftheir officers, directors, employees or
shareholders where the action or inaction necessitating such
expenditures (i) is directly or indirectly related to any
transactions or proposed transaction in the shares or control of
theAdministrator or its affiliates (or litigation related to any
pending or proposed or future transaction in such shares or
control); or, (ii) is within the control of the Administrator or
any of its affiliates or any of their officers, trustees,
employees or shareholders. The Administrator shall not be
obligated, pursuant to the provisions of this Subsection 6(B), to
reimburse the Fund for any expenditures related to the institution
of an administrative proceeding or civil litigation by the Trust
or a shareholder seeking to recover all or a portion of the
proceeds derived by any shareholder of the Administrator or any of
its affiliates from the sale of his shares of the Administrator,
or similar matters. So long as this Agreement is in effect, the
Administrator shall pay to the Fund the amount due for expenses
subject to Subsection 6(B) of this Agreement within 30 days after
a bill or statement has been received by the Administrator
therefor. This provision shall not be deemed to be a waiver of
any claim the Fund may have or may assert against the
Administrator or others for costs, expenses or damages heretofore
incurred by the Fund or for costs, expenses or damages the Fund
may hereafter incur which are not reimbursable to it hereunder.
C. No provision of this Agreement shall be construed to
protect any Trustee or officer of the Trust, or director or
officer of the Administrator, from liability in violation of
Sections 17(h) and (i) of the Investment Company Act of 1940.
7. DURATION AND TERMINATION.
A. This Agreement shall become effective on the date written
below and shall continue in effect until terminated by the Trust
or the Administrator on 60 days written notice to the other.
B. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed post-paid, to the other party
at any office of such party.
8. SEVERABILITY. If any provision of this Agreement shall be held or
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
10. LIMITATION OF LIABILITY. The Administrator acknowledges that it
has received notice of and accepts the limitations of the Trust's liability as
set forth in its Agreement and Declaration of Trust. The Administrator agrees
that the Trust's obligations hereunder shall be limited to the assets of the
Fund, and that the Administrator shall not seek satisfaction of any such
obligation from any shareholders of the Fund nor from any trustee, officer,
employee or agent of the Trust.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and effective on the 2nd day of January, 1992.
By: INSTITUTIONAL FIDUCIARY TRUST
on behalf of Franklin Institutional
Adjustable Rate Securities Fund
By /S/ CHARLES B. JOHNSON
Charles B. Johnson
President
FRANKLIN ADVISERS, INC.
By /S/ RUPERT H. JOHNSON, JR.
Rupert H. Johnson, Jr.
President
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
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 /S/ DEBORAH R. GATZEK
FRANKLIN ADVISERS, INC.
By /S/ HARMON E. BURNS
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as
modified hereby, the Agreement is confirmed in all respects. Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Agreement.
B. The Agreement shall be amended to add a new Section 4. 1 0 as
follows:
4.10 ADDITIONAL DUTIES WITH RESPECT TO RUSSIAN SECURITIES.
(a) Upon 3 business days prior written notice from a Fund that
it will invest in any security issued by a Russian issuer ("Russian
Security"), the Custodian shall to the extent required and in accordance with
the terms of the Subcustodian Agreement between the Custodian and Credit
Suisse ("Foreign Custodian") dated as of August 8, 1996 (the "Subcustodian
Agreement") direct the Foreign Custodian to enter into a contract ("Registrar
Contract") with the entity providing share registration services to the
Russian issuer ("Registrar") containing substantially the following
protective provisions:
(1) REGULAR SHARE CONFIRMATIONS. Each Registrar Contract
must establish the Foreign Custodian's right to conduct regular share
confirmations on behalf of the Foreign Custodian's customers.
(2) PROMPT RE-REGISTRATIONS. Registrars must be
obligated to effect re-registrations within 72 hours (or such other specified
time as the United States Securities and Exchange Commission (the "SEC") may
deem appropriate by rule, regulation, order or "no-action" letter) of
receiving the necessary documentation.
(3) USE OF NOMINEE NAME. The Registrar Contract must
establish the Foreign Custodian's right to hold shares not held directly in
the beneficial owner's name in the name of the Foreign Custodian's nominee.
(4) AUDITOR VERIFICATION. The Registrar Contract must
allow the independent auditors of the Custodian and the Custodian's clients
to obtain direct access to the share register for the independent auditors of
each of the Foreign Custodian's clients.
(5) SPECIFICATION OF REGISTRAR'S RESPONSIBILITIES AND
LIABILITIES. The
contract must set forth: (1) the Registrar's responsibilities with regard to
corporate actions and
other distributions; (ii) the Registrar's liabilities as established under
the regulations applicable to
the Russian share registration -system and (iii) the procedures for making a
claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share
confirmations, which shall require the Foreign Custodian to (1) request
either a duplicate share extract or some other sufficient evidence of
verification and (2) determine if the Foreign Custodian's records correlate
with those of the Registrar. For at least the first two years following the
Foreign Custodian's first use of a Registrar in connection with a Fund
investment, and subject to the cooperation of the Registrar, the Foreign
Custodian will conduct these share confirmations on at least a quarterly
basis, although thereafter they may be conducted on a less frequent basis,
but no less frequently than annually, if the Fund's Board of Directors, in
consultation with the Custodian, determine it appropriate.
(c) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Subcustodian to maintain custody of the Fund's share
register extracts or other evidence of verification obtained pursuant to
paragraph (b) above.
(d) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Foreign Custodian to comply with the rules,
regulations, orders and "no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and
delivery of Securities; and
(2) providing notice to the Fund and its Board of
Directors of events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or
inaction of any Registrar or securities depository utilized in connection
with Russian Securities except to the extent that any such action or inaction
was the result of the Custodian's negligence. With respect to any costs,
expenses, damages, liabilities or claims, including attorneys' and
accountants' fees (collectively, "Losses") incurred by a Fund as a result of
the acts or the failure to act by any Foreign Custodian or its subsidiary in
Russia ("Subsidiary"), the Custodian shall take appropriate action to recover
such Losses from the Foreign Custodian or Subsidiary. The Custodian's sole
responsibility and liability to a Fund with respect to any Losses shall be
limited to amounts so received from the Foreign Custodian or Subsidiary
(exclusive of costs and expenses incurred by the Custodian) except to the
extent that such losses were the result of the Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Name: Stephen E. Grunston
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By: /S/ DEBORAH R. GATZEK
Name: Deborah R. Gatzek
Title: Vice President
By: /S/ KAREN L. SKIDMORE
Name: Karen L. Skidmore
Title: Assistant Vice President
Amendment to Master Custody Agreement
The Bank of New York and Templeton Variable Products Series Fund, for itself and
on behalf of its series, hereby amend Schedule A of the Master Custody Agreement
dated as of February 16, 1996, to add the series listed below:
REGISTERED INVESTMENT COMPANY SERIES
Templeton Variable Products Series Fund Franklin Growth Investments
Fund
Dated as of: May 1, 1997
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
By: /S/ KAREN L. SKIDMORE
Title: Assistant Vice
President & Assistant
Secretary
THE BANK OF NEW YORK
By: /S/ STEPHEN E. GRUNSTON
Title: Vice President
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 26
to the Registration Statement of Institutional Fiduciary Trust on Form N-1A File
No. 2-96634 of our reports dated August 4, 1997 on our audit of the financial
statements and financial highlights of the Institutional Fiduciary Trust, for
the year ended June 30, 1997 and our report dated August 4, 1997 on our audit of
the financial statements and financial highlights of The Money Market Portfolios
for the year ended June 30, 1997, which reports are included in the Annual
Reports to Shareholders for the year ended June 30, 1997 and the inclusion in
the aforementioned Post-Effective Amendment of our report dated December 4, 1996
on our audit of the financial statements and financial highlights of the
Adjustable Rate Securities Portfolios for the year ended October 31, 1996.
/S/ COOPERS & LYBRAND L.L.P.
San Francisco, California
October 27, 1997
POWER OF ATTORNEY
The undersigned officers and trustees of THE MONEY MARKET PORTFOLIOS (the
"Registrant") hereby appoint HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L.
SKIDMORE, LARRY L. GREENE, and MARK H. PLAFKER (with full power to each of them
to act alone) as their attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration statement, or the
registration statements of other funds investing all or substantially all of
their assets in shares issued by the Registrant, on Form N-1A under the
Investment Company Act of 1940, as amended, and, in the case of a fund investing
all or substantially all of its assets in shares issued by the Registrant, the
Securities Act of 1933, covering the sale of shares of beneficial interest by
the Registrant or such other fund under prospectuses becoming effective after
the date hereof, including any amendment or amendments filed for the purpose of
updating the prospectus/or SAI, registering securities to be issued in
transactions permitted under the federal securities laws or increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of Attorney
as of this 18th day of September 1995.
/S/ CHARLES E. JOHNSON /S/ CHARLES B. JOHNSON
Charles E. Johnson, Principal Charles B. Johnson, Trustee
Executive Officer and Trustee
/S/ RUPERT H. JOHNSON, JR. /S/ FRANK H. ABBOTT, III
Rupert H. Johnson, Jr., Trustee Frank H. Abbott, III, Trustee
/S/ HARRIS J. ASHTON /S/ S. JOSEPH FORTUNATO
Harris J. Ashton, Trustee S. Joseph Fortunato, Trustee
/S/ DAVID W. GARBELLANO /S/ FRANK W.T. LAHAYE
David W. Garbellano, Trustee Frank W.T. LaHaye, Trustee
/S/ DIOMEDES LOO-TAM /S/ MARTIN L. FLANAGAN
Diomedes Loo-Tam, Martin L. Flanagan,
Principal Accounting Officer Principal Financial Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of The Money Market Portfolios
(the "Trust").
As Secretary of the Trust, I further certify that the following resolution was
adopted by a majority of the Trustees of the Trust present at a meeting held at
777 Mariners Island Boulevard, San Mateo, California, on September 18, 1995.
RESOLVED, that a Power of Attorney, substantially in the form of the
Power of Attorney presented to this Board, appointing Harmon E. Burns,
Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene and Mark H.
Plafker as attorneys-in-fact for the purpose of filing documents with
the Securities and Exchange Commission, be executed by each Trustee and
designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
/S/ DEBORAH R. GATZEK
Dated: September 18, 1995 Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INSTITUTIONAL FIDUCIARY TRUST JUNE 30, 1997 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> FRANKLIN CASH RESERVES FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 76,597,681
<INVESTMENTS-AT-VALUE> 76,597,681
<RECEIVABLES> 3,570
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 76,601,251
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 91,034
<TOTAL-LIABILITIES> 91,034
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 76,510,217
<SHARES-COMMON-STOCK> 76,510,217
<SHARES-COMMON-PRIOR> 30,381,057
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 76,510,217
<DIVIDEND-INCOME> 3,168,841
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (207,669)
<NET-INVESTMENT-INCOME> 2,961,172
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2,961,172
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,961,172)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 222,797,987
<NUMBER-OF-SHARES-REDEEMED> (179,585,176)
<SHARES-REINVESTED> 2,916,349
<NET-CHANGE-IN-ASSETS> 46,129,160
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 148,055
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 311,825
<AVERAGE-NET-ASSETS> 59,231,262
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.050)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.500
<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, 1997 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 185,105,166
<INVESTMENTS-AT-VALUE> 185,105,166
<RECEIVABLES> 282,970
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 185,388,136
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 299,977
<TOTAL-LIABILITIES> 299,977
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 185,088,159
<SHARES-COMMON-STOCK> 185,088,159
<SHARES-COMMON-PRIOR> 341,294,555
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 185,088,159
<DIVIDEND-INCOME> 16,036,209
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (150,057)
<NET-INVESTMENT-INCOME> 15,886,152
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 15,886,152
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (15,886,152)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,719,946,335
<NUMBER-OF-SHARES-REDEEMED> (3,885,522,745)
<SHARES-REINVESTED> 9,370,014
<NET-CHANGE-IN-ASSETS> (156,206,396)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150,356
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 229,985
<AVERAGE-NET-ASSETS> 301,297,170
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.053
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.053)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.200
<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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 136,748,226
<INVESTMENTS-AT-VALUE> 136,748,226
<RECEIVABLES> 186,141
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 136,934,367
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 229,704
<TOTAL-LIABILITIES> 229,704
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 136,704,663
<SHARES-COMMON-STOCK> 136,704,663
<SHARES-COMMON-PRIOR> 152,173,108
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 136,704,663
<DIVIDEND-INCOME> 7,307,099
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (70,068)
<NET-INVESTMENT-INCOME> 7,237,031
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7,237,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (7,237,031)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,332,259,122
<NUMBER-OF-SHARES-REDEEMED> (1,351,443,412)
<SHARES-REINVESTED> 3,715,845
<NET-CHANGE-IN-ASSETS> (15,468,445)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 70,196
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 138,570
<AVERAGE-NET-ASSETS> 140,799,882
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.052
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.052)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .200
<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, 1997 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> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 68,873,778
<INVESTMENTS-AT-VALUE> 68,873,778
<RECEIVABLES> 44,696
<ASSETS-OTHER> 34,450
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 68,952,924
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 137,823
<TOTAL-LIABILITIES> 137,823
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 68,815,101
<SHARES-COMMON-STOCK> 68,815,101
<SHARES-COMMON-PRIOR> 123,157,357
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 68,815,101
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,426,753
<OTHER-INCOME> 0
<EXPENSES-NET> (132,003)
<NET-INVESTMENT-INCOME> 3,294,750
<REALIZED-GAINS-CURRENT> 1,688
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,296,438
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,296,438)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 332,213,814
<NUMBER-OF-SHARES-REDEEMED> (388,119,203)
<SHARES-REINVESTED> 1,563,133
<NET-CHANGE-IN-ASSETS> (54,342,256)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 165,739
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,749
<AVERAGE-NET-ASSETS> 66,304,822
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.050)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.200
<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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 134,613,012
<INVESTMENTS-AT-VALUE> 134,613,012
<RECEIVABLES> 0
<ASSETS-OTHER> 30,294
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 134,643,306
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 281,594
<TOTAL-LIABILITIES> 281,594
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 134,361,712
<SHARES-COMMON-STOCK> 134,361,712
<SHARES-COMMON-PRIOR> 71,693,947
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 134,361,712
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,824,062
<OTHER-INCOME> 0
<EXPENSES-NET> (485,425)
<NET-INVESTMENT-INCOME> 5,338,637
<REALIZED-GAINS-CURRENT> (890)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,337,747
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (5,337,747)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 296,873,544
<NUMBER-OF-SHARES-REDEEMED> (238,391,576)
<SHARES-REINVESTED> 4,185,797
<NET-CHANGE-IN-ASSETS> 62,667,765
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 161,912
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 517,615
<AVERAGE-NET-ASSETS> 107,944,053
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.049
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.049)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.450
<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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 7,728,365
<INVESTMENTS-AT-VALUE> 7,471,224
<RECEIVABLES> 0
<ASSETS-OTHER> 5,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,476,588
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 5,105
<TOTAL-LIABILITIES> 5,105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 38,064,027
<SHARES-COMMON-STOCK> 798,274
<SHARES-COMMON-PRIOR> 1,017,549
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (30,335,403)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (257,141)
<NET-ASSETS> 7,471,483
<DIVIDEND-INCOME> 545,674
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (15,848)
<NET-INVESTMENT-INCOME> 529,826
<REALIZED-GAINS-CURRENT> (142,155)
<APPREC-INCREASE-CURRENT> 218,167
<NET-CHANGE-FROM-OPS> 605,838
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (544,447)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,317
<NUMBER-OF-SHARES-REDEEMED> (230,283)
<SHARES-REINVESTED> 6,691
<NET-CHANGE-IN-ASSETS> (1,976,263)
<ACCUMULATED-NII-PRIOR> 14,621
<ACCUMULATED-GAINS-PRIOR> (30,193,248)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,327
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 15,848
<AVERAGE-NET-ASSETS> 8,653,775
<PER-SHARE-NAV-BEGIN> 9.280
<PER-SHARE-NII> .570
<PER-SHARE-GAIN-APPREC> .090
<PER-SHARE-DIVIDEND> (.580)
<PER-SHARE-DISTRIBUTIONS> .000
<RETURNS-OF-CAPITAL> .000
<PER-SHARE-NAV-END> 9.360
<EXPENSE-RATIO> .430
<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, 1997 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-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 4,823,703
<INVESTMENTS-AT-VALUE> 4,779,198
<RECEIVABLES> 0
<ASSETS-OTHER> 203
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,779,401
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 25,461
<TOTAL-LIABILITIES> 25,461
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,806,503
<SHARES-COMMON-STOCK> 478,842
<SHARES-COMMON-PRIOR> 454,900
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,008,058)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (44,505)
<NET-ASSETS> 4,753,940
<DIVIDEND-INCOME> 203,499
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (8,127)
<NET-INVESTMENT-INCOME> 285,372
<REALIZED-GAINS-CURRENT> (10,103)
<APPREC-INCREASE-CURRENT> 78,349
<NET-CHANGE-FROM-OPS> 353,618
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (285,372)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,275
<NUMBER-OF-SHARES-REDEEMED> (64,209)
<SHARES-REINVESTED> 4,876
<NET-CHANGE-IN-ASSETS> 300,808
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (1,997,955)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,368
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 8,127
<AVERAGE-NET-ASSETS> 4,733,874
<PER-SHARE-NAV-BEGIN> 9.790
<PER-SHARE-NII> 0.590
<PER-SHARE-GAIN-APPREC> 0.140
<PER-SHARE-DIVIDEND> (0.590)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.930
<EXPENSE-RATIO> 0.420
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
