As filed with the Securities and Exchange Commission on October 30, 1996.
File No. 811-7038
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7 (X)
THE MONEY MARKET PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
777 MARINERS ISLAND BLVD., SAN MATEO, CA 94404
(Address of Principal Executive Offices (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 312-2000
Harmon E. Burns, 777 Mariners Island Blvd., San Mateo, CA 94404
(Name and Address of Agent for Service of Process)
Please Send Copy of Communications to:
Mark H. Plafker, Esq.
Stradley, Ronon, Stevens & Young
2600 One Commerce Square
Philadelphia, Pennsylvania 19102
THE MONEY MARKET PORTFOLIOS
The Money Market Portfolio
FORM N-1A, Part A:
ITEM
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
4. GENERAL DESCRIPTION OF REGISTRANT
ABOUT THE PORTFOLIO
The Money Market Portfolio ("Portfolio") is one of two no-load, open-end,
diversified series of The Money Market Portfolios (the "Trust"), a management
investment company, commonly called a mutual fund. The Trust was organized
as a Delaware business trust on June 16, 1992 and registered with the
Securities and Exchange Commission ("SEC") under the Investment Company Act
of 1940, as amended (the "1940 Act"). The Trust's other series is The U.S.
Government Securities Money Market Portfolio. Both series issue shares of
beneficial interest with a par value of $.01 per share without any sales
charge and seek to maintain a stable net asset value of $1.00.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY
OTHER AGENCY. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The Portfolio's investment objective is high current income (in the context
of the type of investments available to the Portfolio) consistent with
capital preservation and liquidity. The investment objective is a
fundamental policy of the Portfolio and may not be changed without
shareholder approval. In seeking to achieve its objective, the Portfolio
invests all of its assets in various types of money market instruments, such
as U.S. government and federal agency obligations, certificates of deposit,
bankers' acceptances, time deposits of major financial institutions, high
grade commercial paper, high grade short-term corporate obligations, taxable
municipal securities and repurchase agreements (secured by U.S. government
securities). As with any other investment, there are no assurances that the
Portfolio's objective will be achieved.
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 net asset value of $1.00 per share.
The Portfolio limits its investments to U.S. dollar denominated instruments
that the Board of Trustees (the "Board") determines present minimal credit
risks and that are rated in one of the two highest rating categories by
nationally recognized statistical rating organizations, or that are unrated
but of comparable quality, with remaining maturities of 397 calendar days or
less ("Eligible Securities"). The Portfolio maintains a dollar weighted
average maturity of the securities in its portfolio of 90 days or less.
The Portfolio will not invest more than 5% of its total assets in Eligible
Securities of a single issuer, other than U.S. government securities, rated
in the highest category by the requisite number of rating organizations,
except that the Portfolio may exceed that limit as permitted by Rule 2a-7 for
a period of up to three business days; and the Portfolio will not invest (a)
the greater of 1% of the Portfolio's total assets or $1 million in Eligible
Securities issued by a single issuer rated in the second highest category;
and (b) more than 5% of its total assets in Eligible Securities of all
issuers rated in the second highest category. See part B for a description of
ratings.
In addition, the Portfolio may not invest more than 5% of its total assets in
the securities of companies (including predecessors) which have been in
continuous operation for less than three years, nor invest more than 25% of
its total assets in any particular industry. The Portfolio may, however,
invest more than 25% of its assets in certain domestic bank obligations. The
foregoing limitations do not apply to U.S. government securities and federal
agency obligations, or to repurchase agreements fully collateralized by such
government securities or obligations, although certain tax diversification
requirements apply to investments in repurchase agreements and other
securities that are not treated as U.S. government obligations under the
Internal Revenue Code of 1986, as amended (the "Code").
Because the Portfolio limits its investments to high quality securities, it
will generally earn lower yields than if it purchased securities with a lower
rating and a correspondingly higher expected rate of return.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest in U.S. government
securities which consist of marketable, fixed, floating and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the
U.S. government. Certain of these obligations, including U.S. Treasury bills,
notes and bonds and securities of the Government National Mortgage
Association ("GNMAs" or "Ginnie Maes") and the Federal Housing
Administration, are issued or guaranteed by the U.S. government or carry a
guarantee supported by the full faith and credit of the U.S. government.
Other U.S. government securities are issued or guaranteed by federal agencies
or government-sponsored enterprises and are not direct obligations of the
U.S. government, but involve sponsorship or guarantees by government agencies
or enterprises. These obligations include securities that are supported by
the right of the issuer to borrow from the U.S. Treasury, such as obligations
of the Federal Home Loan Bank, and securities that are supported by the
credit of the instrumentality, such as Federal National Mortgage Association
("FNMA") bonds. In this connection the Portfolio may use any portion of its
assets invested in U.S. government securities to concurrently enter into
repurchase agreements with respect to such securities.
BANK OBLIGATIONS. The Portfolio may also invest in bank obligations or
instruments secured by bank obligations. Such instruments may include fixed,
floating or variable rate certificates of deposit, letters of credit, time
deposits, and bankers' acceptances issued by banks and savings institutions
with assets of at least one billion dollars. Bank obligations may be
obligations of U.S. banks, foreign branches of U.S. banks (referred to as
"Eurodollar Investments"), U.S. branches of foreign banks (referred to as
"Yankee Dollar Investments") and foreign branches of foreign banks ("Foreign
Bank Investments"). When investing in a bank obligation issued by a branch,
the parent bank must have assets of at least five billion dollars. The
Portfolio may invest 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. 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
"Investment Risk Considerations" for more information regarding these
investments.)
Time deposits are non-negotiable deposits maintained in a foreign branch of a
U.S. or foreign banking institution for a specified period of time at a
stated interest rate. The Portfolio may not invest more than 10% of its
assets in time deposits with maturities in excess of seven calendar days.
COMMERCIAL PAPER. The Portfolio may also invest in commercial paper of
domestic or foreign issuers subject to the quality and other criteria
described under "Quality, Diversification and Maturity Standards" above.
Commercial paper obligations may include variable amount master demand notes
that are obligations which permit the investment of fluctuating amounts by
the Portfolio at varying rates of interest pursuant to direct arrangements
between the Portfolio, as lender, and the borrower. These notes permit daily
changes in the amounts borrowed. The Portfolio has the right to increase the
amount provided by the note agreement, or to decrease the amount, and the
borrower may repay up to the full amount of the note without penalty. The
borrower is often a large industrial or finance company which also issues
commercial paper. Typically, these notes provide that the interest rate is
set daily by the borrower; the rate is usually the same or similar to the
interest on commercial paper being issued by the borrower. Because variable
amount master demand notes are direct lending arrangements between the lender
and the borrower, it is not generally contemplated that such instruments will
be traded, and there is no secondary market for these notes, although they
are redeemable (and thus immediately repayable by the borrower) at face value
plus accrued interest at any time. Accordingly, the Portfolio's right to
redeem is dependent on the ability of the borrower to pay principal and
interest on demand. In connection with master demand note arrangements,
Advisers will consider earning power, cash flow and other liquidity ratios of
the issuer. The Portfolio, which has no specific limits on aggregate
investments in master demand notes, will invest in notes of only U.S.
issuers. While master demand notes, as such, are not typically rated by
credit rating agencies, if not so rated, the Portfolio may invest in them
only if, at the time of an investment, the issuer meets the criteria set
forth above for all other commercial paper issuers.
CORPORATE OBLIGATIONS. The corporate obligations which the Portfolio may
purchase are fixed, floating and variable rate bonds, debentures or notes
which are considered by the Portfolio to be Eligible Securities. Such
obligations must mature in 397 calendar days or less. Generally speaking, the
higher an instrument is rated, the greater its safety and the lower its
yield.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities, issued by or on behalf of states, territories,
and possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is not
exempt from federal income tax. Municipal securities in which the Portfolio
invests are subject to the quality and other criteria described under
"Quality, Diversification and Maturity Standards" above. 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.
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Portfolio may also purchase
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. When the Portfolio is the buyer in such a
transaction, 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 such purchase commitments until payment is made. To
the extent the Portfolio engages in when-issued and delayed delivery
transactions, it will do so for the purpose of acquiring securities for its
portfolio consistent with its investment objective and policies and not for
the purpose of investment leverage.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions,
in which the Portfolio purchases a U.S. government security subject to resale
to a bank or dealer at an agreed-upon price and date. The transaction
requires the collateralization of the seller's obligation by the transfer of
securities with an initial market value, including accrued interest, equal to
at least 102% of the dollar amount invested by the Portfolio in each
agreement, with the value of the underlying securities marked-to-market daily
to maintain coverage of at least 100%. A default by the seller might cause
the Portfolio to experience a loss or delay in the liquidation of the
collateral securing the repurchase agreement. The Portfolio might also incur
disposition costs in liquidating the collateral. The Portfolio, however,
intends to enter into repurchase agreements only with financial institutions
such as broker-dealers and banks which are deemed creditworthy by Advisers. A
repurchase agreement is deemed to be a loan under the 1940 Act. The U.S.
government security subject to resale (the collateral) will be held on behalf
of the Portfolio by a custodian bank approved by the Board and will be held
pursuant to a written agreement. Securities subject to repurchase agreements
will be deemed to have a maturity date coincident with the date upon which
the Portfolio has agreed to resell such securities.
ILLIQUID INVESTMENTS. As a fundamental policy, the Portfolio may not acquire
securities subject to legal or contractual restrictions on resale, securities
which are not readily marketable, or enter into repurchase agreements or
master demand notes with more than seven days to maturity if, as a result,
more than 10% of the value of the Portfolio's total assets would be invested
in such repurchase agreements or securities.
OTHER POLICIES
Depending on its view of market conditions and cash requirements, the
Portfolio may or may not hold securities purchased until maturity. The yield
on certain instruments held by the Portfolio may decline if sold prior to
maturity.
Whenever Advisers believes market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Portfolio may do so without restriction or
limitation. The Portfolio may not invest in securities other than the types
of securities listed above and is subject to other specific investment
restrictions, some of which may be changed only with approval of a majority
of the Portfolio's outstanding voting securities. For a list of these
restrictions and more information concerning the various transactions
mentioned above, please refer to Part B.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the
Board and, as a fundamental policy, the Portfolio may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 25% of the value of the Portfolio's
total assets at the time of the most recent loan, and further provided that
the borrower deposits and maintains 100% cash collateral for the benefit of
the Portfolio. The lending of securities is a common practice in the
securities industry. The Portfolio engages 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. As a fundamental policy the Portfolio may borrow from banks for
temporary or emergency purposes only and pledge its assets for such loans in
amounts up to 5% of the Portfolio's total assets. No new investments will be
made by the Portfolio while any outstanding loans exceed 5% of its total
assets.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered
to at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Portfolio 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 please see Part B.
INVESTMENT RISK CONSIDERATIONS
Any of the Portfolio's Eurodollar Investments, Yankee Dollar Investments,
Foreign Bank Investments or investments in commercial paper of foreign
issuers will involve risks that are different from investments in obligations
of domestic entities. These risks may include future unfavorable political
and economic developments, possible withholding taxes, seizure of foreign
deposits, currency controls, interest limitations, or other governmental
restrictions which might affect the payment of principal or interest on
securities the Portfolio holds. In addition, there may be less publicly
available information about such foreign banks or foreign issuers of
commercial paper.
When-issued and delayed delivery transactions are subject to market
fluctuation and the value at delivery may be more or less than the purchase
price. In when-issued and delayed delivery transactions, the Portfolio relies
on the seller to complete the transaction. The seller's failure to complete
the transaction may cause the Portfolio to miss a price or yield considered
to be advantageous. Securities purchased on a when-issued or delayed delivery
basis do not generally earn interest until their scheduled delivery.
Credit risk is a function of the ability of an issuer of a municipal 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 municipal security may cause a corresponding
change in the security's price. Market risk is the risk of price fluctuation
of a municipal security caused by changes in general economic and interest
rate conditions generally affecting the market as a whole. A municipal
security's maturity length also affects its price.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the
Portfolio and for electing the officers of the Trust who are responsible for
administering its day-to-day operations. For information concerning the
officers and trustees of the Portfolio, see "Officers and Trustees" in Part B.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404, serves as the investment manager for the Portfolio.
Advisers is a wholly-owned subsidiary of Franklin Resources, Inc.
("Resources"), a publicly owned holding company, the principal shareholders
of which are Charles B. Johnson and Rupert H. Johnson, Jr., who own
approximately 20% and 16%, respectively, of Resources' outstanding shares.
Resources is engaged in various aspects of the financial services industry
through its various subsidiaries (the "Franklin Templeton Group"). Advisers
acts as investment manager or administrator to 36 U.S. registered investment
companies with 124 separate series with aggregate assets of over $81 billion.
Pursuant to the management agreement, Advisers supervises and implements the
Portfolio's investment activities and provides certain administrative
services and facilities which are necessary to conduct the Portfolio's
business.
Advisers has agreed in advance to waive a portion of its management fees.
During the fiscal year ended June 30, 1996, the Portfolio's management fee,
before any advance waiver, represented an amount equal to 0.15% of the
average daily net assets of the Portfolio. Total operating expenses,
including management fees before any advance waiver would have represented
0.16% of the average daily net assets of the Portfolio. Pursuant to an
agreement by Advisers to limit its fees, the Portfolio paid management fees
totaling 0.14% of the average daily net assets of the Portfolio and operating
expenses totaling 0.15%. This arrangement may be terminated by Advisers at
any time.
Under its management agreement, the Portfolio pays Advisers a management fee
equal to an annual rate of 0.15%. The fee is computed daily and payable
monthly. The Portfolio pays its own operating expenses. These expenses
include Advisers' management fees; taxes, if any; custodian, legal and
auditing fees; the fees and expenses of Board members who are not members of,
affiliated with, or interested persons of Advisers; salaries of any personnel
not affiliated with Advisers; insurance premiums; trade association dues;
expenses of obtaining quotations for calculating the Portfolio's net asset
value; and printing and other expenses that are not expressly assumed by
Advisers.
Advisers tries to obtain the best execution on all Portfolio 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
Portfolio shares when selecting a broker or dealer. Further information is
included under "Brokerage Allocation" in Part B.
Responses to Item 5(c) have been omitted pursuant to Instruction 3 to
paragraph 5(c).
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the Portfolio's shareholder
servicing agent and acts as the Portfolio's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a
fixed fee per account.
5A. The response to Item 5A has been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
6. CAPITAL STOCK AND OTHER SECURITIES
The Portfolio is a series of the Trust, an open-end management investment
company, which is a Delaware business trust organized on June 16, 1992. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest, with a par value
of $.01 per share, which may be issued in any number of series. Currently,
the Trust has two series: one series representing interests in the Portfolio
and the other series representing interests in The U.S. Government Securities
Money Market Portfolio. Shares issued will be fully paid and non-assessable
and will have no preemptive, conversion, or sinking rights. Shares of each
series have equal and exclusive rights as to dividends and distributions as
declared by such series and the net assets of such series upon liquidation or
dissolution.
The organization expenses of the Portfolio are being amortized over a period
of five years from the effective date of the Trust's registration statement
under the 1940 Act. In the event any initial shares of the Portfolio
purchased by Resources are redeemed during the amortization period, such
redemption will be reduced by a pro rata portion of any of the then
unamortized organization expenses. Such portion is to be calculated by
dividing the number of initial shares redeemed by the aggregate number of
remaining initial shares at the time of redemption. Investors purchasing
shares of the Portfolio during the amortization period bear such expenses
only as they are amortized against the Portfolio's income.
Shares of each series have equal rights as to voting and vote separately as
to issues affecting that series or the Trust unless otherwise permitted by
the 1940 Act.
The Portfolio 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 Portfolio does not intend to hold annual shareholder meetings. It may
hold a special meeting, however, for matters requiring shareholder approval
under the 1940 Act. A meeting may also be called by the Board in its
discretion or by shareholders holding at least 10% of the outstanding shares.
The 1940 Act requires that we help shareholders communicate with other
shareholders in connection with removing members of the Board.
DISTRIBUTIONS TO SHAREHOLDERS
The Portfolio declares dividends for each day that the Portfolio's net asset
value is calculated, payable to shareholders of record as of the close of
business that day. The amount of dividends may fluctuate from day to day and
dividends may be omitted on some days, depending on changes in the factors
that comprise the Portfolio's net investment income. THE PORTFOLIO DOES NOT
PAY "INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON AN
INVESTMENT IN ITS SHARES.
Dividends are automatically reinvested monthly in the form of additional
shares of the Portfolio at the net asset value per share at the close of
business on the last business day of the month. Shareholders may request to
have their dividends paid out monthly in cash by notifying the Portfolio.
The daily dividend includes accrued interest and any original issue and
market discount, plus or minus any gain or loss on the sale of portfolio
securities and changes in unrealized appreciation or depreciation in
portfolio securities (to the extent required to maintain a stable net asset
value per share) less amortization of any premium paid on the purchase of
portfolio securities and the estimated expenses of the Portfolio.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Portfolio shares. (See "Taxation of
the Portfolio and its Shareholders" below.)
Part B includes a further discussion of distributions under "Tax Status."
TAXATION OF THE PORTFOLIO AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders.
Each Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolio intends to continue to qualify for treatment 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 Portfolio will
not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends received from the
Portfolio, 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 Portfolio's income is derived from interest income and gain on the
sale of portfolio securities rather than qualifying dividend income, no
portion of the Portfolio's distributions will generally be eligible for the
corporate dividends-received deduction.
The Portfolio will inform shareholders of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income
tax purposes of such dividends and distributions.
Additional information in response to this item is contained under the
discussion captioned "Tax Status" in Item 20 of Part B.
7. PURCHASE OF SHARES OF THE PORTFOLIO
The Portfolio's shares have not been registered under the Securities Act of
1933, which means that the Portfolio's shares may not be sold publicly. The
Portfolio may, however, sell its shares through private placements pursuant
to available exemptions from that Act.
Shares of the Portfolio are sold only to other investment companies and
certain institutional investors. All shares are sold at net asset value
(without a sales charge) next determined after the Portfolio receives the
purchase order in proper form. All investments in the Portfolio are credited
to the shareholder's account in the form of full and fractional shares of the
Portfolio (rounded to the nearest 1/1000 of a share). The Portfolio does not
issue share certificates. The minimum initial investment is $5,000,000 with
no minimum for subsequent investments. The Portfolio reserves the right to
waive the minimum investment requirements.
Shares may generally be purchased on business days except when the New York
Stock Exchange (the "Exchange") is closed. Federal Funds wire purchase
orders are not accepted on days when the Federal Reserve Bank System and the
Portfolio's custodian bank are closed.
VALUATION OF PORTFOLIO SHARES
The net asset value per share of the Portfolio is determined as of 3:00 p.m.
Pacific time each day that the Exchange is open for business and on those
days on which there is a sufficient degree of trading in the Portfolio's
portfolio securities that the net asset value of the Portfolio's shares may
be affected.
The net asset value per share of the Portfolio is calculated by adding the
value of all portfolio holdings and other assets, deducting the Portfolio's
liabilities, and dividing the result by the number of Portfolio shares
outstanding.
The valuation of portfolio securities held by the Portfolio is based upon
their amortized cost value, which does not take into account unrealized
capital gain or loss. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the market
value of the investment. The Portfolio's use of amortized cost which
facilitates the maintenance of the Portfolio's per share net asset value of
$1.00 is permitted by Rule 2a-7.
Further information is included under "Purchase, Redemption and Pricing of
Securities Being Offered" in Part B.
8. REDEMPTION OR REPURCHASE
HOW TO SELL SHARES OF THE PORTFOLIO
As stated under "Purchase of Shares of the Portfolio" above, the Portfolio's
shares have not been registered under the Securities Act of 1933, which means
that its shares are restricted securities which may not be sold unless
registered or pursuant to an available exemption from that Act. Redemption
of shares is not a sale under that Act, and therefore shareholders are not
restricted in redeeming their shares.
Redemptions are processed on any day on which the Portfolio is open for
business except for those days that the Federal Reserve Bank System and the
Portfolio's custodian bank are closed and are effected at the Portfolio's net
asset value next determined after the Portfolio receives a redemption request
in proper form.
Payment for redeemed shares is made promptly, but not later than seven days
after receipt of the redemption request in proper form. Proceeds for
redemption orders cannot be wired on those business days when the Federal
Reserve Bank System and the Portfolio's custodian bank are closed. In
addition, the right of redemption may be suspended or the date of payment
postponed in accordance with the rules under the 1940 Act. Redemptions are
taxable events, and the amount received may be more or less than the amount
invested by the shareholder, depending on the fluctuations in the market
value of the assets owned by the Portfolio.
9. PENDING LEGAL PROCEEDINGS
Not Applicable
Part B:
10. COVER PAGE
Not Applicable
11. TABLE OF CONTENTS
Not Applicable
12. GENERAL INFORMATION AND HISTORY
Not Applicable
13. INVESTMENT OBJECTIVE AND POLICIES
As noted in response to Item 4, the Portfolio's investment objective is high
current income (in the context of the type of investments available to the
Portfolio) consistent with capital preservation and liquidity. In addition to
the policies stated in response to Item 4, the following restrictions (except
as noted) have been adopted as fundamental policies for the Portfolio, which
means that they may not be changed without the approval of a majority of the
Portfolio's outstanding voting securities. Under the 1940 Act, a "vote of a
majority of the outstanding voting securities" of the Portfolio means the
affirmative vote of the lesser of (i) more than 50% of the outstanding voting
securities of the Portfolio, or (ii) 67% or more of the voting securities
present at a meeting if the holders of more than 50% of the outstanding
shares of the Portfolio are represented at that meeting. The Portfolio MAY
not:
(1) Borrow money or mortgage or pledge any of its assets,
except that borrowings (and a pledge of assets therefor) for temporary or
emergency purposes may be made from banks in any amount up to 5% of the total
asset value.
(2) Make loans, except (a) through the purchase of debt
securities in accordance with the investment objectives and policies of the
Portfolio, (b) to the extent the entry into a repurchase agreement is deemed
to be a loan, or (c) by the loan of its portfolio securities in accordance
with the policies described above.
(3) 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
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 Portfolio would be invested in such securities or repurchase
agreements.
(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, 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 Portfolio as described in Part A
specify otherwise.
(8) Act as underwriter of securities issued by other persons
except insofar as the Trust may technically be deemed an underwriter under
the federal securities laws in connection with the disposition of portfolio
securities.
(9) Purchase securities from or sell to the Trust's officers
and trustees, or any firm of which any officer or trustee is a member, as
principal, or retain securities of any issuer if, to the knowledge of the
Trust, one or more of the Trust's officers, trustees, or investment adviser
own beneficially more than 1/2 of 1% of the securities of such issuer and all
such officers and trustees together own beneficially more than 5% of such
securities.
(10) Acquire, lease or hold real estate, provided that this
limitation shall not prohibit the purchase of municipal and other debt
securities secured by real estate or interests therein.
(11) Invest in commodities and commodity contracts, puts,
calls, straddles, spreads, or any combination thereof, or interests in oil,
gas, or other mineral exploration or development programs, except that it may
purchase, hold, and dispose of "obligations with puts attached" or write
covered call options in accordance with its stated investment policies.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in the value of portfolio securities or the amount of the Portfolio's
assets will not be considered a violation of any of the foregoing
restrictions.
In addition to these fundamental policies, it is the present policy of the
Portfolio (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.
As a fundamental policy (which may not be changed without shareholder
approval), the Portfolio may not purchase any securities other than
obligations of the U.S. government, its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of its total assets would be
invested in securities of any one issuer with respect to 75% of the
Portfolio's total assets, or more than 10% of the outstanding voting
securities of any one issuer would be owned by the Portfolio. As stated above
in accordance with procedures adopted pursuant to Rule 2a-7, the Portfolio
will not invest more than 5% of the Portfolio's total assets in Eligible
Securities of a single issuer, other than U.S. government securities.
14. MANAGEMENT OF THE REGISTRANT
OFFICERS AND TRUSTEES
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Portfolio, 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 Portfolio'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 Portfolio under the 1940 Act are
indicated by an asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of
the investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the
Franklin Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General
Host Corporation; director, trustee or managing general partner, as the case
may be, of 57 of the investment companies in the Franklin Templeton Group of
Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley
Science Corporation (a venture capital company); and director, trustee or
managing general partner, as the case may be, of 30 of the investment
companies in the Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general
partner, as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 56 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case
may be, of 39 of the investment companies in the Franklin Templeton Group of
Funds.
*Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Director, Franklin/Templeton Investor Services, Inc.; and officer
and/or director, trustee or managing general partner, as the case may be, of
most other subsidiaries of Franklin Resources, Inc. and of 60 of the
investment companies in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune,
Inc. (biotechnology), InfoVest Corporation (information services), Fusion
Systems Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the
Franklin Templeton Group of Funds; and formerly held the following positions:
Chairman, Hambrecht and Quist Group; Director, H & Q Healthcare Investors;
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director,
Franklin/Templeton Investor Services, Inc.; officer and/or director, as the
case may be, of other subsidiaries of Franklin Resources, Inc.; and officer
and/or director or trustee of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case
may be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment
companies in the Franklin Group of Funds.
Martin L. Flanagan (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; officer of most other subsidiaries of Franklin Resources,
Inc.; and officer, director and/or trustee of 60 of the investment companies
in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Distributors, Inc.; Vice President,
Franklin Advisers, Inc. and officer of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 32 of the investment companies in the
Franklin Group of Funds.
R. Martin Wiskemann (69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; Vice President,
Treasurer and Director, ILA Financial Services, Inc. and Arizona Life
Insurance Company of America; and officer and/or director, as the case may
be, of 21 of the investment companies in the Franklin Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated trustees are currently paid $50 per
month plus $50 per meeting attended. As shown above, some of the
nonaffiliated Board members and trustees also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members and trustees by the Trust and by other funds in the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN
THE FRANKLIN
TOTAL FEES RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH EACH
RECEIVED FROM TEMPLETON GROUP OF SERVES***
THE TRUST* FUNDS**
NAME
<S> <C> <C> <C>
Frank H. Abbott, III $1,200 $162,420 31
Harris J. Ashton 1,200 327,925 55
S. Joseph Fortunato 1,200 344,745 57
David Garbellano 1,200 146,100 30
Frank W.T. LaHaye 1,150 143,200 26
Gordon S. Macklin 1,200 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the trustees are responsible. The Franklin Templeton Group of Funds
currently includes 60 registered investment companies, with approximately 166
U.S. based funds or series.
Nonaffiliated members of the Board and trustees are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each
fund in the Franklin Templeton Group of Funds for which they serve as
director, trustee or managing general partner. No officer or Board member or
trustee received any other compensation, including pension or retirement
benefits, directly or indirectly from the Portfolio, the Trust or other funds
in the Franklin Templeton Group of Funds. Certain officers or Board members
and trustees 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.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 8, 1996, the principal shareholders of the Portfolio,
beneficial or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
IFT - Money Market Portfolio 510,620,772.181 28.97%
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin Money Fund 200,317,411.740 11.37%
777 Mariners Island Blvd.
San Mateo, CA 94404
From time to time, the number of Portfolio 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.
16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. Advisers is the investment manager
of the Portfolio. 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 to whom Advisers renders
periodic reports of the Portfolio's investment activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Portfolio. Advisers also
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services and provides certain telephone and other mechanical
services. Advisers is covered by fidelity insurance on its officers,
directors and employees for the protection of the Portfolio.
Advisers may give advice and take action with respect to any of the other
funds it manages, or for its own account, that may differ from action taken
by Advisers on behalf of the Portfolio. Similarly, with respect to the
Portfolio, Advisers is not obligated to recommend, buy or sell, or to refrain
from recommending, buying or selling any security that Advisers and access
persons, as defined by the 1940 Act, may buy or sell for its or their own
account or for the accounts of any other fund. Advisers is not obligated to
refrain from investing in securities held by the Portfolio or other funds
that it manages or administers. Of course, any transactions for the accounts
of Advisers and other access persons will be made in compliance with the
Portfolio's Code of Ethics.
MANAGEMENT FEES. Under its management agreement, the Portfolio pays Advisers
a management fee equal to an annual rate of 0.15%. The fee is computed at the
close of business on the last business day of each month.
See the Statement of Operations in the financial statements included in the
Annual Report for details of these expenses.
For the fiscal years ended June 30, 1994, 1995 and 1996 management fees,
before any advance waiver, totaled $463,296, $1,823,637, and $2,162,519,
respectively. Under an agreement by Advisers to limit its fees, the Portfolio
paid management fees totaling $415,665, $1,730,028 and $2,034,014 for the
same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1997. It may continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a
vote of the Board 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 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 Portfolio's outstanding voting securities,
or by Advisers on 30 days' written notice, and will automatically terminate
in the event of its assignment, as defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the Portfolio's shareholder
servicing agent and acts as the Portfolio's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a
fixed fee per account.
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
Portfolio. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in
connection with the purchase of Portfolio shares. Citibank Delaware, One
Penn's Way, New Castle, Delaware 19720, acts as custodian in connection with
transfer services through bank automated clearing houses. The custodians do
not participate in decisions relating to the purchase and sale of portfolio
securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Portfolio's independent auditors. During the fiscal year ended June
30, 1996, their auditing services consisted of rendering an opinion on the
financial statements of the Portfolio included in the annual report to the
shareholders of Franklin Money Fund, Institutional Fiduciary Trust - Money
Market Portfolio, Institutional Fiduciary Trust - Cash Reserves Fund and
Franklin Templeton Money Fund Trust for the fiscal year ended June 30, 1996.
17. BROKERAGE ALLOCATION
EXECUTION OF PORTFOLIO TRANSACTIONS
As noted in Part A, since most purchases by the Portfolio are principal
transactions at net prices, the Portfolio incurs little or no brokerage costs or
transfer taxes.
Since most purchases by the Portfolio are principal transactions at net
prices, the Portfolio incurs little or no brokerage costs. The Portfolio
deals directly with the selling or buying principal or market maker without
incurring charges for the services of a broker on its behalf, unless it is
determined that a better price or execution may be obtained by using the
services of a broker. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask prices. The Portfolio seeks to obtain prompt execution of orders at
the most favorable net price. Transactions may be directed to dealers in
return for research and statistical information, as well as for special
services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services received by Advisers from dealers effecting
transactions in portfolio securities. The allocation of transactions in order
to obtain additional research services permits Advisers to supplement its own
research and analysis activities and to receive the views and information of
individuals and research staff of other securities firms. As long as it is
lawful and appropriate to do so, Advisers and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to
all by Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the
security so far as the Portfolio is concerned. In other cases it is possible
that the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may
not buy securities with the expectation of holding them to maturity, although
its general policy is to hold securities to maturity. The Portfolio may,
however, sell securities prior to maturity to meet redemptions or as a result
of a revised management evaluation of the issuer.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolio will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter, and purchases from dealers will include the spread
between the bid and the ask price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other services as
mentioned above. No broker or dealer affiliated with the Portfolio or Advisers
may purchase securities from, or sell securities to, the Portfolio.
During the fiscal years ended June 30, 1994, 1995 and 1996, the Portfolio
paid no brokerage commissions.
As of June 30, 1996, the Portfolio did not own securities of its regular
broker-dealers.
Franklin/Templeton Distributors, Inc. ("Distributors"), an affiliate of
Advisers, is a member of the National Association of Securities Dealers, Inc.,
and it may sometimes be entitled to obtain certain fees when the Portfolio
tenders portfolio securities pursuant to a tender-offer solicitation.
Accordingly, any portfolio securities tendered by the Portfolio will be tendered
through Distributors if it is legally permissible to do so. In turn, the next
management fee payable by the Portfolio under the management agreement will be
reduced by the amount of any tender fees received by Distributors in cash, less
certain costs and expenses incurred in connection therewith.
18. CAPITAL STOCK AND OTHER SECURITIES
The information provided in response to this item is in addition to the
information provided in response to Item 4 in Part A.
Shares for an initial investment as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Portfolio.
Shareholders will receive confirmation statements each time there is a
transaction which affects an account, including the reinvestment of dividends.
These statements will also show the total number of Portfolio shares owned by a
shareholder, including the number of shares in "plan balance" for the account of
the shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE PORTFOLIO WILL
NOT BE ISSUED.
The Portfolio reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $1,000,000, but only where
the value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder.
An investment in the Portfolio is not a deposit insured by the Federal Deposit
Insurance Corporation ("FDIC") and is not an obligation of or guaranteed by any
bank.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
VALUATION OF PORTFOLIO SHARES
The net asset value per share is calculated as of 3:00 p.m. Pacific time,
each day that the Exchange is open for trading. As of the date of this SAI,
the Portfolio is informed that the Exchange observes the following holidays:
New Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
The valuation of the Portfolio's portfolio securities, including any
securities held in a separate account maintained for when-issued securities,
is based on the amortized cost of the securities, which does not take into
account unrealized capital gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in calculation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of the Portfolio computed
as described above may tend to be higher than a like computation made by a
fund with identical investments but utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Portfolio resulted in
a lower aggregate portfolio value on a particular day, a prospective investor
in the Portfolio would be able to obtain a somewhat higher yield than would
result from an investment in a fund utilizing only market values, and
existing investors in the Portfolio would receive less investment income. The
opposite would be true in a period of rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
net asset value per share of $1.00, is permitted by a rule adopted by the
Securities and Exchange Commission ("SEC"). Under this rule, the Portfolio
must adhere to certain conditions. The Portfolio must maintain a
dollar-weighted average portfolio maturity of 90 days or less and only buy
instruments having remaining maturities of 397 calendar days or less. The
Portfolio must also invest only in those U.S. dollar-denominated instruments
that the Board determines present minimal credit risks and which are, as
required by, and otherwise consistent with, the federal securities laws,
rated in one of the two highest rating categories by nationally recognized
statistical rating agencies, or 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, or if unrated, deemed comparable in quality to such rated
instruments. 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 has agreed to establish procedures designed to stabilize, to the
extent reasonably possible, the Portfolio's price per share at $1.00, as
computed for the purpose of sales and redemptions. These procedures will include
a review of the Portfolio's holdings by the Board, at such intervals as it may
deem appropriate, to determine if the Portfolio's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board. If a
deviation exceeds 1/2 of 1%, the trustees will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, they will take corrective action that they regard as
necessary and appropriate, which may include selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing a net
asset value per share by using available market quotations.
ADDITIONAL INFORMATION REGARDING PURCHASES
AND REDEMPTIONS OF PORTFOLIO SHARES
The purchase price for shares of the Portfolio 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 Portfolio are purchased, they begin earning
income immediately, and income dividends will start being credited to the
investor's account on the effective date of purchase and continue through the
business day prior to the business day shares in the account are redeemed.
Payments transmitted by wire and received by the custodian bank and reported by
it to the Portfolio prior to 3:00 p.m. Pacific time on any business day are
normally effective on the same day as received, provided the Portfolio is timely
notified. Wire payments received or reported by the custodian bank to the
Portfolio after that time will be effective on the next business day. Payments
transmitted by check or other negotiable bank draft will normally be effective
within two business days for checks drawn on a member bank of the Federal
Reserve System, and longer for most other checks.
All purchases of shares of the Portfolio are credited to the shareholder in full
and fractional shares of the Portfolio (rounded to the nearest 1/1000 of a
share) in an account maintained for the shareholder by the Portfolio's transfer
agent. To open an account in the name of a corporation, a resolution of the
corporation's board of directors will be required.
The Trust reserves the right to reject any order for the purchase of shares of
the Portfolio and to waive minimum investment requirements. In addition, the
offering of shares of the Portfolio may be suspended by the Trust at any time
and resumed at any time thereafter.
The Portfolio will make payment for all redemptions within seven days after
receipt of such redemption request in proper form. The Portfolio reserves the
right, however, to suspend redemptions or postpone the date of payment (1) for
any periods during which the Exchange is closed (other than the customary
weekend and holiday closings); (2) when trading in the markets the Portfolio
usually utilizes is restricted or an emergency exists, as determined by the SEC,
so that disposal of portfolio securities or valuation of net assets of the
Portfolio is not reasonably practicable; or (3) for such other period as the
SEC, by order, may permit for the protection of the Portfolio's shareholders. At
various times, the Portfolio may be requested to redeem shares for which it has
not yet received proper payment. Accordingly, the Portfolio may delay the
sending of redemption proceeds until such time as it has assured itself that
proper payment has been collected for the purchase of such shares.
REDEMPTIONS IN KIND
The Portfolio 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 Portfolio's
net assets at the beginning of such period. Such commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, the trustees reserve the right to make payments in whole
or in part in securities or other assets of the Portfolio from which the
shareholder is redeeming in case of an emergency, or if the payment of such
redemption in cash would be detrimental to the existing shareholders of the
Portfolio. In such circumstances, the securities distributed would be valued at
the price used to compute the Portfolio's net assets. Should the Portfolio do
so, a shareholder may incur brokerage fees in converting the securities to cash.
REDEMPTIONS BY THE PORTFOLIO
The Portfolio reserves the right to redeem, involuntarily, at net asset value,
the shares of any shareholder whose account has a value of less than a minimum
amount, but only where the value of such account has been reduced by the
shareholder's prior voluntary redemption of shares. Until further notice, it is
the present policy of the Portfolio not to exercise this right with respect to
any shareholder whose account has a value of $1,000,000 or more. In any event,
before the Portfolio redeems such shares and sends the proceeds to the
shareholder, it will notify the shareholder that the value of the shares in the
account is less than the minimum amount and allow the shareholder 30 days to
make an additional investment in an amount which will increase the value of the
account to at least $1,000,000.
20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
As stated in response to Item 6, the Portfolio has elected to be treated as a
regulated investment company under Subchapter M of the Code. The trustees
reserve the right not to maintain the qualification of the Portfolio as a
regulated investment company if they determine such course of action to be
beneficial to shareholders. In such case, the Portfolio will be subject to
federal and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be ordinary dividend income to the extent of
the Portfolio'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 Portfolio) to shareholders by December 31 of each year in order to
avoid the imposition of a federal excise tax. Under these rules, certain
distributions which are declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Portfolio and
received by the shareholder on December 31 of the calendar year in which they
are declared. The Portfolio intends, as a matter of policy, to declare and pay
such dividends, if any, 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.
The Portfolio's investments are composed of short-term securities under
normal circumstances and thus the Portfolio does not expect to realize any
long-term capital gains or losses. Any net short-term capital gain which is
realized by the Portfolio and not included in the daily dividend (adjusted
for any daily amounts of unrealized appreciation or depreciation reported
above and taking into account any capital loss carryovers) may generally be
distributed at least once each year and may be distributed more frequently if
necessary in order to avoid federal excise taxes. Any capital gain
distributions will also be reinvested in the form of additional Portfolio
shares at net asset value, unless the shareholder has previously notified the
Portfolio or its transfer agent to have them paid in cash.
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 Portfolio shares have been owned and regardless of whether
received in cash or in additional shares.
The sale of shares of the Portfolio, either by redemption or exchange, is a
taxable event and may result in a capital gain or loss. Any loss incurred on
the sale of the Portfolio's shares, held for six months or less, will be
treated as a long-term capital loss to the extent of capital gain dividends
received with respect to such shares. Since, however, the Portfolio seeks to
maintain a stable $1.00 per share price for both purchases and redemptions,
shareholders are not expected to realize a capital gain or loss upon sale.
21. UNDERWRITERS
Not Applicable
22. CALCULATION OF PERFORMANCE DATA
Not Applicable
23. FINANCIAL STATEMENTS
APPENDIX
CORPORATE AND MUNICIPAL 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 which make the long-term
risks appear somewhat larger.
A: Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: 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: 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: 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: Bonds rated A are regarded as upper medium-grade. They have considerable
investment strength but are not entirely free from adverse effects of changes
in economic and trade conditions. Interest and principal are regarded as
safe. They predominantly reflect money rates in their market behavior but
also, to some extent, economic conditions.
BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
FITCH
AAA: Municipal bonds rated AAA are considered to be of investment grade and
of the highest credit quality. The obligor has an exceptionally strong
ability to pay interest and repay principal which is unlikely to be affected
by reasonably foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds rated AAA and
not significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefor impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus are
not used for the AAA category.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing; factors of the first importance in
long-term borrowing risk are of lesser importance in the short run. Symbols
used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or
less, the ratings below will usually be assigned. Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity
to pay principal and interest. Issues determined to possess overwhelming
safety characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FITCH'S
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal
and investment notes. The short-term rating places greater emphasis than a
long-term rating on the existence of liquidity necessary to meet the issuer's
obligations in a timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect 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.
FINANCIAL STATEMENTS
The audited financial statements of the Portfolio contained in the Annual Report
dated June 30, 1996, including the auditors' report, are incorporated herein by
reference.
THE MONEY MARKET PORTFOLIOS
The U.S. Government Securities Money Market Portfolio
FORM N-1A, Part A:
ITEM
Responses to Items 1 through 3 have been omitted pursuant to Paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
4. GENERAL DESCRIPTION OF REGISTRANT
ABOUT THE PORTFOLIO
The U.S. Government Securities Money Market Portfolio ("Portfolio") is one of
two no-load, open-end, diversified series of The Money Market Portfolios (the
"Trust"), a management investment company, commonly called a mutual fund. The
Trust was organized as a Delaware business trust on June 16, 1992 and registered
with the Securities and Exchange Commission ("SEC") under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Trust's other series is The Money
Market Portfolio. Both series issue shares of beneficial interest with a par
value of $.01 per share without any sales charge and seek to maintain a stable
net asset value of $1.00.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE NET ASSET VALUE OF $1.00.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK; FURTHER, SUCH SHARES ARE NOT FEDERALLY INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The Portfolio's investment objective is high current income (in the context of
the type of investments available to the Portfolio) consistent with capital
preservation and liquidity. The investment objective is a fundamental policy of
the Portfolio and may not be changed without shareholder approval. In seeking to
achieve its objective, the Portfolio invests all of its assets in marketable
securities issued or guaranteed by the U.S. government, by various agencies of
the U.S. government and by various instrumentalities which have been established
or sponsored by the U.S. government and by investing in repurchase agreements
with respect to obligations issued or guaranteed by the U.S. government and
supported by the full faith and credit of the U.S. government. As with any other
investment, there are no assurances that the Portfolio's objective will be
achieved.
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 net asset value of $1.00 per share. The Portfolio
limits its investments to U.S. dollar-denominated instruments that the Board
determines present minimal credit risks and that are rated in one of the two
highest rating categories by nationally recognized statistical rating
organizations, or that are unrated but of comparable quality, with remaining
maturities of 397 calendar days or less ("Eligible Securities"). The Portfolio
maintains a dollar weighted average maturity of the securities in its portfolio
of 90 days or less.
The Portfolio will not invest more than 5% of its total assets in Eligible
Securities of a single issuer, other than U.S. government securities, rated in
the highest category by the requisite number of rating organizations, except
that the Portfolio may exceed that limit as permitted by Rule 2a-7 for a period
of up to three business days; and the Portfolio will not invest (a) the greater
of 1% of the Portfolio's total assets or $1 million in Eligible Securities
issued by a single issuer rated in the second highest category; and (b) more
than 5% of its total assets in Eligible Securities of all issuers rated in the
second highest category. See Part B for a description of ratings.
Because the Portfolio limits its investments to high quality securities, its
portfolio will generally earn lower yields than if it purchased securities with
a lower rating and correspondingly higher expected rate of return.
U.S. GOVERNMENT SECURITIES. The Portfolio may invest only in marketable
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities which have been established or sponsored by the
U.S. government or in repurchase agreements (as described below)
collateralized by such securities. As a fundamental policy, subject to
change only by shareholder approval, the Portfolio will invest only in
obligations, including U.S. Treasury bills, notes and bonds and securities of
the Government National Mortgage Association (popularly called "GNMAs" or
"Ginnie Maes") and the Federal Housing Administration, which are issued or
guaranteed by the U.S. government or which carry a guarantee that is
supported by the full faith and credit of the U.S. 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 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.
OTHER POLICIES
Depending on its view of market conditions and cash requirements, the Portfolio
may or may not hold securities purchased until maturity. The yield on certain
instruments held by the Portfolio may decline if sold prior to maturity.
Whenever Advisers' believes market conditions are such that yields could be
increased by actively trading the portfolio securities to take advantage of
short-term market variations, the Portfolio may do so without restriction or
limitation (subject to the tax requirements for qualification as a regulated
investment company). This practice will not likely have an adverse impact on the
Portfolio's income or net asset value, as brokerage commissions are not normally
charged on the purchase or sale of money market instruments.
REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase transactions, in
which the Portfolio purchases a U.S. government security subject to resale to a
bank or dealer at an agreed-upon price and date. The transaction requires the
collateralization of the seller's obligation by the transfer of securities with
an initial market value, including accrued interest, equal to at least 102% of
the dollar amount invested by the Portfolio in each agreement, with the value of
the underlying securities marked to market daily to maintain coverage of at
least 100%. A default by the seller might cause the Portfolio to experience a
loss or delay in the liquidation of the collateral securing the repurchase
agreement. The Portfolio might also incur disposition costs in liquidating the
collateral. The Portfolio, however, intends to enter into repurchase agreements
only with financial institutions such as broker-dealers and banks which are
deemed creditworthy by Advisers. A repurchase agreement is deemed to be a loan
under the 1940 Act. The U.S. government security subject to resale (the
collateral) will be held on behalf of the Portfolio by a custodian bank approved
by the Board and will be held pursuant to a written agreement.
The 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 the
Portfolio's total assets would be invested in such repurchase agreements,
together with any other investment the Portfolio may hold for which market
quotations are not readily available. Securities subject to repurchase
agreements will be deemed to have a maturity date coincident with the date upon
which the Portfolio has agreed to resell such securities.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the Board
and subject to the following conditions, the Portfolio may lend its portfolio
securities to qualified securities dealers or other institutional investors,
provided that such loans do not exceed 10% of the value of the Portfolio's total
assets at the time of the most recent loan, and further provided that the
borrower deposits 100% collateral for the benefit of the Portfolio. The lending
of securities is a common practice in the securities industry. The Portfolio
will engage in security loan arrangements with the primary objective of
increasing the Portfolio's income either through investing cash collateral in
short-term, interest bearing obligations or by receiving loan premiums from the
borrower. The Portfolio will continue to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
BORROWING. The Portfolio may borrow from banks, for temporary emergency purposes
only, and pledge its assets for such loans, up to 10% of the Portfolio's total
net assets. No new investments will be made by the Portfolio while any
outstanding loans exceed 5% of its total net assets.
PERCENTAGE RESTRICTIONS. If a percentage restriction noted above is adhered to
at the time of investment, a later increase or decrease in the percentage
resulting from a change in value of portfolio securities or the amount of net
assets will not be considered a violation of any of the foregoing policies.
OTHER POLICIES AND RESTRICTIONS. The Portfolio 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 please see Part B.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the
Portfolio and for electing the officers of the Trust who are responsible for
administering its day-to-day operations. For information concerning the officers
and trustees of the Portfolio, see "Officers and Trustees" in Part B.
Franklin Advisers, Inc. ("Advisers"), 777 Mariners Island Blvd., San Mateo,
California 94404, serves as the investment manager for the Portfolio. Advisers
is a wholly-owned subsidiary of Franklin Resources, Inc. ("Resources"), a
publicly owned holding company, the principal shareholders of which are Charles
B. Johnson and Rupert H. Johnson, Jr., who own approximately 20% and 16%,
respectively, of Resources' outstanding shares. Resources is engaged in various
aspects of the financial services industry through its various subsidiaries (the
"Franklin Templeton Group"). Advisers acts as investment manager or
administrator to 36 U.S. registered investment companies with 124 separate
series with aggregate assets of over $81 billion.
Pursuant to the management agreement, Advisers supervises and implements the
Portfolio's investment activities and provides certain administrative services
and facilities which are necessary to conduct the Portfolio's business.
Advisers has agreed in advance to waive a portion of its management fees. During
the fiscal year ended June 30, 1996, the Portfolio's management fee, before any
advance waiver, represented an amount equal to 0.15% of the average daily net
assets of the Portfolio. Total operating expenses, including management fees
before any advance waiver would have represented 0.17% of the average daily net
assets of the Portfolio. Pursuant to an agreement by Advisers to limit its fees,
the Portfolio paid management fees totaling 0.13% of the average daily net
assets of the Portfolio and operating expenses totaling 0.15%. This arrangement
may be terminated by Advisers at any time.
Under its management agreement, the Portfolio pays Advisers a management fee
equal to an annual rate of 0.15%. The fee is computed daily and payable monthly.
The Portfolio pays its own operating expenses. These expenses include Advisers'
management fees; taxes, if any; custodian, legal and auditing fees; the fees and
expenses of Board members who are not members of, affiliated with, or interested
persons of Advisers; salaries of any personnel not affiliated with Advisers;
insurance premiums; trade association dues; expenses of obtaining quotations for
calculating the Portfolio's net asset value; and printing and other expenses
that are not expressly assumed by Advisers.
Advisers tries to obtain the best execution on all Portfolio 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 Portfolio shares
when selecting a broker or dealer. Further information is included under
"Brokerage Allocation" in Part B.
Responses to Item 5(c) have been omitted pursuant to Instruction 3 to paragraph
5(c).
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the Portfolio's shareholder
servicing agent and acts as the Portfolio's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a
fixed fee per account.
5A. The response to Item 5A has been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
6. CAPITAL STOCK AND OTHER SECURITIES
GENERAL INFORMATION
The Portfolio is a series of the Trust, an open-end management investment
company, which is a Delaware business trust organized on June 16, 1992. The
Agreement and Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest, with a par value of
$.01 per share, which may be issued in any number of series. Currently, the
Trust has two series: one series representing interests in the Portfolio and the
other series representing interests in The Money Market Portfolio. Shares issued
will be fully paid and non-assessable and will have no preemptive, conversion,
or sinking rights. Shares of each series have equal and exclusive rights as to
dividends and distributions as declared by such series and the net assets of
such series upon liquidation or dissolution.
The organization expenses of the Portfolio are being amortized over a period of
five years from the effective date of the Trust's registration statement under
the 1940 Act. In the event any initial shares of the Portfolio purchased by
Resources are redeemed during the amortization period, such redemption will be
reduced by a pro rata portion of any of the then unamortized organization
expenses. Such portion is to be calculated by dividing the number of initial
shares redeemed by the aggregate number of remaining initial shares at the time
of redemption. Investors purchasing shares of the Portfolio during the
amortization period bear such expenses only as they are amortized against the
Portfolio's income.
Shares of each series have equal rights as to voting and vote separately as to
issues affecting that series or the Trust unless otherwise permitted by the 1940
Act.
The Portfolio 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 Portfolio does not intend to hold annual shareholder meetings. It may hold a
special meeting, however, for matters requiring shareholder approval under the
1940 Act. A meeting may also be called by the Board in its discretion or by
shareholders holding at least 10% of the outstanding shares. The 1940 Act
requires that we help shareholders communicate with other shareholders in
connection with removing members of the Board.
DISTRIBUTIONS TO SHAREHOLDERS
The Portfolio declares dividends for each day that the Portfolio's net asset
value is calculated, payable to shareholders of record as of the close of
business that day. The amount of dividends may fluctuate from day to day and
dividends may be omitted on some days, depending on changes in the factors that
comprise the Portfolio's net investment income. THE PORTFOLIO DOES NOT PAY
"INTEREST" OR GUARANTEE ANY AMOUNT OF DIVIDENDS OR RETURN ON AN INVESTMENT IN
ITS SHARES.
Dividends are automatically reinvested monthly in the form of additional shares
of the Portfolio at the net asset value per share at the close of business on
the last business day of the month. Shareholders may request to have their
dividends paid out monthly in cash by notifying the Portfolio.
The daily dividend includes accrued interest and any original issue and market
discount, plus or minus any gain or loss on the sale of portfolio securities and
changes in unrealized appreciation or depreciation in portfolio securities (to
the extent required to maintain a stable net asset value per share) less
amortization of any premium paid on the purchase of portfolio securities and the
estimated expenses of the Portfolio.
The federal income tax treatment of dividends and distributions is the same
whether received in cash or reinvested in Portfolio shares. (See "Taxation of
the Portfolio and its Shareholders" below.)
Part B includes a further discussion of distributions under "Tax Status."
TAXATION OF THE PORTFOLIO AND ITS SHAREHOLDERS
The following discussion reflects some of the tax considerations that affect
mutual funds and their shareholders.
Each Portfolio is treated as a separate entity for federal income tax purposes.
The Portfolio intends to continue to qualify for treatment as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). By distributing all of its income and meeting certain
other requirements relating to the sources of its income and diversification of
its assets, the Portfolio will not be liable for federal income or excise taxes.
For federal income tax purposes, any income dividends received from the
Portfolio, 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 Portfolio's income is derived from interest income and gain on the
sale of portfolio securities rather than qualifying dividend income, no portion
of the Portfolio's distributions will generally be eligible for the corporate
dividends-received deduction.
The Portfolio will inform shareholders of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each calendar year advise shareholders of the tax status for federal income tax
purposes of such dividends and distributions.
Additional information in response to this item is contained under the
discussion captioned "Tax Status" in Item 20 of Part B.
7. PURCHASE OF SHARES OF THE PORTFOLIO
The Portfolio's shares have not been registered under the Securities Act of
1933, which means that the Portfolio's shares may not be sold publicly. The
Portfolio may, however, sell its shares through private placements pursuant to
available exemptions from that Act.
Shares of the Portfolio are sold only to other investment companies and certain
institutional investors. All shares are sold at net asset value (without a sales
charge) next determined after the Portfolio receives the purchase order in
proper form. All investments in the Portfolio are credited to the shareholder's
account in the form of full and fractional shares of the Portfolio (rounded to
the nearest 1/1000 of a share). The Portfolio does not issue share certificates.
The minimum initial investment is $5,000,000 with no minimum for subsequent
investments. The Portfolio reserves the right to waive the minimum investment
requirements.
Shares may generally be purchased on business days except when the New York
Stock Exchange (the "Exchange") is closed. Federal Funds wire purchase orders
are not accepted on days when the Federal Reserve Bank System and the
Portfolio's custodian bank are closed.
VALUATION OF PORTFOLIO SHARES
The net asset value per share of the Portfolio is determined as of 3:00 p.m.
Pacific time each day that the Exchange is open for business and on those days
on which there is a sufficient degree of trading in the Portfolio's portfolio
securities that the net asset value of the Portfolio's shares may be affected.
The net asset value per share of the Portfolio is calculated by adding the value
of all portfolio holdings and other assets, deducting the Portfolio's
liabilities, and dividing the result by the number of Portfolio shares
outstanding.
The valuation of portfolio securities held by the Portfolio is based upon their
amortized cost value, which does not take into account unrealized capital gain
or loss. This involves valuing an instrument at its cost and thereafter assuming
a constant amortization to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value of the investment.
The Portfolio's use of amortized cost which facilitates the maintenance of the
Portfolio's per share net asset value of $1.00 is permitted by Rule 2a-7.
Further information is included under "Purchase, Redemption and Pricing of
Securities Being Offered" in Part B.
8. REDEMPTION OR REPURCHASE
HOW TO SELL SHARES OF THE PORTFOLIO
As stated under "Purchase of Shares of the Portfolio" above, the Portfolio's
shares have not been registered under the Securities Act of 1933, which means
that its shares are restricted securities which may not be sold unless
registered or pursuant to an available exemption from that Act. Redemption of
shares is not a sale under that Act, and therefore shareholders are not
restricted in redeeming their shares.
Redemptions are processed on any day on which the Portfolio is open for business
except for those days that the Federal Reserve Bank System and the Portfolio's
custodian bank are closed and are effected at the Portfolio's net asset value
next determined after the Portfolio receives a redemption request in proper
form.
Payment for redeemed shares is made promptly, but not later than seven days
after receipt of the redemption request in proper form. Proceeds for redemption
orders cannot be wired on those business days when the Federal Reserve Bank
System and the Portfolio's custodian are closed. In addition, the right of
redemption may be suspended or the date of payment postponed in accordance with
the rules under the 1940 Act. Redemptions are taxable events, and the amount
received may be more or less than the amount invested by the shareholder,
depending on the fluctuations in the market value of the assets owned by the
Portfolio.
9. PENDING LEGAL PROCEEDINGS
Not Applicable
Part B:
10. Cover Page
Not Applicable
11. TABLE OF CONTENTS
Not Applicable
12. GENERAL INFORMATION AND HISTORY
Not Applicable
13. INVESTMENT OBJECTIVES AND POLICIES
As noted in response to Item 4, the Portfolio's investment objective is high
current income (in the context of the type of investments available to the
Portfolio) consistent with capital preservation and liquidity. In addition to
the policies stated in response to Item 4, the following restrictions (except as
noted) have been adopted as fundamental policies for the Portfolio, which means
that they may not be changed without the approval of a majority of the
Portfolio's outstanding voting securities. Under the 1940 Act, a "vote of a
majority of the outstanding voting securities" of the Portfolio means the
affirmative vote of the lesser of (i) more than 50% of the outstanding voting
securities of the Portfolio, or (ii) 67% or more of the voting securities
present at a meeting if the holders of more than 50% of the outstanding shares
of the Portfolio are represented at that meeting. The Portfolio 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 10% of the total asset
value.
(2) Make loans, except (a) through the purchase of debt securities
in accordance with the investment objectives and policies of the Portfolio, (b)
to the extent the entry into a repurchase agreement is deemed to be a loan, or
(c) by the loan of its portfolio securities in accordance with the policies
described above.
(3) 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
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 Portfolio would be invested in such securities or repurchase agreements.
(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, 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 Portfolio as described in Part A specify otherwise.
(8) Act as underwriter of securities issued by other persons except
insofar as the Trust may technically be deemed an underwriter under the federal
securities laws in connection with the disposition of portfolio securities.
(9) Purchase securities from or sell to the Trust's officers and
trustees, or any firm of which any officer or trustee is a member, as principal,
or retain securities of any issuer if, to the knowledge of the Trust, one or
more of the Trust's officers, trustees, or investment adviser own beneficially
more than 1/2 of 1% of the securities of such issuer and all such officers and
trustees together own beneficially more than 5% of such securities.
(10) Acquire, lease or hold real estate, provided that this
limitation shall not prohibit the purchase of municipal and other debt
securities secured by real estate or interests therein.
(11) Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in oil, gas, or
other mineral exploration or development programs, except that it may purchase,
hold, and dispose of "obligations with puts attached" or write covered call
options in accordance with its stated investment policies.
If a percentage restriction contained herein is adhered to at the time of
investment, a later increase or decrease in the percentage resulting from a
change in the value of portfolio securities or the amount of the Portfolio's
assets will not be considered a violation of any of the foregoing restrictions.
In addition to these fundamental policies, it is the present policy of the
Portfolio (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.
14. MANAGEMENT OF THE REGISTRANT
OFFICERS AND TRUSTEES
The Board of Trustees (the "Board") has the responsibility for the overall
management of the Portfolio, 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 Portfolio'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 Portfolio under the 1940 Act are indicated by an
asterisk (*).
POSITIONS AND OFFICES PRINCIPAL OCCUPATIONS
NAME AND ADDRESS WITH THE TRUST DURING PAST FIVE YEARS
Frank H. Abbott, III (75)
1045 Sansome St.
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director, trustee or managing general partner, as the case may be, of 31 of the
investment companies in the Franklin Group of Funds.
Harris J. Ashton (64)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods; and director, trustee or managing general
partner, as the case may be, of 55 of the investment companies in the Franklin
Templeton Group of Funds.
S. Joseph Fortunato (64)
Park Avenue at Morris County
P. O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director of General Host
Corporation; director, trustee or managing general partner, as the case may be,
of 57 of the investment companies in the Franklin Templeton Group of Funds.
David W. Garbellano (81)
111 New Montgomery St., #402
San Francisco, CA 94105
Trustee
Private Investor; Assistant Secretary/Treasurer and Director, Berkeley Science
Corporation (a venture capital company); and director, trustee or managing
general partner, as the case may be, of 30 of the investment companies in the
Franklin Group of Funds.
*Charles B. Johnson (63)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President and Director, Franklin Resources, Inc.; Chairman of the Board and
Director, Franklin Advisers, Inc. and Franklin Templeton Distributors, Inc.;
Director, Franklin/Templeton Investor Services, Inc. and General Host
Corporation; and officer and/or director, trustee or managing general
partner, as the case may be, of most other subsidiaries of Franklin
Resources, Inc. and of 56 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles E. Johnson (40)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc. and Franklin Institutional Services Corporation;
officer and/or director, as the case may be, of some of the subsidiaries of
Franklin Resources, Inc. and officer and/or director or trustee, as the case may
be, of 39 of the investment companies in the Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (56)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers, Inc.;
Director, Franklin/Templeton Investor Services, Inc.; and officer and/or
director, trustee or managing general partner, as the case may be, of most other
subsidiaries of Franklin Resources, Inc. and of 60 of the investment companies
in the Franklin Templeton Group of Funds.
Frank W. T. LaHaye (67)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Office Systems, Inc.;
Director, FischerImaging Corporation; and director or trustee or managing
general partner, as the case may be, of 26 of the investment companies in the
Franklin Group of Funds.
Gordon S. Macklin (68)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (information services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications, Inc., MedImmune, Inc.
(biotechnology), InfoVest Corporation (information services), Fusion Systems
Corporation (industrial technology), and Source One Mortgage Services
Corporation (information services); and director, trustee or managing general
partner, as the case may be, of 52 of the investment companies in the Franklin
Templeton Group of Funds; and formerly held the following positions: Chairman,
Hambrecht and Quist Group; Director, H & Q Healthcare Investors; and President,
National Association of Securities Dealers, Inc.
Harmon E. Burns (51)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; officer and/or director, as the case may be, of other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee
of 60 of the investment companies in the Franklin Templeton Group of Funds.
Kenneth V. Domingues (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President - Financial Reporting and Accounting Standards
Senior Vice President, Franklin Resources, Inc., Franklin Advisers, Inc., and
Franklin Templeton Distributors, Inc.; officer and/or director, as the case may
be, of other subsidiaries of Franklin Resources, Inc.; and officer and/or
managing general partner, as the case may be, of 37 of the investment companies
in the Franklin Group of Funds.
Martin L. Flanagan (36)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, Franklin
Resources, Inc.; Executive Vice President, Templeton Worldwide, Inc.; Senior
Vice President and Treasurer, Franklin Advisers, Inc. and Franklin Templeton
Distributors, Inc.; Senior Vice President, Franklin/Templeton Investor Services,
Inc.; officer of most other subsidiaries of Franklin Resources, Inc.; and
officer, director and/or trustee of 60 of the investment companies in the
Franklin Templeton Group of Funds.
Deborah R. Gatzek (47)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; Vice President, Franklin
Advisers, Inc. and officer of 60 of the investment companies in the Franklin
Templeton Group of Funds.
Diomedes Loo-Tam (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Employee of Franklin Advisers, Inc.; and officer of 37 of the investment
companies in the Franklin Group of Funds.
Edward V. McVey (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President/National Sales Manager, Franklin Templeton Distributors,
Inc.; and officer of 32 of the investment companies in the Franklin Group of
Funds.
R. Martin Wiskemann (69)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers, Inc.;
Senior Vice President, Franklin Management, Inc.; Vice President, Treasurer and
Director, ILA Financial Services, Inc. and Arizona Life Insurance Company of
America; and officer and/or director, as the case may be, of 21 of the
investment companies in the Franklin Group of Funds.
The table above shows the officers and Board members and the trustees who are
affiliated with Distributors and Advisers. Nonaffiliated trustees are currently
paid $50 per month plus $50 per meeting attended. As shown above, some of the
nonaffiliated Board members and trustees also serve as directors, trustees or
managing general partners of other investment companies in the Franklin
Templeton Group of Funds. They may receive fees from these funds for their
services. The following table provides the total fees paid to nonaffiliated
Board members and trustees by the Trust and by other funds in the Franklin
Templeton Group of Funds.
<TABLE>
<CAPTION>
NUMBER OF BOARDS IN
THE FRANKLIN
TOTAL FEES RECEIVED TEMPLETON GROUP OF
TOTAL FEES FROM THE FRANKLIN FUNDS ON WHICH EACH
RECEIVED FROM TEMPLETON GROUP OF SERVES***
THE TRUST* FUNDS**
NAME
<S> <C> <C> <C>
Frank H. Abbott, III $1,200 $162,420 31
Harris J. Ashton 1,200 327,925 55
S. Joseph Fortunato 1,200 344,745 57
David Garbellano 1,200 146,100 30
Frank W.T. LaHaye 1,150 143,200 26
Gordon S. Macklin 1,200 321,525 52
</TABLE>
*For the fiscal year ended June 30, 1996.
**For the calendar year ended December 31, 1995.
***We base the number of boards on the number of registered investment companies
in the Franklin Templeton Group of Funds. This number does not include the total
number of series or funds within each investment company for which the trustees
are responsible. The Franklin Templeton Group of Funds currently includes 60
registered investment companies, with approximately 166 U.S. based funds or
series.
Nonaffiliated members of the Board and trustees are reimbursed for expenses
incurred in connection with attending board meetings, paid pro rata by each fund
in the Franklin Templeton Group of Funds for which they serve as director,
trustee or managing general partner. No officer or Board member or trustee
received any other compensation, including pension or retirement benefits,
directly or indirectly from the Portfolio, the Trust or other funds in the
Franklin Templeton Group of Funds. Certain officers or Board members and
trustees 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.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 8, 1996, the principal shareholders of the Portfolio, beneficial
or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
IFT - Franklin U.S. Government 140,473,858.740 52.97%
Securities Money Market Portfolio
777 Mariners Island Blvd.
San Mateo, CA 94404
Franklin Federal Money Fund 124,712,092.300 47.03%
777 Mariners Island Blvd.
San Mateo, CA 94404
From time to time, the number of Portfolio 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.
16. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT MANAGER AND SERVICES PROVIDED. Advisers is the investment manager of
the Portfolio. 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 to whom Advisers renders periodic reports of the
Portfolio's investment activities.
Advisers provides office space and furnishings, facilities and equipment
required for managing the business affairs of the Portfolio. Advisers also
maintains all internal bookkeeping, clerical, secretarial and administrative
personnel and services and provides certain telephone and other mechanical
services. Advisers is covered by fidelity insurance on its officers, directors
and employees for the protection of the Portfolio.
Advisers may give advice and take action with respect to any of the other funds
it manages, or for its own account, that may differ from action taken by
Advisers on behalf of the Portfolio. Similarly, with respect to the Portfolio,
Advisers is not obligated to recommend, buy or sell, or to refrain from
recommending, buying or selling any security that Advisers and access persons,
as defined by the 1940 Act, may buy or sell for its or their own account or for
the accounts of any other fund. Advisers is not obligated to refrain from
investing in securities held by the Portfolio or other funds that it manages or
administers. Of course, any transactions for the accounts of Advisers and other
access persons will be made in compliance with the Portfolio's Code of Ethics.
MANAGEMENT FEES. Under its management agreement, the Portfolio pays Advisers
a management fee equal to an annual rate of 0.15%. The fee is computed at the
close of business on the last business day of each month.
See the Statement of Operations in the financial statements included in the
Annual Report for details of these expenses.
For the fiscal years ended June 30, 1994, 1995 and 1996 management fees, before
any advance waiver, totaled $355,778, $634,995, and $542,615, respectively.
Under an agreement by Advisers to limit its fees, the Portfolio paid management
fees totaling $304,633, $581,495 and $484,382 for the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1997. It may continue in effect for successive annual periods
if its continuance is specifically approved at least annually by a vote of the
Board 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 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
Portfolio's outstanding voting securities, or by Advisers on 30 days' written
notice, and will automatically terminate in the event of its assignment, as
defined in the 1940 Act.
Franklin/Templeton Investor Services, Inc. ("Investor Services"), a
wholly-owned subsidiary of Resources, is the Portfolio's shareholder
servicing agent and acts as the Portfolio's transfer agent and
dividend-paying agent. Investor Services is compensated on the basis of a
fixed fee per account.
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
Portfolio. Bank of America NT & SA, 555 California Street, 4th Floor, San
Francisco, California 94104, acts as custodian for cash received in connection
with the purchase of Portfolio shares. Citibank Delaware, One Penn's Way, New
Castle, Delaware 19720, acts as custodian in connection with transfer services
through bank automated clearing houses. The custodians do not participate in
decisions relating to the purchase and sale of portfolio securities.
Coopers & Lybrand L.L.P., 333 Market Street, San Francisco, California 94105,
are the Portfolio's independent auditors. During the fiscal year ended June 30,
1996, their auditing services consisted of rendering an opinion on the financial
statements of the Portfolio included in the annual report to shareholders of
Franklin Money Fund and Institutional Fiduciary Trust - U.S. Government
Securities Money Market Portfolio for the fiscal year ended June 30, 1996.
17. BROKERAGE ALLOCATION
EXECUTION OF PORTFOLIO TRANSACTIONS
As noted in Part A, since most purchases by the Portfolio are principal
transactions at net prices, the Portfolio incurs little or no brokerage costs or
transfer taxes.
Since most purchases by the Portfolio are principal transactions at net prices,
the Portfolio incurs little or no brokerage costs. The Portfolio deals directly
with the selling or buying principal or market maker without incurring charges
for the services of a broker on its behalf, unless it is determined that a
better price or execution may be obtained by using the services of a broker.
Purchases of portfolio securities from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases from dealers
will include a spread between the bid and ask prices. The Portfolio seeks to
obtain prompt execution of orders at the most favorable net price. Transactions
may be directed to dealers in return for research and statistical information,
as well as for special services provided by the dealers in the execution of
orders.
It is not possible to place a dollar value on the special executions or on the
research services received by Advisers from dealers effecting transactions in
portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research and
analysis activities and to receive the views and information of individuals and
research staff of other securities firms. As long as it is lawful and
appropriate to do so, Advisers and its affiliates may use this research and data
in their investment advisory capacities with other clients.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to all
by Advisers, taking into account the respective sizes of the funds and the
amount of securities to be purchased or sold. In some cases this procedure could
have a detrimental effect on the price or volume of the security so far as the
Portfolio is concerned. In other cases it is possible that the ability to
participate in volume transactions and to negotiate lower brokerage commissions
will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may not
buy securities with the expectation of holding them to maturity, although its
general policy is to hold securities to maturity. The Portfolio may, however,
sell securities prior to maturity to meet redemptions or as a result of a
revised management evaluation of the issuer.
Purchases of portfolio securities may be made directly from issuers or from
underwriters. Where possible, purchase and sale transactions will be effected
through dealers (including banks) which specialize in the types of securities
which the Portfolio will be holding, unless better executions are available
elsewhere. Dealers and underwriters usually act as principal for their own
account. Purchases from underwriters will include a concession paid by the
issuer to the underwriter, and purchases from dealers will include the spread
between the bid and the ask price. If the execution and price offered by more
than one dealer or underwriter are comparable, the order may be allocated to a
dealer or underwriter which has provided such research or other services as
mentioned above. No broker or dealer affiliated with the Portfolio or with the
Manager may purchase securities from, or sell securities to, the Portfolio.
During the fiscal years ended June 30, 1994, 1995 and 1996, the Portfolio paid
no brokerage commissions.
As of June 30, 1996, the Portfolio did not own securities of its regular
broker-dealers.
Franklin/Templeton Distributors, Inc. ("Distributors"), an affiliate of
Advisers, is a member of the National Association of Securities Dealers, Inc.,
and it may sometimes be entitled to obtain certain fees when the Portfolio
tenders portfolio securities pursuant to a tender-offer solicitation.
Accordingly, any portfolio securities tendered by the Portfolio will be tendered
through Distributors if it is legally permissible to do so. In turn, the next
management fee payable by the Portfolio under the management agreement will be
reduced by the amount of any tender fees received by Distributors in cash, less
certain costs and expenses incurred in connection therewith.
18. CAPITAL STOCK AND OTHER SECURITIES
The information provided in response to this item is in addition to the
information provided in response to Item 4 in Part A.
Shares for an initial investment as well as subsequent investments, including
the reinvestment of dividends and capital gain distributions, are generally
credited to an account in the name of an investor on the books of the Portfolio.
Shareholders will receive confirmation statements each time there is a
transaction which affects an account, including the reinvestment of dividends.
These statements will also show the total number of Portfolio shares owned by a
shareholder, including the number of shares in "plan balance" for the account of
the shareholder.
SHAREHOLDERS MAY RELY ON THE CONFIRMATION STATEMENTS IN LIEU OF CERTIFICATES
WHICH ARE NOT NECESSARY. CERTIFICATES REPRESENTING SHARES OF THE PORTFOLIO WILL
NOT BE ISSUED.
The Portfolio reserves the right to redeem, at net asset value, shares of any
shareholder whose account has a value of less than $1,000,000, but only where
the value of such account has been reduced by the shareholder's prior voluntary
redemption of shares and has been inactive (except for the reinvestment of
distributions) for a period of at least six months, provided advance notice is
given to the shareholder.
An investment in the Portfolio is not a deposit insured by the Federal Deposit
Insurance Corporation ("FDIC") and is not an obligation of or guaranteed by any
bank.
19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
VALUATION OF PORTFOLIO SHARES
The net asset value per share is calculated as of 3:00 p.m. Pacific time, each
day that the Exchange is open for trading. As of the date of this SAI, the
Portfolio is informed that the Exchange observes the following holidays: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The valuation of the Portfolio's portfolio securities, including any securities
held in a separate account maintained for when-issued securities, is based on
the amortized cost of the securities, which does not take into account
unrealized capital gains or losses. This method involves valuing an instrument
at its cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market value of the instrument. While this method provides certainty in
calculation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive if
it sold the instrument. During periods of declining interest rates, the daily
yield on shares of the Portfolio computed as described above may tend to be
higher than a like computation made by a fund with identical investments but
utilizing a method of valuation based upon market prices and estimates of market
prices for all of its portfolio instruments. Thus, if the use of amortized cost
by the Portfolio resulted in a lower aggregate portfolio value on a particular
day, a prospective investor in the Portfolio would be able to obtain a somewhat
higher yield than would result from an investment in a fund utilizing only
market values, and existing investors in the Portfolio would receive less
investment income. The opposite would be true in a period of rising interest
rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
net asset value per share of $1.00, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The Portfolio
must maintain a dollar-weighted average portfolio maturity of 90 days or less
and only buy instruments having remaining maturities of 397 calendar days or
less. The Portfolio must also invest only in those U.S. dollar-denominated
instruments that the Board determines present minimal credit risks and which
are, as required by, and otherwise consistent with, the federal securities laws,
rated in one of the two highest rating categories by nationally recognized
statistical rating agencies, or 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, or if unrated, deemed comparable in quality to such rated
instruments. 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 has agreed to establish procedures designed to stabilize, to the
extent reasonably possible, the Portfolio's price per share at $1.00, as
computed for the purpose of sales and redemptions. These procedures will include
a review of the Portfolio's holdings by the Board, at such intervals as it may
deem appropriate, to determine if the Portfolio's net asset value calculated by
using available market quotations deviates from $1.00 per share based on
amortized cost. The extent of any deviation will be examined by the Board. If a
deviation exceeds 1/2 of 1%, the trustees will promptly consider what action, if
any, will be initiated. In the event the Board determines that a deviation
exists that may result in material dilution or other unfair results to investors
or existing shareholders, they will take corrective action that they regard as
necessary and appropriate, which may include selling portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, redeeming shares in kind, or establishing a net
asset value per share by using available market quotations.
ADDITIONAL INFORMATION REGARDING PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The purchase price for shares of the Portfolio 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 Portfolio are purchased, they begin earning
income immediately, and income dividends will start being credited to the
investor's account on the effective date of purchase and continue through the
business day prior to the business day shares in the account are redeemed.
Payments transmitted by wire and received by the custodian bank and reported by
it to the Portfolio prior to 3:00 p.m. Pacific time on any business day, are
normally effective on the same day as received, provided the Portfolio is timely
notified. Wire payments received or reported by the custodian bank to the
Portfolio after that time will be effective on the next business day. Payments
transmitted by check or other negotiable bank draft will normally be effective
within two business days for checks drawn on a member bank of the Federal
Reserve System, and longer for most other checks.
All purchases of shares of the Portfolio are credited to the shareholder in full
and fractional shares of the Portfolio (rounded to the nearest 1/1000 of a
share) in an account maintained for the shareholder by the Portfolio's transfer
agent. To open an account in the name of a corporation, a resolution of the
corporation's board of directors will be required.
The Trust reserves the right to reject any order for the purchase of shares of
the Portfolio and to waive minimum investment requirements. In addition, the
offering of shares of the Portfolio may be suspended by the Trust at any time
and resumed at any time thereafter.
The Portfolio will make payment for all redemptions within seven days after
receipt of such redemption request in proper form. The Portfolio reserves the
right, however, to suspend redemptions or postpone the date of payment (1) for
any periods during which the Exchange is closed (other than the customary
weekend and holiday closings); (2) when trading in the markets the Portfolio
usually utilizes is restricted or an emergency exists, as determined by the
Securities and Exchange Commission ("SEC"), so that disposal of portfolio
securities or valuation of net assets of the Portfolio is not reasonably
practicable; or (3) for such other period as the SEC, by order, may permit for
the protection of the Portfolio's shareholders. At various times, the Portfolio
may be requested to redeem shares for which it has not yet received proper
payment. Accordingly, the Portfolio may delay the sending of redemption proceeds
until such time as it has assured itself that proper payment has been collected
for the purchase of such shares.
REDEMPTIONS IN KIND
The Portfolio 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 Portfolio's
net assets at the beginning of such period. This commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, the trustees reserve the right to make payments in whole
or in part in securities or other assets of the Portfolio from which the
shareholder is redeeming in case of an emergency, or if the payment of such
redemption in cash would be detrimental to the existing shareholders of the
Portfolio. In these circumstances, the securities distributed would be valued at
the price used to compute the Portfolio's net assets. Should the Portfolio do
so, a shareholder may incur brokerage fees in converting the securities to cash.
REDEMPTIONS BY THE PORTFOLIO
The Portfolio reserves the right to redeem, involuntarily, at net asset value,
the shares of any shareholder whose account has a value of less than a minimum
amount, but only where the value of the account has been reduced by the
shareholder's prior voluntary redemption of shares. Until further notice, it is
the present policy of the Portfolio not to exercise this right with respect to
any shareholder whose account has a value of $1,000,000 or more. In any event,
before the Portfolio redeems shares and sends the proceeds to the shareholder,
it will notify the shareholder that the value of the shares in the account is
less than the minimum amount and allow the shareholder 30 days to make an
additional investment in an amount which will increase the value of the account
to at least $1,000,000.
20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
As stated in response to Item 6, the Portfolio has elected to be treated as a
regulated investment company under Subchapter M of the Code. The trustees
reserve the right not to maintain the qualification of the Portfolio as a
regulated investment company if they determine such course of action to be
beneficial to shareholders. In this case, the Portfolio will be subject to
federal and possibly state corporate taxes on its taxable income and gains, and
distributions to shareholders will be ordinary dividend income to the extent of
the Portfolio'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 Portfolio) to shareholders by December 31 of each year in order to
avoid the imposition of a federal excise tax. Under these rules, certain
distributions which are declared in October, November or December but which, for
operational reasons, may not be paid to the shareholder until the following
January, will be treated for tax purposes as if paid by the Portfolio and
received by the shareholder on December 31 of the calendar year in which they
are declared. The Portfolio intends, as a matter of policy, to declare and pay
such dividends, if any, 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.
The Portfolio's investments are composed of short-term securities under normal
circumstances and thus the Portfolio does not expect to realize any long-term
capital gains or losses. Any net short-term capital gain which is realized by
the Portfolio and not included in the daily dividend (adjusted for any daily
amounts of unrealized appreciation or depreciation reported above and taking
into account any capital loss carryovers) may generally be distributed at least
once each year and may be distributed more frequently if necessary in order to
avoid federal excise taxes. Any capital gain distributions will also be
reinvested in the form of additional Portfolio shares at net asset value, unless
the shareholder has previously notified the Portfolio or its transfer agent to
have them paid in cash.
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 Portfolio shares have been owned and regardless of whether
received in cash or in additional shares.
The sale of shares of the Portfolio, either by redemption or exchange, is a
taxable event and may result in a capital gain or loss. Any loss incurred on the
sale of the Portfolio's shares, held for six months or less, will be treated as
a long-term capital loss to the extent of capital gain dividends received with
respect to such shares. Since, however, the Portfolio seeks to maintain a stable
$1.00 per share price for both purchases and redemptions, shareholders are not
expected to realize a capital gain or loss upon sale.
21. UNDERWRITERS
Not Applicable
22. CALCULATION OF PERFORMANCE DATA
Not Applicable
23. FINANCIAL STATEMENTS
APPENDIX
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.
FITCH'S
Fitch's short-term ratings apply to debt obligations that are payable on demand
or have original maturities of generally up to three years, including commercial
paper, certificates of deposit, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating on
the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect 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.
FINANCIAL STATEMENTS
The audited financial statements of the Portfolio contained in the Annual Report
dated June 30, 1996, including the auditors' report, are incorporated herein by
reference.
THE MONEY MARKET PORTFOLIOS
FORM N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated June 30, 1996 as
filed with the SEC on Form Type N-30D on September 10, 1996.
(i) Report of Independent Accountants
(ii) Statement of Investments in Securities and Net Assets, June
30, 1996
(iii)Statement of Assets and Liabilities, June 30, 1996
(iv) Statement of Changes in Net Assets for the years ended June
30, 1996 and 1995
(v) Statement of Operations for the years ended June 30, 1996
and 1995
(vi) Notes to Financial Statements
(b) Exhibits:
The following exhibits are incorporated by reference, with the
exception of exhibits 5(ii) 8(iii), 8(iv), 27(i) and 27(ii) which
are attached herewith.
1. Copies of the charter as now in effect;
(i) Agreement and Declaration of Trust of The Money Market
Portfolios dated June 16, 1992
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
(ii) Certificate of Trust of The Money Market Portfolios dated
June 16, 1992
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
2. Copies of the existing By-Laws or instruments corresponding
thereto;
(i) By-Laws of The Money Market Portfolios
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 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) Management Agreement between Registrant and Franklin
Advisers, Inc. dated August 27, 1992
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
(ii) Amendment to Management Agreement dated August 1, 1995 to
the Management Agreement dated August 27, 1992
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;
Not applicable
7. Copies of all bonus, profit sharing, pension or other similar
contracts or arrangements wholly or partly for the benefit of
Trustees 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) Custody Agreement between Registrant and Bank of America NT
& SA dated July 22, 1992
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
(ii) Custodian Agreements between Registrant and Citibank Delaware
1. Citicash Management ACH Customer Agreement
2. Citibank Cash Management Services Master
Agreement
3. Short Form Bank Agreement - Deposits and
Disbursements of Funds
Registrant: Franklin Premier Return Fund
Filing: Post-Effective Amendment No. 54 to
Registration on Form N-1A
File Nos. 33-39088 & 811-6243
Filing Date: February 22, 1995
(iii) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
(iv) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
9. Copies of all other material contracts not made in the ordinary
course of business which are to be performed in whole or in part
on or after the date of filing the Registration Statement;
Not applicable.
10. Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will when
sold 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;
Not applicable
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 intention of redeeming or reselling;
(i) Letters of Understanding relating to initial capital dated
July 22, 1992
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
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;
Not applicable
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.
Not applicable
16. Schedule for computation of each performance quotation provided
in the registration statement in response to Item 22 (which need
not be audited).
Not applicable
17. (i) Power of Attorney dated September 18, 1995
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
(ii) Certificate of Secretary dated September 18, 1995
Filing: Amendment No. 6 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
27. (i) Financial Data Schedule for the Money Market Portfolios
(ii) Financial Data schedule for the U.S. Government Money
Market Portfolios
Item 25. Persons Controlled by or under Common Control with Registrant.
None
Item 26. Number of Holders of Securities.
Number of Record Holders
Title of Class as of July 31, 1996
Shares of Beneficial Interest
of:
The Money Market Portfolio 4
The U.S. Government Securities
Money Market Portfolio 2
Item 27. Indemnification.
Reference is made to Article VI of the Registrant's By-Laws (Exhibit
2). Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
"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."
Notwithstanding the provisions contained in the Registrant's By-Laws, in
the absence of authorization by the appropriate court on the merits pursuant
to Section 5 of Article VI of said By-Laws, any indemnification under said
Article shall be made by Registrant only if authorized in the manner provided
in either subsection (a) or (b) of Section 6 of Article VI.
Item 28. Business and Other Connections of Investment Adviser.
Franklin Advisers, Inc., a wholly owned subsidiary of Franklin
Resources, Inc., the investment manager for the Registrant, is the investment
manager for the other registered investment companies in the Franklin
Templeton Group of Funds with aggregate assets of approximately $129
billion. The officers and directors of the Registrant's investment advisor
also serve as officers and/or directors, and/or portfolio managers for (1)
the advisor's corporate parent, Franklin Resources, Inc., and/or (2) other
investment companies in the Franklin Group of Funds. In addition, Messrs.
Charles B. Johnson and Harris J. Ashton are directors of General Host
Corporation. For additional information please see Part B and Schedules A
and D of Form ADV of the Fund's Investment Manager (SEC File 801-26292),
incorporated herein by reference, which sets forth the officers and directors
of the Investment Manager 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
Not Applicable
Item 30. Locations 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 and the Rules thereunder
are kept by the Registrant or its shareholder services agent,
Franklin/Templeton Investor Services, Inc., at their respective principal
business offices, both of which are at 777 Mariners Island Blvd., San Mateo,
California 94404.
Item 31. Management Services.
There are no management-related service contracts not discussed in Part
A or Part B.
Item 32. Undertaking.
a) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee or trustees when requested in writing to do so by the record holders
of not less than 10 per centum of the Registrant's outstanding shares and to
assist its shareholders in accordance with the requirements of Section 16(c)
of the Investment Company Act of 1940 relating to shareholder communications.
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Mateo, the State of California, on the 30th
day of October, 1996.
THE MONEY MARKET PORTFOLIOS
By:
Charles E. Johnson*
President
*By:
Larry L. Greene, Attorney in Fact
pursuant to a Power of Attorney filed herewith
THE MONEY MARKET PORTFOLIOS
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust of *
The Money Market Portfolios dated June
16, 1992
EX-99.B1(ii) Certificate of Trust of The Money Market *
Portfolios dated June 16, 1992
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Registrant *
and Franklin Advisers, Inc. dated August
27, 1992
EX-99.B5(ii) Amendment to Management Agreement dated Attached
August 1, 1995 to the Management
Agreement dated August 27, 1995
EX-99.B8(i) Custody Agreement between Registrant and *
Bank of America NT & SA dated July 22,
1992
EX-99.B8(ii) Custodian Agreements between Registrant *
and Citibank Delaware
EX-99.B8(iii) Master Custody Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(iv) Terminal Link Agreement between Attached
Registrant and Bank of New York dated
February 16, 1996
EX-99.B13(i) Letter of Understanding relating to *
initial capital dated July 22, 1992
EX-99.B17(i) Power of Attorney dated September 18, *
1995
EX-99.B17(ii) Certificate of Secretary dated September *
18, 1995
EX-27.B(i) Financial Data Schedule for The Money Attached
Market Portfolios
EX-27.B(ii) Financial Data Schedule for The U.S. Attached
Government Money Market Portfolios
* Incorporated by reference
AMENDMENT TO MANAGEMENT AGREEMENT
This Amendment dated as of August 1, 1995, is to the Management
Agreement dated August 27, 1992, by and between THE MONEY MARKET PORTFOLIOS, a
Delaware business trust (the "Trust"), on behalf of THE MONEY MARKET PORTFOLIO
and THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO (the "Funds"), 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 a 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 as set forth in paragraph 2.B.(c) of this Agreement. 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 a Fund's expenses, as if such
waiver or limitation were full set forth herein.
(2) All other provisions of the Management Agreement dated August 27,
1992, remain in full force and effect.
IN WITNESS WHEREOF, we have signed this Amendment as of the date and
year first above written.
THE MONEY MARKET PORTFOLIOS
By /s/ Deborah R. Gatzek
FRANKLIN ADVISERS, INC.
By /s/ Harmon E. Burns
MASTER CUSTODY AGREEMENT
THIS CUSTODY AGREEMENT ("Agreement") is made and entered into as of
February 16, 1996, by and between each Investment Company listed on Exhibit A,
for itself and for each of its Series listed on Exhibit A, and BANK OF NEW YORK,
a New York corporation authorized to do a banking business (the "Custodian").
RECITALS
A. Each Investment Company is an investment company registered under
the Investment Company Act of 1940, as amended (the "Investment Company Act")
that invests and reinvests, for itself or on behalf of its Series, in Domestic
Securities and Foreign Securities.
B. The Custodian is, and has represented to each Investment Company
that the Custodian is, a "bank" as that term is defined in Section 2(a)(5) of
the Investment Company Act of 1940, as amended, and is eligible to receive and
maintain custody of investment company assets pursuant to Section 17(f) and Rule
17f-2 thereunder.
C. The Custodian and each Investment Company, for itself and for
each of its Series, desire to provide for the retention of the Custodian as a
custodian of the assets of each Investment Company and each Series, on the terms
and subject to the provisions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
Section 1.0 FORM OF AGREEMENT
Although the parties have executed this Agreement in the form of a
Master Custody Agreement for administrative convenience, this Agreement shall
create a separate custody agreement for each Investment Company and for each
Series designated on Exhibit A, as though each Investment Company had separately
executed an identical custody agreement for itself and for each of its Series.
No rights, responsibilities or liabilities of any Investment Company or Series
shall be attributed to any other Investment Company or Series.
Section 1.1 DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings specified below:
"Agreement" shall mean this Custody Agreement.
"Board" shall mean the Board of Trustees, Directors or Managing
General Partners, as applicable, of an Investment Company.
"Business Day" with respect to any Domestic Security means any day,
other than a Saturday or Sunday, that is not a day on which banking institutions
are authorized or required by law to be closed in The City of New York and, with
respect to Foreign Securities, a London Business Day. "London Business Day"
shall mean any day on which dealings and deposits in U.S. dollars are transacted
in the London interbank market.
"Custodian" shall mean Bank of New York.
"Domestic Securities" shall have the meaning provided in Subsection
2.1 hereof.
"Executive Committee" shall mean the executive committee of a Board.
"Foreign Custodian" shall have the meaning provided in Section 4.1
hereof.
"Foreign Securities" shall have the meaning provided in Section 2.1
hereof.
"Foreign Securities Depository" shall have the meaning provided in
Section 4.1 hereof.
"Fund" shall mean an entity identified on Exhibit A as an Investment
Company, if the Investment Company has no series, or a Series.
"Investment Company" shall mean an entity identified on Exhibit A
under the heading "Investment Company."
"Investment Company Act" shall mean the Investment Company Act of
1940, as amended.
"Securities" shall have the meaning provided in Section 2.1 hereof.
"Securities System" shall have the meaning provided in Section 3.1
hereof.
"Securities System Account" shall have the meaning provided in
Subsection 3.8(a) hereof.
"Series" shall mean a series of an Investment Company which is
identified as such on Exhibit A.
"Shares" shall mean shares of beneficial interest of the Investment
Company.
"Subcustodian" shall have the meaning provided in Subsection 3.7
hereof, but shall not include any Foreign Custodian.
"Transfer Agent" shall mean the duly appointed and acting transfer
agent for each Investment Company.
"Writing" shall mean a communication in writing, a communication by
telex, facsimile transmission, bankwire or other teleprocess or electronic
instruction system acceptable to the Custodian.
Section 2. APPOINTMENT OF CUSTODIAN; DELIVERY OF ASSETS
2.1 Appointment of Custodian. Each Investment Company hereby
appoints and designates the Custodian as a custodian of the assets of each Fund,
including cash denominated in U.S. dollars or foreign currency ("cash"),
securities the Fund desires to be held within the United States ("Domestic
Securities") and securities it desires to be held outside the United States
("Foreign Securities"). Domestic Securities and Foreign Securities are sometimes
referred to herein, collectively, as "Securities." The Custodian hereby accepts
such appointment and designation and agrees that it shall maintain custody of
the assets of each Fund delivered to it hereunder in the manner provided for
herein.
2.2 Delivery of Assets. Each Investment Company may deliver to the
Custodian Securities and cash owned by the Funds, payments of income, principal
or capital distributions received by the Funds with respect to Securities owned
by the Funds from time to time, and the consideration received by the Funds for
such Shares or other securities of the Funds as may be issued and sold from time
to time. The Custodian shall have no responsibility whatsoever for any property
or assets of the Funds held or received by the Funds and not delivered to the
Custodian pursuant to and in accordance with the terms hereof. All Securities
accepted by the Custodian on behalf of the Funds under the terms of this
Agreement shall be in "street name" or other good delivery form as determined by
the Custodian.
2.3 Subcustodians. The Custodian may appoint BNY Western Trust
Company as a Subcustodian to hold assets of the Funds in accordance with the
provisions of this Agreement. In addition, upon receipt of Proper Instructions
and a certified copy of a resolution of the Board or of the Executive Committee,
and certified by the Secretary or an Assistant Secretary, of an Investment
Company, the Custodian may from time to time appoint one or more other
Subcustodians or Foreign Custodians to hold assets of the affected Funds in
accordance with the provisions of this Agreement.
2.4 No Duty to Manage. The Custodian, a Subcustodian or a Foreign
Custodian shall not have any duty or responsibility to manage or recommend
investments of the assets of any Fund held by them or to initiate any purchase,
sale or other investment transaction in the absence of Proper Instructions or
except as otherwise specifically provided herein.
Section 3. DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE FUNDS HELD
BY THE CUSTODIAN
3.1 Holding Securities. The Custodian shall hold and physically
segregate from any property owned by the Custodian, for the account of each
Fund, all non-cash property delivered by each Fund to the Custodian hereunder
other than Securities which, pursuant to Subsection 3.8 hereof, are held through
a registered clearing agency, a registered securities depository, the Federal
Reserve's book-entry securities system (referred to herein, individually, as a
"Securities System"), or held by a Subcustodian, Foreign Custodian or in a
Foreign Securities Depository.
3.2 Delivery of Securities. Except as otherwise provided in
Subsection 3.5 hereof, the Custodian, upon receipt of Proper Instructions, shall
release and deliver Securities owned by a Fund and held by the Custodian in the
following cases or as otherwise directed in Proper Instructions:
(a) except as otherwise provided herein, upon sale of such
Securities for the account of the Fund and receipt by the Custodian, a
Subcustodian or a Foreign Custodian of payment therefor;
(b) upon the receipt of payment by the Custodian, a
Subcustodian or a Foreign Custodian in connection with any repurchase agreement
related to such Securities entered into by the Fund;
(c) in the case of a sale effected through a Securities
System, in accordance with the provisions of Subsection 3.8 hereof;
(d) to a tender agent or other authorized agent in connection
with (i) a tender or other similar offer for Securities owned by the Fund, or
(ii) a tender offer or repurchase by the Fund of its own Shares;
(e) to the issuer thereof or its agent when such Securities
are called, redeemed, retired or otherwise become payable; provided, that in any
such case, the cash or other consideration is to be delivered to the Custodian,
a Subcustodian or a Foreign Custodian;
(f) to the issuer thereof, or its agent, for transfer into the
name or nominee name of the Fund, the name or nominee name of the Custodian, the
name or nominee name of any Subcustodian or Foreign Custodian; or for exchange
for a different number of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided that, in any such case,
the new Securities are to be delivered to the Custodian, a Subcustodian or
Foreign Custodian;
(g) to the broker selling the same for examination in
accordance with the "street delivery" custom;
(h) for exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, or reorganization of the issuer of such
Securities, or pursuant to a conversion of such Securities; provided that, in
any such case, the new Securities and cash, if any, are to be delivered to the
Custodian or a Subcustodian;
(i) in the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such warrants, rights or
similar Securities or the surrender of interim receipts or temporary Securities
for definitive Securities; provided that, in any such case, the new Securities
and cash, if any, are to be delivered to the Custodian, a subcustodian or a
Foreign Custodian;
(j) for delivery in connection with any loans of Securities
made by the Fund, but only against receipt by the Custodian, a Subcustodian or a
Foreign Custodian of adequate collateral as determined by the Fund (and
identified in Proper Instructions communicated to the Custodian), which may be
in the form of cash or obligations issued by the United States government, its
agencies or instrumentalities, except that in connection with any loans for
which collateral is to be credited to the account of the Custodian, a
Subcustodian or a Foreign Custodian in the Federal Reserve's book-entry
securities system, the Custodian will not be held liable or responsible for the
delivery of Securities owned by the Fund prior to the receipt of such
collateral;
(k) for delivery as security in connection with any borrowings
by the Fund requiring a pledge of assets by the Fund, but only against receipt
by the Custodian, a Subcustodian or a Foreign Custodian of amounts borrowed;
(l) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a broker-dealer relating to compliance with the rules of registered clearing
corporations and of any registered national securities exchange, or of any
similar organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund;
(m) for delivery in accordance with the provisions of any
agreement among the Fund, the Custodian, a Subcustodian or a Foreign Custodian
and a futures commission merchant, relating to compliance with the rules of the
Commodity Futures Trading Commission and/or any contract market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund;
(n) upon the receipt of instructions from the Transfer Agent
for delivery to the Transfer Agent or to the holders of Shares in connection
with distributions in kind in satisfaction of requests by holders of Shares for
repurchase or redemption; and
(o) for any other proper purpose, but only upon receipt of
Proper Instructions, and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
Fund, specifying the securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose to be a proper
purpose, and naming the person or persons to whom delivery of such securities
shall be made.
3.3 Registration of Securities. Securities held by the Custodian, a
Subcustodian or a Foreign Custodian (other than bearer Securities) shall be
registered in the name or nominee name of the appropriate Fund, in the name or
nominee name of the Custodian or in the name or nominee name of any Subcustodian
or Foreign Custodian. Each Fund agrees to hold the Custodian, any such nominee,
Subcustodian or Foreign Custodian harmless from any liability as a holder of
record of such Securities.
3.4 Bank Accounts. The Custodian shall open and maintain a separate
bank account or accounts for each Fund, subject only to draft or order by the
Custodian acting pursuant to the terms of this Agreement, and shall hold in such
account or accounts, subject to the provisions hereof, all cash received by it
hereunder from or for the account of each Fund, other than cash maintained by a
Fund in a bank account established and used in accordance with Rule 17f-3 under
the Fund Act. Funds held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the banking departments of the Custodian, a
Subcustodian or a Foreign Custodian. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity. In the event a Fund's account for any reason
becomes overdrawn, or in the event an action requested in Proper Instructions
would cause such an account to become overdrawn, the Custodian shall immediately
notify the affected Fund.
3.5 Collection of Income; Trade Settlement; Crediting of Accounts.
The Custodian shall collect income payable with respect to Securities owned by
each Fund, settle Securities trades for the account of each Fund and credit and
debit each Fund's account with the Custodian in connection therewith as stated
in this Subsection 3.5. This Subsection shall not apply to repurchase
agreements, which are treated in Subsection 3.2(b), above.
(a) Upon receipt of Proper Instructions, the Custodian shall
effect the purchase of a Security by charging the account of the Fund on the
contractual settlement date, and by making payment against delivery. If the
seller or selling broker fails to deliver the Security within a reasonable
period of time, the Custodian shall notify the Fund and credit the transaction
amount to the account of the Fund, but the Custodian shall have no further
liability or responsibility for the transaction.
(b) Upon receipt of Proper Instructions, the Custodian shall
effect the sale of a Security by withdrawing a certificate or other indicia of
ownership from the account of the Fund and by making delivery against payment,
and shall credit the account of the Fund with the amount of such proceeds on the
contractual settlement date. If the purchaser or the purchasing broker fails to
make payment within a reasonable period of time, the Custodian shall notify the
Fund, debit the Fund's account for any amounts previously credited to it by the
Custodian as proceeds of the transaction and, if delivery has not been made,
redeposit the Security into the account of the Fund.
(c) The Fund is responsible for ensuring that the Custodian
receives timely and accurate Proper Instructions to enable the Custodian to
effect settlement of any purchase or sale. If the Custodian does not receive
such instructions within the required time period, the Custodian shall have no
liability of any kind to any person, including the Fund, for failing to effect
settlement on the contractual settlement date. However, the Custodian shall use
its best reasonable efforts to effect settlement as soon as possible after
receipt of Proper Instructions.
(d) The Custodian shall credit the account of the Fund with
interest income payable on interest bearing Securities on payable date.
Dividends and other amounts payable with respect to Domestic Securities and
Foreign Securities shall be credited to the account of the Fund when received by
the Custodian. The Custodian shall not be required to commence suit or
collection proceedings or resort to any extraordinary means to collect such
income and other amounts payable with respect to Securities owned by the Fund.
The collection of income due the Fund on Domestic Securities loaned pursuant to
the provisions of Subsection 3.2(j) shall be the responsibility of the Fund. The
Custodian will have no duty or responsibility in connection therewith, other
than to provide the Fund with such information or data as may be necessary to
assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Fund is entitled. The Custodian shall have no liability to
any person, including the Fund, if the Custodian credits the account of the Fund
with such income or other amounts payable with respect to Securities owned by
the Fund (other than Securities loaned by the Fund pursuant to Subsection 3.2(j)
hereof) and the Custodian subsequently is unable to collect such income or other
amounts from the payors thereof within a reasonable time period, as determined
by the Custodian in its sole discretion. In such event, the Custodian shall be
entitled to reimbursement of the amount so credited to the account of the Fund.
3.6 Payment of Fund Monies. Upon receipt of Proper Instructions
the Custodian shall pay out monies of a Fund in the following cases or as
otherwise directed in Proper Instructions:
(a) upon the purchase of Securities, futures contracts or
options on futures contracts for the account of the Fund but only, except as
otherwise provided herein, (i) against the delivery of such securities, or
evidence of title to futures contracts or options on futures contracts, to the
Custodian or a Subcustodian registered pursuant to Subsection 3.3 hereof or in
proper form for transfer; (ii) in the case of a purchase effected through a
Securities System, in accordance with the conditions set forth in Subsection 3.8
hereof; or (iii) in the case of repurchase agreements entered into between the
Fund and the Custodian, another bank or a broker-dealer (A) against delivery of
the Securities either in certificated form to the Custodian or a Subcustodian or
through an entry crediting the Custodian's account at the appropriate Federal
Reserve Bank with such Securities or (B) against delivery of the confirmation
evidencing purchase by the Fund of Securities owned by the Custodian or such
broker-dealer or other bank along with written evidence of the agreement by the
Custodian or such broker-dealer or other bank to repurchase such Securities from
the Fund;
(b) in connection with conversion, exchange or surrender of
Securities owned by the Fund
as set forth in Subsection 3.2 hereof;
(c) for the redemption or repurchase of Shares issued by the
Fund;
(d) for the payment of any expense or liability incurred by
the Fund, including but not limited to the following payments for the account of
the Fund: custodian fees, interest, taxes, management, accounting, transfer
agent and legal fees and operating expenses of the Fund whether or not such
expenses are to be in whole or part capitalized or treated as deferred expenses;
and
(e) for the payment of any dividends or distributions
declared by the Board with respect to the Shares.
3.7 Appointment of Subcustodians. The Custodian may appoint BNY
Western Trust Company or, upon receipt of Proper Instructions, another bank or
trust company, which is itself qualified under the Investment Company Act to act
as a custodian (a "Subcustodian"), as the agent of the Custodian to carry out
such of the duties of the Custodian hereunder as a Custodian may from time to
time direct; provided, however, that the appointment of any Subcustodian shall
not relieve the Custodian of its responsibilities or liabilities hereunder.
3.8 Deposit of Securities in Securities Systems. The Custodian may
deposit and/or maintain Domestic Securities owned by a Fund in a Securities
System in accordance with applicable Federal Reserve Board and Securities and
Exchange Commission rules and regulations, if any, and subject to the following
provisions:
(a) the Custodian may hold Domestic Securities of the Fund in
the Depository Trust Company or the Federal Reserve's book entry system or, upon
receipt of Proper Instructions, in another Securities System provided that such
securities are held in an account of the Custodian in the Securities System
("Securities System Account") which shall not include any assets of the
Custodian other than assets held as a fiduciary, custodian or otherwise for
customers;
(b) the records of the Custodian with respect to Domestic
Securities of the Fund which are maintained in a Securities System shall
identify by book-entry those Domestic Securities belonging to the Fund;
(c) the Custodian shall pay for Domestic Securities purchased
for the account of the Fund upon (i) receipt of advice from the Securities
System that such securities have been transferred to the Securities System
Account, and (ii) the making of an entry on the records of the Custodian to
reflect such payment and transfer for the account of the Fund. The Custodian
shall transfer Domestic Securities sold for the account of the Fund upon (A)
receipt of advice from the Securities System that payment for such securities
has been transferred to the Securities System Account, and (B) the making of an
entry on the records of the Custodian to reflect such transfer and payment for
the account of the Fund. Copies of all advices from the Securities System of
transfers of Domestic Securities for the account of the Fund shall be maintained
for the Fund by the Custodian and be provided to the Fund at its request. Upon
request, the Custodian shall furnish the Fund confirmation of the transfer to or
from the account of the Fund in the form of a written advice or notice; and
(d) upon request, the Custodian shall provide the Fund with
any report obtained by the Custodian on the Securities System's accounting
system, internal accounting control and procedures for safeguarding domestic
securities deposited in the Securities System.
3.9 Segregated Account. The Custodian shall upon receipt of Proper
Instructions establish and maintain a segregated account or accounts for and on
behalf of a Fund, into which account or accounts may be transferred cash and/or
Securities, including Securities maintained in an account by the Custodian
pursuant to Section 3.8 hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and a broker-dealer or futures
commission merchant, relating to compliance with the rules of registered
clearing corporations and of any national securities exchange (or the Commodity
Futures Trading Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other arrangements in
connection with transactions by the Fund, (ii) for purposes of segregating cash
or securities in connection with options purchased, sold or written by the Fund
or commodity futures contracts or options thereon purchased or sold by the Fund,
and (iii) for other proper corporate purposes, but only, in the case of this
clause (iii), upon receipt of, in addition to Proper Instructions, a certified
copy of a resolution of the Board or of the Executive Committee certified by the
Secretary or an Assistant Secretary, setting forth the purpose or purposes of
such segregated account and declaring such purposes to be proper corporate
purposes.
3.10 Ownership Certificates for Tax Purposes. The Custodian shall
execute ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other payments with
respect to domestic securities of each Fund held by it and in connection with
transfers of such securities.
3.11 Proxies. The Custodian shall, with respect to the Securities
held hereunder, promptly deliver to each Fund all proxies, all proxy soliciting
materials and all notices relating to such Securities. If the Securities are
registered otherwise than in the name of a Fund or a nominee of a Fund, the
Custodian shall use its best reasonable efforts, consistent with applicable law,
to cause all proxies to be promptly executed by the registered holder of such
Securities in accordance with Proper Instructions.
3.12 Communications Relating to Fund Portfolio Securities. The
Custodian shall transmit promptly to each Fund all written information
(including, without limitation, pendency of calls and maturities of Securities
and expirations of rights in connection therewith and notices of exercise of put
and call options written by the Fund and the maturity of futures contracts
purchased or sold by the Fund) received by the Custodian from issuers of
Securities being held for the Fund. With respect to tender or exchange offers,
the Custodian shall transmit promptly to each Fund all written information
received by the Custodian from issuers of the Securities whose tender or
exchange is sought and from the party (or its agents) making the tender or
exchange offer. If a Fund desires to take action with respect to any tender
offer, exchange offer or any other similar transaction, the Fund shall notify
the Custodian at least three Business Days prior to the date of which the
Custodian is to take such action.
3.13 Reports by Custodian. The Custodian shall each business day
furnish each Fund with a statement summarizing all transactions and entries for
the account of the Fund for the preceding day. At the end of every month, the
Custodian shall furnish each Fund with a list of the cash and portfolio
securities showing the quantity of the issue owned, the cost of each issue and
the market value of each issue at the end of each month. Such monthly report
shall also contain separate listings of (a) unsettled trades and (b) when-issued
securities. The Custodian shall furnish such other reports as may be mutually
agreed upon from time-to-time.
Section 4. CERTAIN DUTIES OF THE CUSTODIAN WITH RESPECT TO ASSETS OF THE
FUNDS HELD OUTSIDE THE UNITED STATES
4.1 Custody Outside the United States. Each Fund authorizes the
Custodian to hold Foreign Securities and cash in custody accounts which have
been established by the Custodian with (i) its foreign branches, (ii) foreign
banking institutions, foreign branches of United States banks and subsidiaries
of United States banks or bank holding companies (each a "Foreign Custodian")
and (iii) Foreign Securities depositories or clearing agencies (each a "Foreign
Securities Depository"); provided, however, that the appropriate Board or
Executive Committee has approved in advance the use of each such Foreign
Custodian and Foreign Securities Depository and the contract between the
Custodian and each Foreign Custodian and that such approval is set forth in
Proper Instructions and a certified copy of a resolution of the Board or of the
Executive Committee certified by the Secretary or an Assistant Secretary of the
appropriate Investment Company. Unless expressly provided to the contrary in
this Section 4, custody of Foreign Securities and assets held outside the United
States by the Custodian, a Foreign Custodian or through a Foreign Securities
Depository shall be governed by this Agreement, including Section 3 hereof.
4.2 Assets to be Held. The Custodian shall limit the securities and
other assets maintained in the custody of its foreign branches, Foreign
Custodians and Foreign Securities Depositories to: (i) "foreign securities", as
defined in paragraph (c) (1) of Rule 17f-5 under the Fund Act, and (ii) cash and
cash equivalents in such amounts as the Custodian or an affected Fund may
determine to be reasonably necessary to effect the Fund's Foreign Securities
transactions.
4.3 Omitted.
4.4 Segregation of Securities. The Custodian shall identify on its
books and records as belonging to the appropriate Fund, the Foreign Securities
of each Fund held by each Foreign Custodian.
4.5 Agreements with Foreign Custodians. Each agreement between the
Custodian and a Foreign Custodian shall be substantially in the form as
delivered to the Investment Companies for their Boards' review, and shall not be
amended in a way that materially adversely affects any Fund without the prior
written consent of the Fund. Upon request, the Custodian shall certify to the
Funds that an agreement between the Custodian and a Foreign Custodian meets the
requirements of Rule 17f-5 under the 1940 Act.
4.6 Access of Independent Accountants of the Funds. Upon request of
a Fund, the Custodian will use its best reasonable efforts to arrange for the
independent accountants or auditors of the Fund to be afforded access to the
books and records of any Foreign Custodian insofar as such books and records
relate to the custody by any such Foreign Custodian of assets of the Fund.
4.7 Transactions in Foreign Custody Accounts. Upon receipt of Proper
Instructions, the Custodian shall instruct the appropriate Foreign Custodian to
transfer, exchange or deliver Foreign Securities owned by a Fund, but, except to
the extent explicitly provided herein, only in any of the cases specified in
Subsection 3.2. Upon receipt of Proper Instructions, the Custodian shall pay out
or instruct the appropriate Foreign Custodian to pay out monies of a Fund in any
of the cases specified in Subsection 3.6. Notwithstanding anything herein to the
contrary, settlement and payment for Foreign Securities received for the account
of a Fund and delivery of Foreign Securities maintained for the account of a
Fund may be effected in accordance with the customary or established securities
trading or securities processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without limitation,
delivering securities to the purchaser thereof or to a dealer therefor (or an
agent for such purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or dealer.
Foreign Securities maintained in the custody of a Foreign Custodian may be
maintained in the name of such entity or its nominee name to the same extent as
set forth in Section 3.3 of this Agreement and each Fund agrees to hold any
Foreign Custodian and its nominee harmless from any liability as a holder of
record of such securities.
4.8 Liability of Foreign Custodian. Each agreement between the
Custodian and a Foreign Custodian shall, unless otherwise mutually agreed to by
the Custodian and a Fund, require the Foreign Custodian to exercise reasonable
care or, alternatively, impose a contractual liability for breach of contract
without an exception based upon a standard of care in the performance of its
duties and to indemnify and hold harmless the Custodian from and against any
loss, damage, cost, expense, liability or claim arising out of or in connection
with the Foreign Custodian's performance of such obligations, excepting,
however, Citibank, N.A., and its subsidiaries and branches, where the
indemnification is limited to direct money damages and requires that the claim
be promptly asserted. At the election of a Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to any claims against a
Foreign Custodian as a consequence of any such loss, damage, cost, expense,
liability or claim if and to the extent that the Fund has not been made whole
for any such loss, damage, cost, expense, liability or claim, unless such
subrogation is prohibited by local law.
4.9 Monitoring Responsibilities.
(a) The Custodian will promptly inform each Fund in the event
that the Custodian learns of a material adverse change in the financial
condition of a Foreign Custodian or learns that a Foreign Custodian's financial
condition has declined or is likely to decline below the minimum levels required
by Rule 17f-5 of the 1940 Act.
(b) The custodian will furnish such information as may be
reasonably necessary to assist each Investment Company's Board in its annual
review and approval of the continuance of all contracts or arrangements with
Foreign Subcustodians.
Section 5. PROPER INSTRUCTIONS
As used in this Agreement, the term "Proper Instructions" means
instructions of a Fund received by the Custodian via telephone or in Writing
which the Custodian believes in good faith to have been given by Authorized
Persons (as defined below) or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Custodian may specify.
Any Proper Instructions delivered to the Custodian by telephone shall promptly
thereafter be confirmed in accordance with procedures, and limited in subject
matter, as mutually agreed upon by the parties. Unless otherwise expressly
provided, all Proper Instructions shall continue in full force and effect until
canceled or superseded. If the Custodian requires test arrangements,
authentication methods or other security devices to be used with respect to
Proper Instructions, any Proper Instructions given by the Funds thereafter shall
be given and processed in accordance with such terms and conditions for the use
of such arrangements, methods or devices as the Custodian may put into effect
and modify from time to time. The Funds shall safeguard any testkeys,
identification codes or other security devices which the Custodian shall make
available to them. The Custodian may electronically record any Proper
Instructions given by telephone, and any other telephone discussions, with
respect to its activities hereunder. As used in this Agreement, the term
"Authorized Persons" means such officers or such agents of a Fund as have been
properly appointed pursuant to a resolution of the appropriate Board or
Executive Committee, a certified copy of which has been provided to the
Custodian, to act on behalf of the Fund under this Agreement. Each of such
persons shall continue to be an Authorized Person until such time as the
Custodian receives Proper Instructions that any such officer or agent is no
longer an Authorized Person.
Section 6. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY
The Custodian may in its discretion, without express authority from
a Fund:
(a) make payments to itself or others for minor expenses of
handling Securities or other similar items relating to its duties under this
Agreement, provided that all such payments shall be accounted for to the Fund;
(b) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
(c) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase, transfer and other
dealings with the Securities and property of the Fund except as otherwise
provided in Proper Instructions.
Section 7. EVIDENCE OF AUTHORITY
The Custodian shall be protected in acting upon any instructions
(conveyed by telephone or in Writing), notice, request, consent, certificate or
other instrument or paper believed by it to be genuine and to have been properly
given or executed by or on behalf of a Fund. The Custodian may receive and
accept a certified copy of a resolution of a Board or Executive Committee as
conclusive evidence (a) of the authority of any person to act in accordance with
such resolution or (b) of any determination or of any action by the Board or
Executive Committee as described in such resolution, and such resolution may be
considered as in full force and effect until receipt by the Custodian of written
notice by an Authorized Person to the contrary.
Section 8. DUTY OF CUSTODIAN TO SUPPLY INFORMATION
The Custodian shall cooperate with and supply necessary information
in its possession (to the extent permissible under applicable law) to the entity
or entities appointed by the appropriate Board to keep the books of account of a
Fund and/or compute the net asset value per Share of the outstanding Shares of a
Fund.
Section 9. RECORDS
The Custodian shall create and maintain all records relating to its
activities under this Agreement which are required with respect to such
activities under Section 31 of the Investment Company Act and Rules 31a-1 and
31a-2 thereunder. All such records shall be the property of the appropriate
Investment Company and shall at all times during the regular business hours of
the Custodian be open for inspection by duly authorized officers, employees or
agents of the Investment Company and employees and agents of the Securities and
Exchange Commission. The Custodian shall, at a Fund's request, supply the Fund
with a tabulation of Securities and Cash owned by the Fund and held by the
Custodian and shall, when requested to do so by the Fund and for such
compensation as shall be agreed upon between the Fund and the Custodian, include
certificate numbers in such tabulations.
Section 10. COMPENSATION OF CUSTODIAN
The Custodian shall be entitled to reasonable compensation for its
services and expenses as Custodian, as agreed upon from time to time between
each Investment Company, on behalf of each Fund, and the Custodian. In addition,
should the Custodian in its discretion advance funds (to include overdrafts) to
or on behalf of a Fund pursuant to Proper Instructions, the Custodian shall be
entitled to prompt reimbursement of any amounts advanced. In the event of such
an advance, and to the extent permitted by the 1940 Act and the Fund's policies,
the Custodian shall have a continuing lien and security interest in and to the
property of the Fund in the possession or control of the Custodian or of a third
party acting in the Custodian's behalf, until the advance is reimbursed. Nothing
in this Agreement shall obligate the Custodian to advance funds to or on behalf
of a Fund, or to permit any borrowing by a Fund except for borrowings for
temporary purposes, to the extent permitted by the Fund's policies.
Section 11. RESPONSIBILITY OF CUSTODIAN
The Custodian shall be responsible for the performance of only such
duties as are set forth herein or contained in Proper Instructions and shall use
reasonable care in carrying out such duties. The Custodian shall be liable to a
Fund for any loss which shall occur as the result of the failure of a Foreign
Custodian engaged directly or indirectly by the Custodian to exercise reasonable
care with respect to the safekeeping of securities and other assets of the Fund
to the same extent that the Custodian would be liable to the Fund if the
Custodian itself were holding such securities and other assets. Nothing in this
Agreement shall be read to limit the responsibility or liability of the
Custodian or a Foreign Custodian for their failure to exercise reasonable care
with regard to any decision or recommendation made by the Custodian or
Subcustodian regarding the use or continued use of a Foreign Securities
Depository. In the event of any loss to a Fund by reason of the failure of the
Custodian or a Foreign Custodian engaged by such Foreign Custodian or the
Custodian to utilize reasonable care, the Custodian shall be liable to the Fund
to the extent of the Fund's damages, to be determined based on the market value
of the property which is the subject of the loss at the date of discovery of
such loss and without reference to any special conditions or circumstances. The
Custodian shall be held to the exercise of reasonable care in carrying out this
Agreement, and shall not be liable for acts or omissions unless the same
constitute negligence or willful misconduct on the part of the Custodian or any
Foreign Custodian engaged directly or indirectly by the Custodian. Each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
taxes, charges, expenses, assessments, claims and liabilities (including legal
fees and expenses) incurred by the Custodian or its nominess in connection with
the performance of this Agreement with respect to such Fund, except such as may
arise from any negligent action, negligent failure to act or willful misconduct
on the part of the indemnified entity or any Foreign Custodian. The Custodian
shall be entitled to rely, and may act, on advice of counsel (who may be counsel
for a Fund) on all matters and shall be without liability for any action
reasonably taken or omitted pursuant to such advice. The Custodian need not
maintain any insurance for the benefit of any Fund.
All collections of funds or other property paid or distributed in
respect of Securities held by the Custodian, agent, Subcustodian or Foreign
Custodian hereunder shall be made at the risk of the Funds. The Custodian shall
have no liability for any loss occasioned by delay in the actual receipt of
notice by the Custodian, agent, Subcustodian or by a Foreign Custodian of any
payment, redemption or other transaction regarding securities in respect of
which the Custodian has agreed to take action as provided in Section 3 hereof.
The Custodian shall not be liable for any action taken in good faith upon Proper
Instructions or upon any certified copy of any resolution of the Board and may
rely on the genuineness of any such documents which it may in good faith believe
to be validly executed. Notwithstanding the foregoing, the Custodian shall not
be liable for any loss resulting from, or caused by, the direction of a Fund to
maintain custody of any Securities or cash in a foreign country including, but
not limited to, losses resulting from nationalization, expropriation, currency
restrictions, civil disturbance, acts of war or terrorism, insurrection,
revolution, nuclear fusion, fission or radiation or other similar occurrences,
or events beyond the control of the Custodian. Finally, the Custodian shall not
be liable for any taxes, including interest and penalties with respect thereto,
that may be levied or assessed upon or in respect of any assets of any Fund held
by the Custodian.
Section 12. LIMITED LIABILITY OF EACH INVESTMENT COMPANY
The Custodian acknowledges that it has received notice of and
accepts the limitations of liability as set forth in each Investment Company's
Agreement and Declaration of Trust, Articles of Incorporation, or Agreement of
Limited Partnership. The Custodian agrees that each Fund's obligation hereunder
shall be limited to the assets of the Fund, and that the Custodian shall not
seek satisfaction of any such obligation from the shareholders of the Fund nor
from any Board Member, officer, employee, or agent of the Fund or the Investment
Company on behalf of the Fund.
Section 13. EFFECTIVE PERIOD; TERMINATION
This Agreement shall become effective as of the date of its
execution and shall continue in full force and effect until terminated as
hereinafter provided. This Agreement may be terminated by each Investment
Company, on behalf of a Fund, or by the Custodian by 90 days notice in Writing
to the other provided that any termination by an Investment Company shall be
authorized by a resolution of the Board, a certified copy of which shall
accompany such notice of termination, and provided further, that such resolution
shall specify the names of the persons to whom the Custodian shall deliver the
assets of the affected Funds held by the Custodian. If notice of termination is
given by the Custodian, the affected Investment Companies shall, within 90 days
following the giving of such notice, deliver to the Custodian a certified copy
of a resolution of the Boards specifying the names of the persons to whom the
Custodian shall deliver assets of the affected Funds held by the Custodian. In
either case the Custodian will deliver such assets to the persons so specified,
after deducting therefrom any amounts which the Custodian determines to be owed
to it hereunder (including all costs and expenses of delivery or transfer of
Fund assets to the persons so specified). If within 90 days following the giving
of a notice of termination by the Custodian, the Custodian does not receive from
the affected Investment Companies certified copies of resolutions of the Boards
specifying the names of the persons to whom the Custodian shall deliver the
assets of the Funds held by the Custodian, the Custodian, at its election, may
deliver such assets to a bank or trust company doing business in the State of
California to be held and disposed of pursuant to the provisions of this
Agreement or may continue to hold such assets until a certified copy of one or
more resolutions as aforesaid is delivered to the Custodian. The obligations of
the parties hereto regarding the use of reasonable care, indemnities and payment
of fees and expenses shall survive the termination of this Agreement.
Section 14. MISCELLANEOUS
14.1 Relationship. Nothing contained in this Agreement shall (i)
create any fiduciary, joint venture or partnership relationship between the
Custodian and any Fund or (ii) be construed as or constitute a prohibition
against the provision by the Custodian or any of its affiliates to any Fund of
investment banking, securities dealing or brokerages services or any other
banking or financial services.
14.2 Further Assurances. Each party hereto shall furnish to the
other party hereto such instruments and other documents as such other party may
reasonably request for the purpose of carrying out or evidencing the
transactions contemplated by this Agreement.
14.3 Attorneys' Fees. If any lawsuit or other action or proceeding
relating to this Agreement is brought by a party hereto against the other party
hereto, the prevailing party shall be entitled to recover reasonable attorneys'
fees, costs and disbursements (including allocated costs and disbursements of
in-house counsel), in addition to any other relief to which the prevailing party
may be entitled.
14.4 Notices. Except as otherwise specified herein, each notice or
other communication hereunder shall be in Writing and shall be delivered to the
intended recipient at the following address (or at such other address as the
intended recipient shall have specified in a written notice given to the other
parties hereto):
if to a Fund or Investment Company: if to the Custodian:
[Fund or Investment Company] The Bank of New York
c/o Franklin Resources, Inc. Mutual Fund Custody Manager
777 Mariners Island Blvd. BNY Western Trust Co.
San Mateo, CA 94404 550 Kearney St., Suite 60
Attention: Chief Legal Officer San Francisco, CA 94108
14.5 Headings. The underlined headings contained herein are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the interpretation
hereof.
14.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and both of which, when taken
together, shall constitute one agreement.
14.7 Governing Law. This Agreement shall be construed in accordance
with, and governed in all respects by, the laws of the State of New York
(without giving effect to principles of conflict of laws).
14.8 Force Majeure. Notwithstanding the provisions of Section 11
hereof regarding the Custodian's general standard of care, no failure, delay or
default in performance of any obligation hereunder shall constitute an event of
default or a breach of this agreement, or give rise to any liability whatsoever
on the part of one party hereto to the other, to the extent that such failure to
perform, delay or default arises out of a cause beyond the control and without
negligence of the party otherwise chargeable with failure, delay or default;
including, but not limited to: action or inaction of governmental, civil or
military authority; fire; strike; lockout or other labor dispute; flood; war;
riot; theft; earthquake; natural disaster; breakdown of public or common carrier
communications facilities; computer malfunction; or act, negligence or default
of the other party. This paragraph shall in no way limit the right of either
party to this Agreement to make any claim against third parties for any damages
suffered due to such causes.
14.9 Successors and Assigns. This Agreement shall be binding upon,
and shall inure to the benefit of, the parties hereto and their respective
successors and assigns, if any.
14.10 Waiver. No failure on the part of any person to exercise any
power, right, privilege or remedy hereunder, and no delay on the part of any
person in the exercise of any power, right, privilege or remedy hereunder, shall
operate as a waiver thereof; and no single or partial exercise of any such
power, right, privilege or remedy shall preclude any other or further exercise
thereof or of any other power, right, privilege or remedy.
14.11 Amendments. This Agreement may not be amended, modified,
altered or supplemented other than by means of an agreement or instrument
executed on behalf of each of the parties hereto.
14.12 Severability. In the event that any provision of this
Agreement, or the application of any such provision to any person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is determined to be invalid, unlawful, void or unenforceable, shall not
be impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
14.13 Parties in Interest. None of the provisions of this Agreement
is intended to provide any rights or remedies to any person other than the
Investment Companies, for themselves and for the Funds, and the Custodian and
their respective successors and assigns, if any.
14.14 Pre-Emption of Other Agreements. In the event of any conflict
between this Agreement, including without limitation any amendments hereto, and
any other agreement which may now or in the future exist between the parties,
the provisions of this Agreement shall prevail.
14.15 Variations of Pronouns. Whenever required by the context
hereof, the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; and the neuter
gender shall include the masculine and feminine genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first above written.
THE BANK OF NEW YORK
By: /s/ illegible
Its: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Their: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Gatzek
Their: Vice President & Secretary
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Delaware Business Trust U.S. Government Adjustable Rate Mortgage
Portfolios Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income
Trust Fund
Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income California Corporation
Fund
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Delaware Business Trust Templeton Pacific Growth Fund
Trust Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't
Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities
Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income New York Corporation
Fund, Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Advantaged California Limited
International Bond Fund Partnership
Franklin Tax-Advantaged U.S. California Limited
Government Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Delaware Business Trust Franklin Real Estate Securities Fund
Trust
Franklin Strategic Mortgage Delaware Business Trust
Portfolio
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free
Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals
Fund Real Estate
Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global
Income Securities
Fund Investment
Grade Intermediate
Bond Fund Income
Securities Fund
U.S. Government
Securities Fund
Zero Coupon Fund -
2000 Zero Coupon
Fund - 2005 Zero
Coupon Fund - 2010
Adjustable U.S.
Government Fund
Rising Dividends
Fund Templeton
Pacific Growth Fund
Templeton
International
Equity Fund
Templeton
Developing Markets
Equity Fund
Templeton Global
Growth Fund
Templeton Global
Asset Allocation
Fund Small Cap Fund
- -------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------------------------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money
Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S.
Government
Securities Fund
Franklin Institutional Adjustable Rate
Securities Fund
Franklin U.S. Government Agency Money Market
Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market
Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- ------------------------------------------------------------------------------------------------------------
</TABLE>
TERMINAL LINK AGREEMENT
AGREEMENT made as of February 16, 1996 between The Bank of New York as custodian
(the "Custodian") and each Investment Company listed on Exhibit A, for itself
and for each of Series listed on Exhibit A (each, a "Fund").
WHEREAS, the parties have entered into a Master Custody Agreement dated
as of February 16, 1996;
WHEREAS, the parties desire to provide for the electronic transmission
of instructions from each Fund to the Custodian, as and to the extent permitted
by the Master Custody Agreement; and
WHEREAS, the Board of Directors, Trustees or Managing General Partners,
as applicable, of each Investment Company have previously authorized each
Investment Company to enter into the Master Custody Agreement;
NOW, THEREFORE, in consideration for the mutual promises set forth, the parties
agree as follows:
A. Except as otherwise provided herein, all terms shall have the same meaning as
in the Master Custody Agreement.
B. The term "Certificate" shall mean any Proper Instruction by a Fund to the
Custodian communicated by the Terminal Link.
C . The term "Officer" shall mean an Authorized Person as defined in section 5
of the Master Custody Agreement.
D. The term "Terminal Link" shall mean an electronic data transmission link
between a Fund, Franklin Templeton Investor Services, Inc. acting as agent for
the Fund ("FTISI"), and the Custodian requiring in connection with each use of
the Terminal Link by or on behalf of the Fund use of an authorization code
provided by the Custodian and at least two access codes established by the Fund.
Each Fund represents that FTISI will maintain a transmission line to the
Custodian and has been selected by the Fund to receive electronic data
transmissions from the Custodian or the Fund and forward the same to the Fund or
the Custodian, respectively.
E. Terminal Link
1. The Terminal Link shall be utilized by a Fund only for the purpose of the
Fund providing Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be applied to the payment
of dividends, distributions or redemptions of Fund Shares, and shall be utilized
by the Custodian only for the purpose of providing notices to the Fund. Such use
shall commence only after a Fund shall have established access codes and
safekeeping procedures to safeguard and protect the confidentiality and
availability of such access codes, and shall have reviewed the safekeeping
procedures established by FTISI to assure that transmissions inputted by the
Fund, and only such transmissions, are forwarded by FTISI to the Custodian
without any alteration or omission. Each use of the Terminal Link by a Fund
shall constitute a representation and warranty that the Terminal Link is being
used only for the purposes permitted hereby, that at least two Officers have
each utilized an access code, that such safekeeping procedures have been
established by the Fund, that FTISI has safekeeping procedures reviewed by the
Fund to assure that all transmissions inputted by the Fund, and only such
transmissions, are forwarded by FTISI to the Custodian without any alteration or
omission by FTISI, and that such use does not, to the Fund's knowledge,
contravene the Investment Company Act of 1940, as amended, or the rules or
regulations thereunder.
2. Each Fund shall obtain and maintain at its own cost and expense all equipment
and services, including, but not limited to communications services, necessary
for it to utilize the Terminal Link, and the Custodian shall not be responsible
for the reliability or availability of any such equipment or services.
3. Each Fund acknowledges that any data bases made available as part of, or
through the Terminal Link and any proprietary data, software, processes,
information and documentation (other than which are or become part of the public
domain or are legally required to be made available to the public)
(collectively, the "Information"), are the exclusive and confidential property
of the Custodian. Each Fund shall, and shall cause others to which it discloses
the Information, including without limitation FTISI, to keep the Information
confidential, by using the same care and discretion it uses with respect to its
own confidential property and trade secrets, and shall neither make nor permit
any disclosure without the express prior written consent of the Custodian.
4. Upon termination of this Agreement for any reason, the Fund shall return to
the Custodian any and all copies of the Information which are in the Fund's
possession or under its control, or which the Fund distributed to third parties,
including without limitation FTISI. The provisions of this Article shall not
affect the copyright status of any of the Information which may be copyrighted
and shall apply to all information whether or not copyrighted.
5. The Custodian reserves the right to modify the Terminal Link from time to
time without notice to the Funds or FTISI, except that the Custodian shall give
the Funds notice not less than 75 days in advance of any modification which
would materially adversely affect the Funds' operation. The Funds agree that
neither the Funds nor FTISI shall modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. Each Fund acknowledges that any
software or procedures provided the Fund or FTISI as part of the Terminal Link
are the property of the Custodian and, accordingly, agrees that any
modifications to the Terminal Link, whether by the Fund, FTISI or the Custodian
and whether with or without the Custodian's consent, shall become the property
of the Custodian.
6. The Custodian, the Funds, FTISI and any manufacturers and suppliers utilized
by the Custodian, the Funds or FTISI in connection with the Terminal Link, make
no warranties or representations to any other party, express or implied, in fact
or in law, including but not limited to warranties of merchantability and
fitness for a particular purpose.
7. Each Fund will cause its officers and employees to treat the authorization
codes and the access codes applicable to Terminal Link with extreme care, and
irrevocably authorizes the Custodian to act in accordance with and rely on
Certificates received by it through the Terminal Link. Each Fund acknowledges
that it is its responsibility to assure that only its officers and authorized
persons of FTISI use the Terminal Link on its behalf, and that the Custodian
shall not be responsible nor liable for any action taken in good faith in
reliance upon a Certificate, nor for any alteration, omission, or failure to
promptly forward by FTISI.
8. (a) Except as otherwise specifically provided in Section 8(b) of this
Article, the Custodian shall have no liability for any losses, damages,
injuries, claims, costs or expenses arising out of or in connection with any
failure, malfunction or other problem relating to the Terminal Link except for
money damages suffered as the result of the negligence of the Custodian,
provided however, that the Custodian shall have no liability under this Section
8 if the Fund fails to comply with the provisions of section 10.
(b) The Custodian's liability for its negligence in executing or failing
to act in accordance with a Certificate received through Terminal Link shall be
only with respect to a transfer of funds or assets which is not made in
accordance with such Certificate, and shall be subject to Section 11 of this
Article and contingent upon the Fund complying with the provisions of Section 10
of this Article, and shall be limited to the extent of the Fund's damages,
without reference to any special conditions or circumstances.
9. Without limiting the generality of the foregoing, in no event shall the
Custodian or any manufacturer or supplier of its computer equipment, software or
services relating to the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which a Fund or FTISI may incur or
experience by reason of any malfunction of such equipment or software, even if
the Custodian or any manufacturer or supplier has been advised of the
possibility of such damages, nor with respect to the use of the Terminal Link
shall the Custodian or any such manufacturer or supplier be liable for acts of
God, or with respect to the following to the extent beyond such person's
reasonable control: machine or computer breakdown or malfunction, interruption
or malfunction of communication facilities, labor difficulties or any other
similar or dissimilar cause.
10. Each Fund shall notify the Custodian of any errors, omissions or
interruptions in, or delay or unavailability of, the Terminal Link as promptly
as practicable, and in any event within 24 hours after the earliest of (i)
discovery thereof, or (ii) the business day on which discovery should have
occurred through the exercise of reasonable care. The Custodian shall promptly
advise the Fund or FTISI whenever the Custodian learns of any errors, omissions
or interruption in, or delay or unavailability of, the Terminal Link.
11. The Custodian shall acknowledge to each affected Fund or to FTISI, by use of
the Terminal Link, receipt of each Certificate the Custodian receives through
the Terminal Link, and in the absence of such acknowledgment the Custodian shall
not be liable for any failure to act in accordance with such Certificate and the
Funds may not claim that such Certificate was received by the Custodian. Such
acknowledgment, which may occur after the Custodian has acted upon such
Certificate, shall be given on the same day on which such Certificate is
received.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed
by their respective officers, thereunto duly authorized and their respective
seals to be hereto affixed as of the day and year first above written.
THE BANK OF NEW YORK
By: /s/ illegible
Title: Senior Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A
By: /s/ Harmon E. Burns
Harmon E. Burns
Title: Vice President
By: /s/ Deborah R. Gatzek
Deborah R. Garzek
Title: Vice President & Secretary
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series
for which the Custodian shall serve under the Master Custody Agreement dated as
of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
AGE High Income Fund, Inc. Colorado Corporation
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Franklin International Equity Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Gov't Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Institutional Rising Dividends Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
Franklin New York Tax-Free Income Fund, New York Corporation
Inc.
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Advantaged International Bond California Limited
Fund Partnership
Franklin Tax-Advantaged U.S. Government California Limited
Securities Fund Partnership
Franklin Tax-Advantaged High Yield California Limited
Securities Fund. Partnership
Franklin Premier Return Fund California Corporation
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Institutional MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin North Carolina Tax-Free Income Fund
(cont.) Trust Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Templeton Global Trust Massachusetts Business Franklin Templeton German Government Bond Fund
Trust Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Precious Metals Fund
Real Estate Securities Fund
Utility Equity Fund
High Income Fund
Templeton Global Income
Securities Fund Investment
Grade Intermediate Bond
Fund Income Securities
Fund U.S. Government
Securities Fund Zero
Coupon Fund -2000 Zero
Coupon Fund -2005 Zero Coupon
Fund -2010 Adjustable U.S. Government
Fund Rising Dividends Fund
Templeton Pacific Growth Fund
Templeton International Equity
Fund Templeton Developing
Markets Equity Fund Templeton
Global Growth Fund Global
Asset Allocation Fund Small
Cap Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin Late Day Money Market Portfolio
Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
MidCap Growth Portfolio Delaware Business Trust
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONEY
MARKET PORTFOLIOS JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> THE MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 1,402,610,588
<INVESTMENTS-AT-VALUE> 1,402,610,588
<RECEIVABLES> 148,434,953
<ASSETS-OTHER> 3,626
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,551,049,167
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 963,920
<TOTAL-LIABILITIES> 963,920
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,550,085,247
<SHARES-COMMON-STOCK> 1,550,085,247
<SHARES-COMMON-PRIOR> 1,305,574,413
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,550,085,247
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 81,172,665
<OTHER-INCOME> 0
<EXPENSES-NET> (2,161,625)
<NET-INVESTMENT-INCOME> 79,011,040
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 79,011,040
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (79,011,040)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,507,821,633
<NUMBER-OF-SHARES-REDEEMED> (2,342,329,912)
<SHARES-REINVESTED> 79,019,113
<NET-CHANGE-IN-ASSETS> 244,510,834
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,162,519
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,161,625
<AVERAGE-NET-ASSETS> 1,437,139,430
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .055
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.055)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .150
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MONEY MARKET PORTFOLIOS JUNE 30, 1996 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> US GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 49,361,211
<INVESTMENTS-AT-VALUE> 49,361,211
<RECEIVABLES> 236,610,682
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 285,971,893
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 270,789
<TOTAL-LIABILITIES> 270,789
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 285,701,104
<SHARES-COMMON-STOCK> 285,701,104
<SHARES-COMMON-PRIOR> 474,654,386
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 285,701,104
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 18,038,015
<OTHER-INCOME> 0
<EXPENSES-NET> (483,081)
<NET-INVESTMENT-INCOME> 17,554,934
<REALIZED-GAINS-CURRENT> 683
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 17,555,617
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (17,554,934)
<DISTRIBUTIONS-OF-GAINS> (683)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 824,267,024
<NUMBER-OF-SHARES-REDEEMED> (1,030,775,487)
<SHARES-REINVESTED> 17,555,181
<NET-CHANGE-IN-ASSETS> (188,953,282)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 484,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 542,615
<AVERAGE-NET-ASSETS> 322,054,656
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> .054
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.054)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> .150
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
