As filed with the Securities and Exchange Commission on October 31, 1997.
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. 8 (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 (650) 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
FORM N-1A
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.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
UNITED STATES (THE "U.S.") GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The Portfolio's investment objective is to obtain as high a level of current
income (in the context of the type of investments available to the Portfolio)
as is consistent with capital preservation and liquidity. The objective is a
fundamental policy of the Portfolio and may not be changed without
shareholder approval. Of course, there is no assurance that the Portfolio
will achieve its objective.
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).
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The Portfolio follows
certain procedures required by federal securities laws with respect to the
quality, maturity and diversification of its investments. These procedures
are designed to help maintain a stable $1 share price. Generally, they
require the Portfolio to maintain a dollar-weighted average portfolio
maturity of 90 days or less or to limit its investments to U.S. dollar
denominated instruments that:
the Board of Trustees of the Trust (the "Board") determines present
minimal credit risks;
are rated by nationally recognized rating services in one of the
two highest rating categories, or are unrated but are considered to
be comparable in quality to securities that have been rated in one
of the two highest rating categories; and
have remaining maturities of 397 calendar days or less.
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 that consist of marketable, fixed, floating, and variable rate
securities issued or guaranteed by the U.S. government, its agencies, or by
various instrumentalities that have been established or sponsored by the U.S.
government ("U.S. government securities"). Some of these securities,
including U.S. Treasury bills, notes and bonds 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. For example, some securities are
supported by the right of the issuer to borrow from the U.S. Treasury, such
as obligations of the Federal Home Loan Bank, and some securities are
supported by the credit of the instrumentality, such as Federal National
Mortgage Association bonds. 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 invest in bank obligations or instruments
secured by bank obligations. These include fixed, floating or variable rate
certificates of deposit, letters of credit, time deposits, bank notes and
bankers' acceptances issued by banks and savings institutions with assets of
at least $1 billion. Time deposits are non-negotiable deposits maintained in
a banking institution for a specified period of time at a stated interest
rate. The Portfolio may not invest more than 10% of its assets in time
deposits with maturities in excess of seven calendar days. Bank obligations
may be obligations of U.S. banks, foreign branches of U.S. banks (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 $5 billion. The Portfolio may
invest no more than 25% of its assets in obligations of foreign branches of
U.S. or foreign banks. The Portfolio may, however, invest more than 25% of
its assets in certain domestic bank obligations. Investments in obligations
of U.S. branches of foreign banks, 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.)
COMMERCIAL PAPER. The Portfolio may also invest in commercial paper of
domestic or foreign issuers. Commercial paper obligations may include
variable amount master demand notes that are obligations that permit the
investment of fluctuating amounts at varying rates of interest pursuant to
direct arrangements between the Portfolio, as lender, and the borrower. These
notes permit daily changes in the amounts borrowed. The Portfolio may
increase the amount provided by the note agreement, or 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
these instruments will be traded, and there is no secondary market for these
notes, although they are redeemable (and thus immediately repayable by the
borrower) at face value plus accrued interest at any time. Accordingly, the
Portfolio's right to redeem depends on the ability of the borrower to pay
principal and interest on demand. Franklin Advisers, Inc. ("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 and will only invest in notes of 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 that the Portfolio may buy
are fixed, floating and variable rate bonds, debentures or notes.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities, issued by or on behalf of states, territories,
and possessions of the U.S. and the District of Columbia and their political
subdivisions, agencies, and instrumentalities, the interest on which is not
exempt from federal income tax. Generally, municipal securities are used to
raise money for various public purposes such as constructing public
facilities and making loans to public institutions. Taxable municipal bonds
are generally issued to provide funding for privately operated facilities.
OTHER INVESTMENT POLICIES OF THE PORTFOLIO
WHEN-ISSUED OR DELAYED DELIVERY TRANSACTIONS. The Portfolio may also buy and
sell securities on a "when issued" and "delayed delivery" basis. The price is
subject to market fluctuation and the value at delivery may be more or less
than the purchase price. 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. In a repurchase agreement, the Portfolio buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Portfolio by
a custodian bank approved by the Board. The bank or broker-dealer must
transfer to the custodian securities with an initial market value of at least
102% of the repurchase price to help secure the obligation to repurchase the
securities at a later date. The securities are then marked-to-market daily to
maintain coverage of at least 100%. If the bank or broker-dealer does not
repurchase the securities as agreed, the Portfolio may experience a loss or
delay in the liquidation of the securities underlying the repurchase
agreement and may also incur liquidation costs. The Portfolio, however,
intends to enter into repurchase agreements only with banks or broker-dealers
that are considered creditworthy by Advisers.
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.
LOANS OF PORTFOLIO SECURITIES. Consistent with guidelines 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. The borrower must deposit
with the Fund's custodian bank collateral with an initial market value of at
least 102% of the market value of the securities loaned, including any
accrued interest, with the value of the collateral and loaned securities
marked-to-market daily to maintain 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.
OTHER POLICIES AND RESTRICTIONS
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 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.
Each of the Portfolio's policies and restrictions discussed above and in Part
B is considered at the time the Portfolio makes an investment. The Portfolio
is generally not required to sell a security because of a change in
circumstances.
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, MARKET AND INTEREST RATE RISK. Credit risk is a function of the
ability of an issuer of a security to make timely interest payments and to
pay the principal of a security upon maturity. It is generally reflected in a
security's underlying credit rating and its stated interest rate (normally
the coupon rate). A change in the credit risk associated with a security may
cause a corresponding change in the security's price. Market risk is the risk
of price fluctuation of a security caused by changes in general economic and
interest rate conditions that affect the market as a whole. A security's
maturity length also affects its price. In addition, changes in interest
rates may affect the value of a security. Generally, when interest rates rise
the value of a security falls, and vice versa. Interest rates have increased
and decreased in the past. These changes are unpredictable. The short
duration and high credit quality of the securities in which the Portfolio
invests may generally reduce these risks.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the
Portfolio and elects its officers. The officers are responsible for the
Portfolio's day-to-day operations. For information concerning the officers
and trustees of the Portfolio, see "Officers and Trustees" in Part B.
Advisers, 777 Mariners Island Blvd., San Mateo, California 94404, serves as
the investment manager for the Portfolio. Advisers manages the Portfolio's
assets and makes its investment decisions. Advisers also performs similar
services for other funds. It is wholly owned by Franklin Resources, Inc.
("Resources"), a publicly owned company engaged in the financial services
industry through its subsidiaries (the "Franklin Templeton Group"). Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, Advisers and its affiliates manage over $223 billion in
assets.
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.
During the fiscal year ended June 30, 1997, the Portfolio's management fees,
before any advance waiver, totaled 0.15% of the average daily net assets of
the Portfolio. Total operating expenses, including fees paid to Advisers
before any advance waiver, were 0.16% of the average daily net assets of the
Portfolio. Under an agreement by Advisers to limit its fees, the Portfolio
paid management fees totaling 0.14%. Total operating expenses of the
Portfolio were 0.15%. Advisers may end this arrangement at any time upon
notice to the Board.
MANAGEMENT AGREEMENT. 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.
PORTFOLIO TRANSACTIONS. 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, as well as shares of other funds in the
Franklin Templeton Group of Funds, 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).
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. The Trust was organized as a Delaware business trust 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 of each series of the Trust have
equal and exclusive rights to dividends and distributions declared by that
series and the net assets of the series in the event of liquidation or
dissolution.
Shares of each series of the Trust have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless otherwise
permitted by the 1940 Act.
The Trust has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A
meeting may also be called by the Board in its discretion or by shareholders
holding at least 10% of the outstanding shares. In certain circumstances, we
are required to help you communicate with other shareholders about the
removal of a Board member.
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.
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.
The Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolio has elected and intends to continue to qualify as a
regulated investment company under Subchapter M of the Code. By distributing
all of its income and meeting certain other requirements relating to the
sources of its income and diversification of its assets, the Portfolio will
generally 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.
Money market funds do not usually make capital gain distributions.
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 the net asset value
(without a sales charge) next calculated 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 "NYSE") 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 NYSE 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 the Portfolio's securities, including any securities held in
a separate account maintained for when-issued securities, is based upon 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 investment.
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. Since the
Portfolio seeks to maintain a stable $1 per share price for both purchases
and redemptions, shareholders are not expected to realize a capital gain or
loss upon redemption.
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 to
obtain as high a level of current income (in the context of the type of
investments available to the Portfolio) as is 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 outstanding voting
securities of the Portfolio. Under the 1940 Act, this means the approval of
(i) more than 50% of the outstanding shares of the Portfolio, or (ii) 67% or
more of the shares of the Portfolio present at a shareholder meeting if more
than 50% of the outstanding shares of the Portfolio are represented at the
meeting in person or by proxy, whichever is less. 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 Advisers own
beneficially more than 1/2 of 1% of the securities of such issuer and all
such officers and trustees together own beneficially more than 5% of such
securities.
10. Acquire, lease or hold real estate, provided that this limitation
shall not prohibit the purchase of municipal and other debt securities
secured by real estate or interests therein.
11. Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in oil, gas, or
other mineral exploration or development programs, except that it may
purchase, hold, and dispose of "obligations with puts attached" or write
covered call options in accordance with its stated investment policies.
If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities or the amount of 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. 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 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 OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE
YEARS
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director or trustee, as the case may be, of 29 of the investment companies in
the Franklin Templeton Group of Funds.
Harris J. Ashton (65)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the
Franklin Templeton Group of Funds.
S. Joseph Fortunato (65)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director, General
Host Corporation (nursery and craft centers); and director or trustee, as the
case may be, of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc., Franklin Templeton Services, Inc. and General Host
Corporation (nursery and craft centers); and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 54 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles E. Johnson (41)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; President, Chief Executive Officer, Chief
Investment Officer and Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the subsidiaries
of Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of 36 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Senior Vice President and Director, Franklin Advisory Services, Inc.
and Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of
58 of the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications Corporation, CCC
Information Services Group, Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home shopping), and Spacehab, Inc.
(aerospace services); and director or trustee, as the case may be, of 50 of
the investment companies in the Franklin Templeton Group of Funds; FORMERLY
Chairman, Hambrecht and Quist Group, Director, H & Q Healthcare Investors,
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (52)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.
and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 58 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.;
Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief Financial
Officer, Franklin Investment Advisory Services, Inc.; President, Franklin
Templeton Services, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services, Inc.; and officer
of 58 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Templeton Group of Funds.
R. Martin Wiskemann (70)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; Vice President and
Director, ILA Financial Services, Inc.; and officer and/or director or
trustee, as the case may be, of 17 of the investment companies in the
Franklin Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently
paid $50 per month plus $50 per meeting attended. As shown above, the
nonaffiliated Board members also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds. They may
receive fees from these funds for their services. The following table
provides the total fees paid to nonaffiliated Board members by the Trust and
by other funds in the Franklin Templeton Group of Funds.
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
Frank H. Abbott, III $1,150 $165,236 29
Harris J. Ashton 1,150 343,591 53
S. Joseph Fortunato 1,150 360,411 55
David Garbellano+ 1,050 148,916 28
Frank W.T. LaHaye 1,100 139,233 27
Gordon S. Macklin 1,150 335,541 50
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 58 registered investment companies, with
approximately 171 U.S. based funds or series.
+ Deceased, September 27, 1997.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or Board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
Trust or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 2, 1997, the principal shareholders of the Portfolio,
beneficial or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
IFT - Money Market Portfolio
777 Mariners Island Blvd.
San Mateo, CA 94404
198,636,798.571 11%
Franklin Cash Reserve Fund
777 Mariners Island Blvd.
San Mateo, CA 94404 98,464,215.434 6%
Franklin Money Fund
777 Mariners Island Blvd.
San Mateo, CA 94404 1,429,369,488.930 82%
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 and its officers, directors and employees are covered by
fidelity insurance for the protection of the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action
with respect to any of the other funds it manages, or for its own account,
that may differ from action taken by Advisers on behalf of the Portfolio.
Similarly, with respect to the Portfolio, Advisers is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Advisers is not obligated to refrain from investing in securities held
by the Portfolio or other funds that it manages. Of course, any transactions
for the accounts of Advisers and other access persons will be made in
compliance with the Portfolio's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
MANAGEMENT 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 each day. 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, 1995, 1996 and 1997 management fees of
the Portfolio, before any advance waiver, totaled $1,823,637, $2,162,519 and
$2,547,891, respectively. Under an agreement by Advisers to limit its fees,
the Portfolio paid management fees totaling $1,730,028, $2,034,014 and
$2,429,509 for the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1998. It may continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a
vote of the Board 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 Board members who are not parties to the management agreement or
interested persons of any such party (other than as members of the Board),
cast in person at a meeting called for that purpose. The management agreement
may be terminated without penalty at any time by the Board or by a vote of
the holders of a majority of the Portfolio's outstanding voting securities on
30 days' written notice to Advisers, or by Advisers on 60 days' written
notice to the Portfolio, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
SHAREHOLDER SERVICING AGENT. 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.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Portfolio. The custodian does not participate in decisions relating to
the purchase and sale of portfolio securities.
AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Portfolio's independent auditors. During the fiscal
year ended June 30, 1997, their auditing services consisted of rendering an
opinion on the financial statements of the 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, 1997.
17. BROKERAGE ALLOCATION
EXECUTION OF PORTFOLIO TRANSACTIONS
Since most purchases by the Portfolio are principal transactions at net
prices, the Portfolio incurs little or no brokerage costs. The Portfolio
deals directly with the selling or buying principal or market maker without
incurring charges for the services of a broker on its behalf, unless it is
determined that a better price or execution may be obtained by using the
services of a broker. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask prices. The Portfolio seeks to obtain prompt execution of orders at
the most favorable net price. Transactions may be directed to dealers in
return for research and statistical information, as well as for special
services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services Advisers receives from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research
and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, Advisers and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Portfolio's officers are satisfied that the best execution is
obtained, the sale of Portfolio shares, as well as shares of other funds in
the Franklin Templeton Group of Funds, may also be considered a factor in the
selection of broker-dealers to execute the Portfolio's portfolio transactions.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to
all by Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the
security so far as the Portfolio is concerned. In other cases it is possible
that the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may
not buy securities with the expectation of holding them to maturity, although
its general policy is to hold securities to maturity. The Portfolio may,
however, sell securities before maturity to meet redemptions or as a result
of a revised management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Portfolio
paid no brokerage commissions.
As of June 30, 1997, 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 any capital gain distributions, are
credited to an account in the name of the 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.
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.
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
We calculate the net asset value per share as of 3:00 p.m. Pacific time, each
day that the NYSE is open for trading. As of the date of this SAI, the
Portfolio is informed that the NYSE observes the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The valuation of the Portfolio's securities, including any securities held in
a separate account maintained for when-issued securities, is based on the
amortized cost of the securities, which does not take into account unrealized
capital gains or losses. This method involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates
on the market value of the instrument. While this method provides certainty
in calculation, it may result in periods during which value, as determined by
amortized cost, is higher or lower than the price the Portfolio would receive
if it sold the instrument. During periods of declining interest rates, the
daily yield on shares of the Portfolio computed as described above may tend
to be higher than a like computation made by a fund with identical
investments but utilizing a method of valuation based upon market prices and
estimates of market prices for all of its portfolio instruments. Thus, if the
use of amortized cost by the Portfolio resulted in a lower aggregate
portfolio value on a particular day, a prospective investor in the Portfolio
would be able to obtain a somewhat higher yield than would result from an
investment in a fund utilizing only market values, and existing investors in
the Portfolio would receive less investment income. The opposite would be
true in a period of rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
net asset value per share of $1, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The
Portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less and only buy instruments having remaining maturities of 397
calendar days or less. The Portfolio must also invest only in those U.S.
dollar-denominated securities that the Board determines present minimal
credit risks and that are rated in one of the two highest rating categories
by nationally recognized rating services, or if unrated are deemed comparable
in quality, or are instruments issued by an issuer that, with respect to an
outstanding issue of short-term debt, that is comparable in priority and
protection, has received a rating within the two highest rating categories.
Securities subject to floating or variable interest rates with demand
features that comply with applicable SEC rules may have stated maturities in
excess of one year.
The Board has established procedures designed to stabilize, to the extent
reasonably possible, the Portfolio's price per share at $1, as computed for
the purpose of sales and redemptions. These procedures include a review of
the Portfolio's holdings by the Board, at such intervals as it may deem
appropriate, to determine if the Portfolio's net asset value calculated by
using available market quotations deviates from $1 per share based on
amortized cost. The extent of any deviation will be examined by the Board. If
a deviation exceeds 1/2 of 1%, the trustees will promptly consider what
action, if any, will be initiated. If the Board determines that a deviation
exists that may result in material dilution or other unfair results to
investors or existing shareholders, it will take corrective action that it
regards as necessary and appropriate, which may include selling portfolio
instruments before maturity to realize capital gains or losses or to shorten
average portfolio maturity, withholding dividends, redeeming shares in kind,
or establishing a net asset value per share by using available market
quotations.
ADDITIONAL INFORMATION 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.
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 NYSE 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. This commitment is
irrevocable without the prior approval of the SEC. In the case of requests
for redemption in excess of such amounts, the Board reserves 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 and qualified to
be treated as a regulated investment company under Subchapter M of the Code.
The Board reserves the right not to maintain the qualification of the
Portfolio as a regulated investment company if it determines this 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 taxable 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
to shareholders of record in such a month 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 excise tax, but does not guarantee that its distributions will be
sufficient to avoid any or all federal excise taxes.
Distributions if any 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.
However, 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.
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 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
SUMMARY OF CODE OF ETHICS
Employees of the Franklin Templeton Group who are access persons under the
1940 Act are permitted to engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed by
the close of the business day following the day clearance is granted; (ii)
copies of all brokerage confirmations must be sent to a compliance officer
and, within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the compliance officer; and (iii)
access persons involved in preparing and making investment decisions must, in
addition to (i) and (ii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or
other client transaction or if they are recommending a security in which they
have an ownership interest for purchase or sale by a fund or other client.
23. FINANCIAL STATEMENTS
The audited financial statements of the Portfolio contained in the Annual
Report dated June 30, 1997, including the auditors' report, are incorporated
herein by reference.
APPENDIX
DESCRIPTION OF RATINGS
CORPORATE BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.("MOODY'S")
AAA - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high-grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large, fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the long-term
risks appear somewhat larger.
A - Bonds rated A possess many favorable investment attributes and are
considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
that suggest a susceptibility to impairment sometime in the future.
BAA - Bonds rated Baa are considered medium-grade obligations. They are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any great length of
time. These bonds lack outstanding investment characteristics and, in fact,
have speculative characteristics as well.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification in its corporate bond ratings. The modifier 1 indicates that
the security ranks in the higher end of its generic rating category; modifier
2 indicates a mid-range ranking; and modifier 3 indicates that the issue
ranks in the lower end of its generic rating category.
STANDARD & POOR'S CORPORATION ("S&P")
AAA - This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity
to pay principal and interest is very strong and, in the majority of
instances, differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions.
BBB - Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay principal and interest for bonds in this
category than for bonds in the A category.
MUNICIPAL BOND RATINGS
MOODY'S
AAA: Municipal bonds rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
AA: Municipal bonds rated Aa are judged to be high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large, fluctuation of protective elements may be of
greater amplitude, or there may be other elements present which make the
long-term risks appear somewhat larger.
A: Municipal bonds rated A possess many favorable investment attributes and
are considered upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
BAA: Municipal bonds rated Baa are considered medium-grade obligations. They
are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment characteristics
and, in fact, have speculative characteristics as well.
CON.(-): Municipal bonds for which the security depends upon the completion
of some act or the fulfillment of some condition are rated conditionally.
These are bonds secured by (a) earnings of projects under construction, (b)
earnings of projects unseasoned in operation experience, (c) rentals which
begin when facilities are completed, or (d) payments to which some other
limiting condition attaches. Parenthetical rating denotes probable credit
stature upon the completion of construction or the elimination of the basis
of the condition.
S&P
AAA: Municipal bonds rated AAA are the highest-grade obligations. They
possess the ultimate degree of protection as to principal and interest. In
the market, they move with interest rates and, hence, provide the maximum
safety on all counts.
AA: Municipal bonds rated AA also qualify as high-grade obligations, and in
the majority of instances differ from AAA issues only in a small degree.
Here, too, prices move with the long-term money market.
A: Municipal bonds rated A are regarded as upper medium-grade. They have
considerable investment strength but are not entirely free from adverse
effects of changes in economic and trade conditions. Interest and principal
are regarded as safe. They predominantly reflect money rates in their market
behavior but also, to some extent, economic conditions.
BBB: Municipal bonds rated BBB are regarded as having an adequate capacity to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds
in this category than for bonds in the A category.
Note: The S&P ratings may be modified by the addition of a plus (+) or minus
(-) sign to show relative standing within the major rating categories.
FITCH INVESTOR SERVICE, INC. ("FITCH")
AAA: Municipal bonds rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal which is unlikely to be affected by
reasonably foreseeable events.
AA: Municipal bonds rated AA are considered to be investment grade and of
very high credit quality. The obligor's ability to pay interest and repay
principal is very strong although not quite as strong as bonds rated AAA and
not significantly vulnerable to foreseeable future developments.
A: Municipal bonds rated A are considered to be investment grade and of high
credit quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings.
BBB: Municipal bonds rated BBB are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have an adverse
impact on these bonds, and therefore impair timely payment. The likelihood
that the ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
Plus (+) or minus (-) signs are used with a rating symbol to indicate the
relative position of a credit within the rating category. Plus or minus signs
are not used with the AAA category.
MUNICIPAL NOTE RATINGS
MOODY'S
Moody's ratings for state, municipal and other short-term obligations will be
designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing; factors of the first importance in
long-term borrowing risk are of lesser importance in the short run. Symbols
used will be as follows:
MIG 1: Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from established and
broad-based access to the market for refinancing, or both.
MIG 2: Notes are of high quality, with margins of protection ample, although
not so large as in the preceding group.
MIG 3: Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades. Market
access for refinancing, in particular, is likely to be less well established.
MIG 4: Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
S&P
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or
less, the ratings below will usually be assigned. Notes maturing beyond three
years will most likely receive a bond rating of the type recited above.
SP-1: Issues carrying this designation have a very strong or strong capacity
to pay principal and interest. Issues determined to possess overwhelming
safety characteristics will be given a "plus" (+) designation.
SP-2: Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
COMMERCIAL PAPER RATINGS
MOODY'S
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months. Moody's employs the following designations, all
judged to be investment grade, to indicate the relative repayment capacity of
rated issuers:
P-1 (PRIME-1): Superior capacity for repayment.
P-2 (PRIME-2): Strong capacity for repayment.
S&P
S&P's ratings are a current assessment of the likelihood of timely payment of
debt having an original maturity of no more than 365 days. Ratings are graded
into four categories, ranging from "A" for the highest quality obligations to
"D" for the lowest. Issues within the "A" category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely payment
is very strong. A "plus" (+) designation indicates an even stronger
likelihood of timely payment.
A-2: Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, 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.
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.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE
UNITED STATES (THE "U.S.") GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE
PORTFOLIO WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
SHARES OF THE PORTFOLIO ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY OF THE
U.S. GOVERNMENT. SHARES OF THE PORTFOLIO INVOLVE INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL.
INVESTMENT OBJECTIVE AND POLICIES OF THE PORTFOLIO
The Portfolio's investment objective is to obtain as high a level of current
income (in the context of the type of investments available to the Portfolio)
as is consistent with capital preservation and liquidity. The objective is a
fundamental policy of the Portfolio and may not be changed without
shareholder approval. Of course, there is no assurance that the Portfolio
will achieve its objective.
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.
QUALITY, DIVERSIFICATION AND MATURITY STANDARDS. The Portfolio follows
certain procedures required by federal securities laws with respect to the
quality, maturity and diversification of its investments. These procedures
are designed to help maintain a stable $1 share price. Generally, they
require the Portfolio to maintain a dollar-weighted average portfolio
maturity of 90 days or less and to limit its investments to U.S. dollar
denominated instruments that:
the Board of Trustees of the Trust (the "Board") determines present
minimal credit risks;
are rated by nationally recognized rating services in one of the
two highest rating categories, or are unrated but are considered to
be comparable in quality to securities that have been rated in one
of the two highest rating categories; and
have remaining maturities of 397 calendar days or less.
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 only in marketable
securities issued or guaranteed by the U.S. government, by various agencies
of the U.S. Government and by various instrumentalities that have been
established or sponsored by the U.S. government or in repurchase agreements
(as described below) collateralized by such securities. As a fundamental
policy, subject to change only by shareholder approval, the 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 that carry a
guarantee supported by the full faith and credit of the U.S. government.
Repurchase agreements with respect to obligations issued or guaranteed by the
U.S. government and supported by the full faith and credit of the U.S.
government are included within this fundamental policy.
At the present time, it is the 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.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Portfolio buys U.S.
government securities from a bank or broker-dealer at one price and agrees to
sell them back to the bank or broker-dealer at a higher price on a specified
date. The securities subject to resale are held on behalf of the Portfolio by
a custodian bank approved by the Board. The bank or broker-dealer must
transfer to the custodian securities with an initial market value of at least
102% of the repurchase price to help secure the obligation to repurchase the
securities at a later date. The securities are then marked-to-market daily to
maintain coverage of at least 100%. If the bank or broker-dealer does not
repurchase the securities as agreed, the Portfolio may experience a loss or
delay in the liquidation of the securities underlying the repurchase
agreement and may also incur liquidation costs. The Portfolio, however,
intends to enter into repurchase agreements only with banks or broker-dealers
that are considered creditworthy by Advisers.
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 guidelines 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. The borrower
must deposit with the Fund's custodian bank collateral with an initial market
value of at least 102% of the market value of the securities loaned,
including any accrued interest, with the value of the collateral and loaned
securities marked-to-market daily to maintain collateral coverage of at least
100% 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 or 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.
OTHER INVESTMENT POLICIES AND RESTRICTIONS
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 the Portfolio's investment manager, Franklin Advisers, Inc.
("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.
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.
Each of the Portfolio's policies and restrictions discussed above and in Part
B is considered at the time the Portfolio makes an investment. The Portfolio
is generally not required to sell a security because of a change in
circumstances.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board has the primary responsibility for the overall management of the
Portfolio and elects its officers. The officers are responsible for the
Portfolio's day-to-day operations. For information concerning the officers
and trustees of the Portfolio, see "Officers and Trustees" in Part B.
Advisers, 777 Mariners Island Blvd., San Mateo, California 94404, serves as
the investment manager for the Portfolio. Advisers manages the Portfolio's
assets and makes its investment decisions. Advisers also performs similar
services for other funds. It is wholly owned by Franklin Resources, Inc.
("Resources"), a publicly owned company engaged in the financial services
industry through its subsidiaries (the "Franklin Templeton Group"). Charles
B. Johnson and Rupert H. Johnson, Jr. are the principal shareholders of
Resources. Together, Advisers and its affiliates manage over $223 billion in
assets.
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.
During the fiscal year ended June 30, 1997, the Portfolio's management fees,
before any advance waiver, totaled 0.15% of the average daily net assets of
the Portfolio. Total operating expenses, including fees paid to Advisers
before any advance waiver were 0.16% of the average daily net assets of the
Portfolio. Under an agreement by Advisers to limit its fees, the Portfolio
paid management fees totaling 0.14%. Total operating expenses of the
Portfolio were 0.15%. Advisers may end this arrangement at any time upon
notice to the Board.
MANAGEMENT AGREEMENT. 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.
PORTFOLIO TRANSACTIONS. 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, as well as shares of other funds in the
Franklin Templeton Group of Funds, 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).
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. The Trust was organized as a Delaware business trust 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 of each series of the Trust have equal and exclusive rights
to dividends and distributions declared by that series and the net assets of
the series in the event of liquidation or dissolution.
Shares of each series of the Trust have equal rights as to voting and vote
separately as to issues affecting that series or the Trust unless otherwise
permitted by the 1940 Act.
The Trust has noncumulative voting rights. This gives holders of more than
50% of the shares voting the ability to elect all of the members of the
Board. If this happens, holders of the remaining shares voting will not be
able to elect anyone to the Board.
The Trust does not intend to hold annual shareholder meetings. It may hold
special meetings, however, for matters requiring shareholder approval. A
meeting may also be called by the Board in its discretion or by shareholders
holding at least 10% of the outstanding shares. In certain circumstances, we
are required to help you communicate with other shareholders about the
removal of a Board member.
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.
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.
The Portfolio is treated as a separate entity for federal income tax
purposes. The Portfolio has elected and intends to continue to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). By distributing all of its income and
meeting certain other requirements relating to the sources of its income and
diversification of its assets, the Portfolio will generally 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.
Money market funds do not usually make capital gain distributions.
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 the net asset value
(without a sales charge) next calculated 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 "NYSE") 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 NYSE 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 the Portfolio's securities is based upon 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 investment.
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. Since the
Portfolio seeks to maintain a stable $1 per share price for both purchases
and redemptions, shareholders are not expected to realize a capital gain or
loss upon redemption.
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 to
obtain as high a level of current income (in the context of the type of
investments available to the Portfolio) as is 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 outstanding voting
securities of the Portfolio. Under the 1940 Act, this means the approval of
(i) more than 50% of the outstanding shares of the Portfolio, or (ii) 67% or
more of the shares of the Portfolio present at a shareholder meeting if more
than 50% of the outstanding shares of the Portfolio are represented at the
meeting in person or by proxy, whichever is less. 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 Advisers own
beneficially more than 1/2 of 1% of the securities of such issuer and all
such officers and trustees together own beneficially more than 5% of such
securities.
10. Acquire, lease or hold real estate, provided that this limitation
shall not prohibit the purchase of municipal and other debt securities
secured by real estate or interests therein.
11. Invest in commodities and commodity contracts, puts, calls,
straddles, spreads, or any combination thereof, or interests in oil, gas, or
other mineral exploration or development programs, except that it may
purchase, hold, and dispose of "obligations with puts attached" or write
covered call options in accordance with its stated investment policies.
If a percentage restriction is met at the time of investment, a later
increase or decrease in the percentage due to a change in the value or
liquidity of portfolio securities or the amount of 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 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 OCCUPATION
NAME, AGE AND ADDRESS WITH THE TRUST DURING THE PAST FIVE
YEARS
Frank H. Abbott, III (76)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); and
director or trustee, as the case may be, of 29 of the investment companies in
the Franklin Templeton Group of Funds.
Harris J. Ashton (65)
General Host Corporation
Metro Center, 1 Station Place
Stamford, CT 06904-2045
Trustee
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers); Director, RBC Holdings, Inc. (a bank
holding company) and Bar-S Foods (a meat packing company); and director or
trustee, as the case may be, of 53 of the investment companies in the
Franklin Templeton Group of Funds.
S. Joseph Fortunato (65)
Park Avenue at Morris County
P.O. Box 1945
Morristown, NJ 07962-1945
Trustee
Member of the law firm of Pitney, Hardin, Kipp & Szuch; Director, General
Host Corporation (nursery and craft centers); and director or trustee, as the
case may be, of 55 of the investment companies in the Franklin Templeton
Group of Funds.
*Charles B. Johnson (64)
777 Mariners Island Blvd.
San Mateo, CA 94404
Chairman of the Board and Trustee
President, Chief Executive Officer and Director, Franklin Resources, Inc.;
Chairman of the Board and Director, Franklin Advisers, Inc., Franklin
Advisory Services, Inc., Franklin Investment Advisory Services, Inc. and
Franklin Templeton Distributors, Inc.; Director, Franklin/Templeton Investor
Services, Inc., Franklin Templeton Services, Inc. and General Host
Corporation (nursery and craft centers); and officer and/or director or
trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 54 of the investment companies in the Franklin
Templeton Group of Funds.
*Charles E. Johnson (41)
500 East Broward Blvd.
Fort Lauderdale, FL 33394-3091
President and Trustee
Senior Vice President and Director, Franklin Resources, Inc.; Senior Vice
President, Franklin Templeton Distributors, Inc.; President and Director,
Templeton Worldwide, Inc.; President, Chief Executive Officer, Chief
Investment Officer and Director, Franklin Institutional Services Corporation;
Chairman and Director, Templeton Investment Counsel, Inc.; Vice President,
Franklin Advisers, Inc.; officer and/or director of some of the subsidiaries
of Franklin Resources, Inc.; and officer and/or director or trustee, as the
case may be, of 36 of the investment companies in the Franklin Templeton
Group of Funds.
*Rupert H. Johnson, Jr. (57)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Trustee
Executive Vice President and Director, Franklin Resources, Inc. and Franklin
Templeton Distributors, Inc.; President and Director, Franklin Advisers,
Inc.; Senior Vice President and Director, Franklin Advisory Services, Inc.
and Franklin Investment Advisory Services, Inc.; Director, Franklin/Templeton
Investor Services, Inc.; and officer and/or director or trustee, as the case
may be, of most of the other subsidiaries of Franklin Resources, Inc. and of
58 of the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (68)
20833 Stevens Creek Blvd., Suite 102
Cupertino, CA 95014
Trustee
General Partner, Peregrine Associates and Miller & LaHaye, which are General
Partners of Peregrine Ventures and Peregrine Ventures II (venture capital
firms); Chairman of the Board and Director, Quarterdeck Corporation (software
firm); Director, Fischer Imaging Corporation (medical imaging systems) and
Digital Transmission Systems, Inc. (wireless communications); and director or
trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds.
Gordon S. Macklin (69)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Chairman, White River Corporation (financial services); Director, Fund
American Enterprises Holdings, Inc., MCI Communications Corporation, CCC
Information Services Group, Inc. (information services), MedImmune, Inc.
(biotechnology), Shoppers Express (home shopping), and Spacehab, Inc.
(aerospace services); and director or trustee, as the case may be, of 50 of
the investment companies in the Franklin Templeton Group of Funds; FORMERLY
Chairman, Hambrecht and Quist Group, Director, H & Q Healthcare Investors,
and President, National Association of Securities Dealers, Inc.
Harmon E. Burns (52)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President, Secretary and Director, Franklin Resources, Inc.;
Executive Vice President and Director, Franklin Templeton Distributors, Inc.
and Franklin Templeton Services, Inc.; Executive Vice President, Franklin
Advisers, Inc.; Director, Franklin/Templeton Investor Services, Inc.; and
officer and/or director or trustee, as the case may be, of most of the other
subsidiaries of Franklin Resources, Inc. and of 58 of the investment
companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan (37)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Chief Financial Officer
Senior Vice President and Chief Financial Officer, Franklin Resources, Inc.;
Executive Vice President and Director, Templeton Worldwide, Inc.; Executive
Vice President, Chief Operating Officer and Director, Templeton Investment
Counsel, Inc.; Senior Vice President and Treasurer, Franklin Advisers, Inc.;
Treasurer, Franklin Advisory Services, Inc.; Treasurer and Chief Financial
Officer, Franklin Investment Advisory Services, Inc.; President, Franklin
Templeton Services, Inc.; Senior Vice President, Franklin/Templeton Investor
Services, Inc.; and officer and/or director or trustee, as the case may be,
of 58 of the investment companies in the Franklin Templeton Group of Funds.
Deborah R. Gatzek (48)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President and Secretary
Senior Vice President and General Counsel, Franklin Resources, Inc.; Senior
Vice President, Franklin Templeton Services, Inc. and Franklin Templeton
Distributors, Inc.; Vice President, Franklin Advisers, Inc. and Franklin
Advisory Services, Inc.; Vice President, Chief Legal Officer and Chief
Operating Officer, Franklin Investment Advisory Services, Inc.; and officer
of 58 of the investment companies in the Franklin Templeton Group of Funds.
Diomedes Loo-Tam (58)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 35
of the investment companies in the Franklin Templeton Group of Funds.
Edward V. McVey (60)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President and National Sales Manager, Franklin Templeton
Distributors, Inc.; and officer of 30 of the investment companies in the
Franklin Templeton Group of Funds.
R. Martin Wiskemann (70)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Senior Vice President, Portfolio Manager and Director, Franklin Advisers,
Inc.; Senior Vice President, Franklin Management, Inc.; Vice President and
Director, ILA Financial Services, Inc.; and officer and/or director or
trustee, as the case may be, of 17 of the investment companies in the
Franklin Templeton Group of Funds.
The table above shows the officers and Board members who are affiliated with
Distributors and Advisers. Nonaffiliated members of the Board are currently
paid $50 per month plus $50 per meeting attended. As shown above, the
nonaffiliated Board members also serve as directors or trustees of other
investment companies in the Franklin Templeton Group of Funds. They may
receive fees from these funds for their services. The following table
provides the total fees paid to nonaffiliated Board members by the Trust and
by other funds in the Franklin Templeton Group of Funds.
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
Frank H. Abbott, III $1,150 $165,236 29
Harris J. Ashton 1,150 343,591 53
S. Joseph Fortunato 1,150 360,411 55
David Garbellano+ 1,050 148,916 28
Frank W.T. LaHaye 1,100 139,233 27
Gordon S. Macklin 1,150 335,541 50
*For the fiscal year ended June 30, 1997.
**For the calendar year ended December 31, 1996.
***We base the number of boards on the number of registered investment
companies in the Franklin Templeton Group of Funds. This number does not
include the total number of series or funds within each investment company
for which the Board members are responsible. The Franklin Templeton Group of
Funds currently includes 58 registered investment companies, with
approximately 171 U.S. based funds or series.
+ Deceased, September 27, 1997.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director or
trustee. No officer or Board member received any other compensation,
including pension or retirement benefits, directly or indirectly from the
Trust or other funds in the Franklin Templeton Group of Funds. Certain
officers or Board members who are shareholders of Resources may be deemed to
receive indirect remuneration by virtue of their participation, if any, in
the fees paid to its subsidiaries.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 2, 1997, the principal shareholders of the Portfolio,
beneficial or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
IFT - Franklin U.S. Government
Securities Money Market Portfolio
777 Mariners Island Blvd.
San Mateo, CA 94404
125,839,026.090 50%
Franklin Federal Money Fund
777 Mariners Island Blvd.
San Mateo, CA 94404
120,029,932.950 50%
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 and its officers, directors and employees are covered by
fidelity insurance for the protection of the Portfolio.
Advisers and its affiliates act as investment manager to numerous other
investment companies and accounts. Advisers may give advice and take action
with respect to any of the other funds it manages, or for its own account,
that may differ from action taken by Advisers on behalf of the Portfolio.
Similarly, with respect to the Portfolio, Advisers is not obligated to
recommend, buy or sell, or to refrain from recommending, buying or selling
any security that Advisers and access persons, as defined by the 1940 Act,
may buy or sell for its or their own account or for the accounts of any other
fund. Advisers is not obligated to refrain from investing in securities held
by the Portfolio or other funds that it manages. Of course, any transactions
for the accounts of Advisers and other access persons will be made in
compliance with the Portfolio's Code of Ethics. Please see "Miscellaneous
Information - Summary of Code of Ethics."
MANAGEMENT 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 each day. 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, 1995, 1996 and 1997 management fees of
the Portfolio, before any advance waiver, totaled $634,995, $542,615 and
$404,358, respectively. Under an agreement by Advisers to limit its fees, the
Portfolio paid management fees totaling $581,495, $484,382 and $364,509 for
the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1998. It may continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a
vote of the Board 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 Board members who are not parties to the management agreement or
interested persons of any such party (other than as members of the Board),
cast in person at a meeting called for that purpose. The management agreement
may be terminated without penalty at any time by the Board or by a vote of
the holders of a majority of the Portfolio's outstanding voting securities on
30 days' written notice to Advisers, or by Advisers on 60 days' written
notice to the Portfolio, and will automatically terminate in the event of its
assignment, as defined in the 1940 Act.
SHAREHOLDER SERVICING AGENT. 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.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Portfolio. The custodian does not participate in decisions relating to
the purchase and sale of portfolio securities.
AUDITORS. Coopers & Lybrand L.L.P., 333 Market Street, San Francisco,
California 94105, are the Portfolio's independent auditors. During the fiscal
year ended June 30, 1997, their auditing services consisted of rendering an
opinion on the financial statements of the Portfolio included in the annual
report to the shareholders of Franklin Money Fund and Institutional Fiduciary
Trust - U.S. Government Securities Money Market Portfolio for the fiscal year
ended June 30, 1997.
17. BROKERAGE ALLOCATION
EXECUTION OF PORTFOLIO TRANSACTIONS
Since most purchases by the Portfolio are principal transactions at net
prices, the Portfolio incurs little or no brokerage costs. The Portfolio
deals directly with the selling or buying principal or market maker without
incurring charges for the services of a broker on its behalf, unless it is
determined that a better price or execution may be obtained by using the
services of a broker. Purchases of portfolio securities from underwriters
will include a commission or concession paid by the issuer to the
underwriter, and purchases from dealers will include a spread between the bid
and ask prices. The Portfolio seeks to obtain prompt execution of orders at
the most favorable net price. Transactions may be directed to dealers in
return for research and statistical information, as well as for special
services provided by the dealers in the execution of orders.
It is not possible to place a dollar value on the special executions or on
the research services Advisers receives from dealers effecting transactions
in portfolio securities. The allocation of transactions in order to obtain
additional research services permits Advisers to supplement its own research
and analysis activities and to receive the views and information of
individuals and research staffs of other securities firms. As long as it is
lawful and appropriate to do so, Advisers and its affiliates may use this
research and data in their investment advisory capacities with other clients.
If the Portfolio's officers are satisfied that the best execution is
obtained, the sale of Portfolio shares, as well as shares of other funds in
the Franklin Templeton Group of Funds, may also be considered a factor in the
selection of broker-dealers to execute the Portfolio's portfolio transactions.
If purchases or sales of securities of the Portfolio and one or more other
investment companies or clients supervised by Advisers are considered at or
about the same time, transactions in these securities will be allocated among
the several investment companies and clients in a manner deemed equitable to
all by Advisers, taking into account the respective sizes of the funds and
the amount of securities to be purchased or sold. In some cases this
procedure could have a detrimental effect on the price or volume of the
security so far as the Portfolio is concerned. In other cases it is possible
that the ability to participate in volume transactions and to negotiate lower
brokerage commissions will be beneficial to the Portfolio.
Depending on Advisers' view of market conditions, the Portfolio may or may
not buy securities with the expectation of holding them to maturity, although
its general policy is to hold securities to maturity. The Portfolio may,
however, sell securities before maturity to meet redemptions or as a result
of a revised management evaluation of the issuer.
During the fiscal years ended June 30, 1995, 1996 and 1997, the Portfolio
paid no brokerage commissions.
As of June 30, 1997, 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 any capital gain distributions, are credited
to an account in the name of the 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.
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.
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
We calculate the net asset value per share as of 3:00 p.m. Pacific time, each
day that the NYSE is open for trading. As of the date of this SAI, the
Portfolio is informed that the NYSE observes the following holidays: New
Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day.
The valuation of the Portfolio's securities is based on the amortized cost of
the securities, which does not take into account unrealized capital gains or
losses. This method involves valuing an instrument at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium,
regardless of the impact of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in calculation, it may
result in periods during which value, as determined by amortized cost, is
higher or lower than the price the Portfolio would receive if it sold the
instrument. During periods of declining interest rates, the daily yield on
shares of the Portfolio computed as described above may tend to be higher
than a like computation made by a fund with identical investments but
utilizing a method of valuation based upon market prices and estimates of
market prices for all of its portfolio instruments. Thus, if the use of
amortized cost by the Portfolio resulted in a lower aggregate portfolio value
on a particular day, a prospective investor in the Portfolio would be able to
obtain a somewhat higher yield than would result from an investment in a fund
utilizing only market values, and existing investors in the Portfolio would
receive less investment income. The opposite would be true in a period of
rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
net asset value per share of $1, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The
Portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less and only buy instruments having remaining maturities of 397
calendar days or less. The Portfolio must also invest only in those U.S.
dollar-denominated securities that the Board determines present minimal
credit risks and that are rated in one of the two highest rating categories
by nationally recognized rating services, or if unrated are deemed comparable
in quality, or are instruments issued by an issuer that, with respect to an
outstanding issue of short-term debt, that is comparable in priority and
protection, has received a rating within the two highest rating categories.
Securities subject to floating or variable interest rates with demand
features that comply with applicable SEC rules may have stated maturities in
excess of one year.
The Board has established procedures designed to stabilize, to the extent
reasonably possible, the Portfolio's price per share at $1, as computed for the
purpose of sales and redemptions. These procedures include a review of the
Portfolio's holdings by the Board, at such intervals as it may deem appropriate,
to determine if the Portfolio's net asset value calculated by using available
market quotations deviates from $1 per share based on amortized cost. The extent
of any deviation will be examined by the Board. If a deviation exceeds 1/2 of
1%, the trustees will promptly consider what action, if any, will be initiated.
If the Board determines that a deviation exists that may result in material
dilution or other unfair results to investors or existing shareholders, it will
take corrective action that it regards as necessary and appropriate, which may
include selling portfolio instruments before maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends,
redeeming shares in kind, or establishing a net asset value per share by using
available market quotations.
ADDITIONAL INFORMATION 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.
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 NYSE 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. This commitment is irrevocable
without the prior approval of the SEC. In the case of requests for redemption in
excess of such amounts, the Board reserves 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 and qualified to be
treated as a regulated investment company under Subchapter M of the Code. The
Board reserves the right not to maintain the qualification of the Portfolio as a
regulated investment company if it determines this 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 taxable 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 to
shareholders of record in such a month 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 excise tax, but does not guarantee that
its distributions will be sufficient to avoid any or all federal excise taxes.
Distributions if any 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.
However, 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.
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 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
SUMMARY OF CODE OF ETHICS
Employees of the Franklin Templeton Group who are access persons under the
1940 Act are permitted to engage in personal securities transactions subject
to the following general restrictions and procedures: (i) the trade must
receive advance clearance from a compliance officer and must be completed by
the close of the business day following the day clearance is granted; (ii)
copies of all brokerage confirmations must be sent to a compliance officer
and, within 10 days after the end of each calendar quarter, a report of all
securities transactions must be provided to the compliance officer; and (iii)
access persons involved in preparing and making investment decisions must, in
addition to (i) and (ii) above, file annual reports of their securities
holdings each January and inform the compliance officer (or other designated
personnel) if they own a security that is being considered for a fund or
other client transaction or if they are recommending a security in which they
have an ownership interest for purchase or sale by a fund or other client.
23. FINANCIAL STATEMENTS
The audited financial statements of the Portfolio contained in the Annual
Report dated June 30, 1997, including the auditors' report, are incorporated
herein by reference.
APPENDIX
DESCRIPTION OF RATINGS
COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC. ("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.
STANDARD & POOR'S CORPORATION ("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 INVESTORS SERVICE, INC. ("FITCH")
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, 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.
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, 1997 as
filed with the SEC on Form Type N-30D on September 10, 1997.
(i) Report of Independent Accountants
(ii) Statement of Investments in Securities and Net Assets, June
30, 1997
(iii)Statement of Assets and Liabilities, June 30, 1997
(iv) Statement of Changes in Net Assets for the years ended June
30, 1997 and 1996
(v) Statement of Operations for the years ended June 30, 1997
and 1996
(vi) Notes to Financial Statements
(b) Exhibits:
The following exhibits are incorporated by reference, with the
exception of exhibits 8(ii), 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
Filing: Amendment No. 7 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 30, 1996
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) Master Custody Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Amendment No. 7 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 30, 1996
(ii) Amendment dated May 7, 1997 to Master Custody Agreement
dated February 16, 1996 between Registrant and Bank of New
York
(iii) Terminal Link Agreement between Registrant and Bank of New
York dated February 16, 1996
Filing: Amendment No. 7 to
Registration on Form N-1A
File No. 811-7038
Filing Date: October 30, 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 August 31, 1997
Shares of Beneficial Interest
of:
The Money Market Portfolio 4
The U.S. Government Securities
Money Market Portfolio 2
Item 27. Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Please see the Declaration of Trust, By-Laws, and Management Agreement,
previously filed as exhibits and incorporated herein by reference.
Notwithstanding the provisions contained in the Registrant's By-Laws, in the
absence of authorization by the appropriate court on the merits pursuant to
said By-Laws, any indemnification under said Article shall be made by
Registrant only if authorized in the manner provided in such By-Laws.
Item 28. Business and Other Connections of Investment Adviser.
The officers and directors of the Registrant's investment manager also serve
as officers and/or directors, and/or portfolio managers for (1) the manager's
corporate parent, Franklin Resources, Inc., and/or (2) other investment
companies in the Franklin Templeton Group of Funds(R). In addition, Mr.
Charles B. Johnson is a director of General Host Corporation. For additional
information please see Part B and Schedules A and D of Form ADV of the
Registrant'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 1997.
THE MONEY MARKET PORTFOLIOS
By: Charles E. Johnson*
President
*By: /s/ Larry L. Greene
Larry L. Greene, Attorney in Fact
(Pursuant to Power of Attorney previously filed)
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 *
August 1, 1995 to the Management
Agreement dated August 27, 1995
EX-99.B8(i) Master Custody Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(ii) Amendment dated May 7, 1997 to the Attached
Master Custody Agreement dated February
16, 1996 between Registrant and Bank of
New York
EX-99.B8(iii) Terminal Link Agreement between *
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-27.1 Financial Data Schedule for The Money Attached
Market Portfolios
EX-27.2 Financial Data Schedule for The U.S. Attached
Government Money Market Portfolios
* Incorporated by reference
AMENDMENT, dated May 7, 1997, to the Master Custody Agreement ("Agreement")
between each Investment Company listed on Exhibit A to the Agreement and The
Bank of New York dated February 16, 1996.
It is hereby agreed as follows:
A. Unless otherwise provided herein, all terms and conditions of the
Agreement are expressly incorporated herein by reference and, except as
modified hereby, the Agreement is confirmed in all respects. Capitalized
terms used herein without definition shall have the meanings ascribed to them
in the Agreement.
B. The Agreement shall be amended to add a new Section 4.10 as
follows:
4.10 Additional Duties With Respect to Russian Securities.
(a) Upon 3 business days prior written notice from a Fund that
it will invest in any security issued by a Russian issuer ("Russian
Security"), the Custodian shall to the extent required and in accordance with
the terms of the Subcustodian Agreement between the Custodian and Credit
Suisse ("Foreign Custodian") dated as of August 8, 1996 (the "Subcustodian
Agreement") direct the Foreign Custodian to enter into a contract ("Registrar
Contract") with the entity providing share registration services to the
Russian issuer ("Registrar") containing substantially the following
protective provisions:
(1) Regular Share Confirmations. Each Registrar Contract
must establish the Foreign Custodian's right to conduct regular share
confirmations on behalf of the Foreign Custodian's customers.
(2) Prompt Re-registrations. Registrars must be
obligated to effect re-registrations within 72 hours (or such other specified
time as the United States Securities and Exchange Commission (the "SEC") may
deem appropriate by rule, regulation, order or "no-action" letter) of
receiving the necessary documentation.
(3) Use of Nominee Name. The Registrar Contract must
establish the Foreign Custodian's right to hold shares not held directly in
the beneficial owner's name in the name of the Foreign Custodian's nominee.
(4) Auditor Verification. The Registrar Contract must
allow the independent auditors of the Custodian and the Custodian's clients
to obtain direct access to the share register for the independent auditors of
each of the Foreign Custodian's clients.
(5) Specification of Registrar's Responsibilities and
Liabilities. The
contract must set forth: (1) the Registrar's responsibilities with regard to
corporate actions and
other distributions; (ii) the Registrar's liabilities as established under
the regulations applicable to
the Russian share registration -system and (iii) the procedures for making a
claim against and
receiving compensation from the registrar in the event a loss is incurred.
(b) The Custodian shall, in accordance with the Subcustodian
Agreement, direct the Foreign Custodian to conduct regular share
confirmations, which shall require the Foreign Custodian to (1) request
either a duplicate share extract or some other sufficient evidence of
verification and (2) determine if the Foreign Custodian's records correlate
with those of the Registrar. For at least the first two years following the
Foreign Custodian's first use of a Registrar in connection with a Fund
investment, and subject to the cooperation of the Registrar, the Foreign
Custodian will conduct these share confirmations on at least a quarterly
basis, although thereafter they may be conducted on a less frequent basis,
but no less frequently than annually, if the Fund's Board of Directors, in
consultation with the Custodian, determine it appropriate.
(c) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Subcustodian to maintain custody of the Fund's share
register extracts or other evidence of verification obtained pursuant to
paragraph (b) above.
(d) The Custodian shall, pursuant to the Subcustodian
Agreement, direct the Foreign Custodian to comply with the rules,
regulations, orders and "no-action" letters of the SEC with respect to
(1) the receipt, holding, maintenance, release and
delivery of Securities; and
(2) providing notice to the Fund and its Board of
Directors of events specified in such rules, regulations, orders and letters.
(e) The Custodian shall have no liability for the action or
inaction of any Registrar or securities depository utilized in connection
with Russian Securities except to the extent that any such action or inaction
was the result of the Custodian's negligence. With respect to any costs,
expenses, damages, liabilities or claims, including attorneys' and
accountants' fees (collectively, "Losses") incurred by a Fund as a result of
the acts or the failure to act by any Foreign Custodian or its subsidiary in
Russia ("Subsidiary"), the Custodian shall take appropriate action to recover
such Losses from the Foreign Custodian or Subsidiary. The Custodian's sole
responsibility and liability to a Fund with respect to any Losses shall be
limited to amounts so received from the Foreign Custodian or Subsidiary
(exclusive of costs and expenses incurred by the Custodian) except to the
extent that such losses were the result of the Custodian's negligence.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first above written.
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
Name: Stephen E. Grunston
Title: Vice President
THE INVESTMENT COMPANIES LISTED ON EXHIBIT A TO THE AGREEMENT
By: /s/ Deborah R. Gatzek
Name: Deborah R. Gatzek
Title: Vice President
By: /s/ Karen L. Skidmore
Name: Karen L. Skidmore
Title: Assistant Vice President
Amendment to Master Custody Agreement
The Bank of New York and Templeton Variable Products Series Fund, for itself
and on behalf of its series, hereby amend Schedule A of the Master Custody
Agreement dated as of February 16, 1996, to add the series listed below:
Registered Investment Company Series
Templeton Variable Products Series Fund Franklin Growth Investments Fund
Dated as of: May 1, 1997
TEMPLETON VARIABLE PRODUCTS
SERIES FUND
By: /s/ Karen L. Skidmore
Title: Assistant Vice President &
Assistant Secretary
THE BANK OF NEW YORK
By: /s/ Stephen E. Grunston
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MONEY MARKET PORTFOLIOS JUNE 30, 1997 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> THE MONEY MARKET PORTFOLIO
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<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 1,423,437,976
<INVESTMENTS-AT-VALUE> 1,423,437,976
<RECEIVABLES> 350,777,149
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,774,215,125
<PAYABLE-FOR-SECURITIES> 0
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<SHARES-COMMON-STOCK> 1,773,545,989
<SHARES-COMMON-PRIOR> 1,550,085,247
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<OVERDISTRIBUTION-GAINS> 0
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<NET-ASSETS> 1,773,545,989
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<INTEREST-INCOME> 93,270,589
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<EXPENSES-NET> (2,546,533)
<NET-INVESTMENT-INCOME> 90,724,056
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<NET-CHANGE-FROM-OPS> 90,723,125
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<DISTRIBUTIONS-OF-INCOME> (90,723,125)
<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 4,134,527,818
<NUMBER-OF-SHARES-REDEEMED> (4,001,789,988)
<SHARES-REINVESTED> 90,722,912
<NET-CHANGE-IN-ASSETS> 223,460,742
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<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 2,547,891
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<GROSS-EXPENSE> 2,664,915
<AVERAGE-NET-ASSETS> 1,699,061,994
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .056
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.056)
<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> .000
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MONEY MARKET PORTFOLIOS JUNE 30, 1997 ANNUAL REPORT AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> US GOVERMENT SECURITIES MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 19,853,658
<INVESTMENTS-AT-VALUE> 19,853,658
<RECEIVABLES> 238,998,720
<ASSETS-OTHER> 9,280
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 258,861,658
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 232,481
<TOTAL-LIABILITIES> 232,481
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 258,629,177
<SHARES-COMMON-STOCK> 258,629,177
<SHARES-COMMON-PRIOR> 285,701,104
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 258,629,177
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,434,535
<OTHER-INCOME> 0
<EXPENSES-NET> (401,757)
<NET-INVESTMENT-INCOME> 14,032,778
<REALIZED-GAINS-CURRENT> 3,978
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,036,756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,036,756)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 937,979,469
<NUMBER-OF-SHARES-REDEEMED> (979,088,856)
<SHARES-REINVESTED> 14,037,460
<NET-CHANGE-IN-ASSETS> (27,071,927)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.052
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<PER-SHARE-DIVIDEND> (0.052)
<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>
