As filed with the Securities and Exchange Commission on October 29, 1998.
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. 9 (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
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 try
to maintain a stable net asset value of $1.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE.
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 GOAL AND POLICIES OF THE PORTFOLIO
The Portfolio's investment goal is to provide investors with as high a level
of current income as is consistent with the preservation of shareholders'
capital and liquidity. The goal is fundamental which means that it not be
changed without shareholder approval. Of course, there is no assurance that
the Portfolio will achieve its goal.
The Portfolio seeks to achieve its investment goal, by investing in
high-quality, short-term money market securities of domestic and foreign
issuers, including U.S. government securities and repurchase agreements.
Because the Portfolio limits its investments to high-quality securities, it
will generally earn lower yields than a portfolio with lower quality
securities that are subject to greater risk. Accordingly, the yield to
shareholders in the Portfolio, and thus the fund, will likely be relatively
lower.
QUALITY, MATURITY AND DIVERSIFICATION STANDARDS. The Portfolio, like all
money funds, follows SEC guidelines on the quality, maturity and
diversification of its investments. These guidelines are designed to help
reduce a money fund's risks so that it is more likely to keep its share price
at $1.
o The Portfolio only buys securities that Franklin Advisers, Inc.
("Advisers")determines present minimal credit risks and that are rated in
one of the top two short-term rating categories or that are comparable
unrated securities in Advisers' opinion.
o The Portfolio only buys securities with remaining maturities of 397
calendar days or less and maintains a dollar-weighted average portfolio
maturity of 90 days or less.
Generally, the Portfolio may not invest more than 5% of its total assets in
the securities of a single issuer, other than in U.S. government securities.
U.S. GOVERNMENT SECURITIES include marketable fixed, floating and variable
rate securities issued or guaranteed by the U.S. government or its agencies,
or by various instrumentalities that have been established or sponsored by
the U.S. government. Some of these securities, including U.S. Treasury bills,
notes and bonds and securities of the Government National Mortgage
Association and the Federal Housing Administration, are issued or guaranteed
by the U.S. government or carry a guarantee that is supported by the full
faith and credit of the U.S. government. Other U.S. government securities are
issued or guaranteed by federal agencies or government-sponsored enterprises
and are not considered direct obligations of the U.S. government. Instead,
they involve sponsorship or guarantees by government agencies or enterprises.
For example, some securities are supported by the right of the issuer to
borrow from the U.S. Treasury, such as obligations of the Federal Home Loan
Bank. Others, such as obligations of the Federal National Mortgage
Association, are supported only by the credit of the instrumentality.
BANK OBLIGATIONS, or instruments secured by bank obligations, include fixed,
floating or variable rate CDs, letters of credit, time deposits, bank notes
and bankers' acceptances. The Portfolio will invest in these obligations or
instruments issued by banks and savings institutions with assets of at least
$1 billion. Time deposits are non-negotiable deposits that are held in a
banking institution for a specified time at a stated interest rate. The
Portfolio may not invest more than 10% of its assets in time deposits with
more than seven days to maturity.
The Portfolio may invest in obligations of U.S. banks, foreign branches of
U.S. or foreign banks, and U.S. branches of foreign banks that have a federal
or state charter to do business in the U.S. and are subject to U.S.
regulatory authorities. The Portfolio may invest in an obligation issued by a
branch of a bank only if the parent bank has assets of at least $5 billion,
and may invest only up to 25% of its assets in obligations of foreign
branches of U.S. or foreign banks. The Portfolio may, however, invest more
than 25% of its assets in certain domestic bank obligations, including U.S.
branches of foreign banks.
Bank obligations may include deposits that are fully insured by the U.S.
government, its agencies or instrumentalities, such as deposits in banking
and savings institutions up to the current limit of the insurance on
principal provided by the Federal Deposit Insurance Corporation. Deposits are
frequently combined in larger units by an intermediate bank or other
institution.
COMMERCIAL PAPER typically refers to short-term obligations of banks,
corporations and other borrowers with maturities of up to 270 days. The
Portfolio may invest in commercial paper of domestic or foreign issuers.
Variable master demand notes are a type of commercial paper. They are direct
arrangements between a lender and a borrower that allow daily changes to the
amount borrowed and to the interest rate. The Portfolio, as lender, may
increase or decrease the amount provided by the note agreement, and the
borrower may repay up to the full amount of the note without penalty.
Typically, the borrower may also set the interest rate daily, usually at a
rate that is the same or similar to the interest rate on other commercial
paper issued by the borrower. The Portfolio does not have any limit on the
amount of its assets that may be invested in variable master demand notes and
may invest only in variable master demand notes of U.S. issuers.
Because variable master demand notes are direct lending arrangements between
the lender and the borrower, they generally are not traded and do not have a
secondary market. They are, however, redeemable at face value plus accrued
interest at any time, although the Portfolio's ability to redeem a note is
dependent on the ability of the borrower to pay the principal and interest on
demand. When determining whether to invest in a variable master demand note,
Advisers considers, among other things, the earnings power, cash flow and
other liquidity ratios of the issuer.
ASSET-BACKED SECURITIES are typically commercial paper backed by the loans or
accounts receivable of an entity, such as a bank or credit card company. The
issuer intends to repay using the assets backing the securities (once
collected). Therefore, repayment depends largely on the cash-flows generated
by the assets backing the securities. Sometimes the credit support for these
securities is limited to the underlying assets. In other cases it may be
provided by a third party through a letter of credit or insurance guarantee.
Repayment of these securities is intended to be obtained from an identified
pool of diversified assets, typically receivables related to a particular
industry, such as asset-backed securities related to credit card receivables,
automobile receivables, trade receivables or diversified financial assets.
The credit quality of most asset-backed commercial paper depends primarily on
the credit quality of the assets underlying the securities, how well the
entity issuing the security is insulated from the credit risk of the
originator (or any other affiliated entities) and the amount and quality of
any credit support provided to the securities.
Asset-backed commercial paper is often backed by a pool of assets
representing the obligations of a number of different parties. To lessen the
effect of failures by obligors on these underlying assets to make payment,
the securities may contain elements of credit support. The credit support
falls into two categories: liquidity protection and protection against
ultimate default on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pool of
assets, to ensure that scheduled payments on the underlying pool are made in
a timely fashion. Protection against ultimate default ensures payment on at
least a portion of the assets in the pool. This protection may be provided
through guarantees, insurance policies or letters of credit obtained from
third parties, through various means of structuring the transaction or
through a combination of these approaches. The degree of credit support
provided on each issue is based generally on historical information
respecting the level of credit risk associated with the payments. Delinquency
or loss that exceeds the anticipated amount could adversely impact the return
on an investment in an asset-backed security.
CORPORATE OBLIGATIONS may include fixed, floating and variable rate bonds,
debentures or notes.
STRIPPED SECURITIES are the separate income and principal components of a
debt security. Once the securities have been stripped they are referred to as
zero coupon securities. Their risks are similar to those of other money
market securities although they may be more volatile. Stripped securities do
not make periodic payments of interest prior to maturity and the stripping of
the interest coupons causes them to be offered at a discount from their face
amount. This results in the securities being subject to greater fluctuations
in response to changing interest rates than interest-paying securities of
similar maturities.
The Portfolio only intends to buy stripped securities that are issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government.
MUNICIPAL SECURITIES. The Portfolio may invest up to 10% of its assets in
taxable municipal securities. Municipal securities are issued by or on behalf
of states, territories or possessions of the U.S., the District of Columbia,
or their political subdivisions, agencies or instrumentalities. They are
generally issued to raise money for various public purposes, such as
constructing public facilities and making loans to public institutions.
Certain types of municipal securities are issued to provide funding for
privately operated facilities and are generally taxable.
OTHER INVESTMENT POLICIES OF THE PORTFOLIO
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS are those where payment and
delivery for the security take place at a future date. Since the market price
of the security may fluctuate during the time before payment and delivery,
the Portfolio assumes the risk that the value of the security at delivery may
be more or less than the purchase price.
When the Portfolio is the buyer in the transaction, it will maintain cash or
liquid securities, with an aggregate value equal to the amount of its
purchase commitments, in a segregated account with its custodian bank until
payment is made. The Portfolio will not engage in when-issued and
delayed-delivery transactions for investment leverage purposes.
REPURCHASE AGREEMENTS. The Portfolio will generally have a portion of its
assets in cash or cash equivalents. To earn income on this portion of its
assets, the Portfolio may enter into repurchase agreements with certain banks
and broker-dealers. Under a repurchase agreement, the Portfolio agrees to buy
a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer
to the Portfolio's custodian securities with an initial value of at least
102% of the dollar amount invested by the Portfolio in each repurchase
agreement.
Under a repurchase agreement, the seller is required to maintain the value of
the securities subject to the repurchase agreement at not less than the
repurchase price. Advisers will monitor the value of such securities daily
to determine that the value equals or exceed the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the seller, including possible delays or restrictions upon the Portfolio's
ability to dispose of the underlying securities. The Portfolio will enter
into repurchase agreements only with parties who meet creditworthiness
standards approved by the Board of Trustees of the Trust ("Board"), i.e.,
banks or broker-dealers that have been determined by Advisers to present no
serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
PORTFOLIO TRADING. The Portfolio may actively trade securities in its
portfolio, without any limits, if Advisers believes that yields can be
increased by doing so. Advisers considers current market conditions, cash
requirements and its revised evaluations of a security when determining
whether or not to hold securities until maturity. The yield on some
securities held by the Portfolio may decline if the securities are sold
before maturity.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the
Board and subject to the following conditions, the Portfolio may lend its
portfolio securities to qualified securities dealers or other institutional
investors, if such loans do not exceed 25% of the value of the Portfolio's
total assets at the time of the most recent loan. The Portfolio, however,
currently intends to limit its lending of securities to nor more than 5% of
it total assets. The borrower must deposit with the Portfolio's custodian
bank collateral with an initial market value of at least 102% of the market
value of the securities loaned, including any accrued interest, with the
value of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 100%. This collateral shall consist
of cash. The lending of securities is a common practice in the securities
industry. The Portfolio may engage in security loan arrangements with the
primary objective of increasing the Portfolio's income either through
investing cash collateral in short-term interest- bearing obligations or by
receiving a loan premium from the borrower. Under the securities loan
agreement, the Portfolio continues to be entitled to all dividends or
interest on any loaned securities. As with any extension of credit, there are
risks of delay in recovery and loss of rights in the collateral should the
borrower of the security fail financially.
BORROWING. The Portfolio may borrow up to 5% of its total assets from banks
for temporary or emergency purposes. The Portfolio will not make any new
investments while any outstanding loans exceed 5% of its total assets.
ILLIQUID INVESTMENTS. The Portfolio's policy is not to invest more than 10%
of its net assets in illiquid securities. Illiquid securities are generally
securities that cannot be sold within seven days in the normal course of
business at approximately the amount at which the Portfolio has valued them.
OTHER LIMITATIONS. The Portfolio may not invest more than 5% of its total
assets in securities of companies, including predecessors, that have been in
continuous operation for less than three years. The Portfolio also may not
invest more than 25% of its total assets in any particular industry, although
it may invest more than 25% of its assets in certain domestic bank
obligations. These limitations do not apply to U.S. government securities,
federal agency obligations, or repurchase agreements fully collateralized by
government securities. There are, however, certain tax diversification
requirements that may apply to investments in repurchase agreements and other
securities that are not treated as U.S. government securities under the
Internal Revenue Code of 1986, as amended (the "Code").
OTHER POLICIES AND RESTRICTIONS
The Portfolio has a number of additional investment policies and restrictions
that govern its activities. Those that are identified as "fundamental" may
only be changed with shareholder approval. The others may be changed by the
Board alone. For a list of these restrictions and more information about the
Portfolio's investment policies, including those described above, please see
Part B.
Generally, each of the Portfolio's policies and restrictions discussed above
and in Part B apply when the Portfolio makes an investment. In most cases,
the Portfolio is not required to sell a security because circumstances change
and the security no longer meets one or more of the Portfolio's policies or
restrictions.
INVESTMENT RISK CONSIDERATIONS
Like all investments, an investment in the Portfolio involves risk. The risks
of the Portfolio are basically the same as those of other investments in
money market securities. The short duration and high credit quality of the
securities in which the Portfolio invests may help reduce the risks detailed
below.
There is no assurance that the Portfolio will meet its investment goal.
Although the Portfolio tries to maintain a stable share price of $1, there is
no assurance that it will be able to do so.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. Generally when interest rates rise, the value of a
security falls. The opposite is also true: security prices rise when interest
rates fall.
INCOME RISK is the risk that the Portfolio's income will decrease due to
falling interest rates. Since the Portfolio can only distribute what it
earns, the Portfolio's distributions to its shareholders may decline when
interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value.
MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This a basic risk associated
with all securities. When there are more sellers than buyers, prices tend to
fall. Likewise, when there are more buyers, prices tend to rise.
FOREIGN SECURITIES. Investments in securities of foreign issuers, including
obligations of foreign branches of U.S. and foreign banks and obligations of
U.S. branches of foreign banks, involve special risks. These risks include
future unfavorable political and economic developments, possible withholding
taxes, seizure of foreign deposits, currency controls, interest limitations,
or other governmental restrictions that may affect the payment of principal
or interest on securities held by the Portfolio. In addition, there may be
less publicly available information about foreign issuers.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board oversees the 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 $207 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, 1998, 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.
YEAR 2000 ISSUE. Like other mutual funds, the Portfolio could be adversely
affected if the computer systems used by Advisers and other service providers
do not properly process date-related information on or after January 1, 2000
("Year 2000 Issue"). The Year 2000 Issue could affect portfolio and
operational areas including securities trade processing, interest and
dividend payments, securities pricing, shareholder account services,
reporting, custody functions, and others. While there can be no assurance
that the Portfolio will not be adversely affected, Advisers and its
affiliated service providers are taking steps that they believe are
reasonably designed to address the Year 2000 Issue, including seeking
reasonable assurances from the fund's other major service providers.
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
TAXATION OF THE PORTFOLIO. As a regulated investment company, the Portfolio
generally pays no federal income tax on the income and gains that it
distributes to shareholders.
DISTRIBUTIONS. Distributions from the Portfolio, whether paid in cash or in
additional shares, are generally subject to income tax.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the
Portfolio's distributions will qualify for the corporate dividends-received
deduction.
REDEMPTIONS AND EXCHANGES. Because the Portfolio expects to maintain a $1.00
net asset value per share, shareholders should not have any gain or loss on
the redemption or exchange of Portfolio shares.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends
paid from interest earned on direct obligations of the U.S. Government,
subject to certain restrictions. The Portfolio will provide shareholders
with information after the end of each calendar year on the amount of such
dividends that may qualify for exemption from reporting on a shareholder's
income tax return. Shareholders that are regulated investment companies may
not be eligible to pass through to their investors dividends from the
Portfolio that qualify for such exemption, however.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. A non-U.S. shareholder's home country may also tax
ordinary dividends. Non-U.S. shareholders may wish to contact their tax
advisor to determine the U.S. and non-U.S. tax consequences of their
investment in the Portfolio.
STATE TAXES. Ordinary dividends that shareholders receive from the Portfolio
will generally be subject to state and local income tax. The holding of
Portfolio shares may also be subject to state and local intangibles taxes.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE PORTFOLIO. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "TAX STATUS" IN 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 1/100 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 goal 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 goals 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 Trust,
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 Trust under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATION
NAME, AGE AND OFFICES WITH THE DURING THE PAST FIVE
ADDRESS TRUST YEARS
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Trustee
Member and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of nine of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, member and Chairman of the Board, Sutter Community
Hospitals, Sacramento, CA, member, Corporate Board, Blue Shield of
California, and Chief Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
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 or trustee,
as the case may be, of 51 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Charles B. Johnson (65)
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. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 50 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Charles E. Johnson (42)
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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 34 of the investment companies in the
Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
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
53 of the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission
Systems, Inc. (wireless communications); director or trustee, as the case may
be, of 27 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, Fischer Imaging Corporation (medical imaging
systems) and General Partner, Peregrine Associates, which was the General
Partner of Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of
49 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and
Hambrecht and Quist Group (investment banking), and President, National
Association of Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., 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
53 of the investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan(38)
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.; Executive Vice President and Chief Financial Officer, Franklin
Advisers, Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; President and Director, Franklin
Templeton Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
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.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal
Officer and Chief Operating Officer, Franklin Investment Advisory Services,
Inc.; and officer of 53 of the investment companies in the Franklin Templeton
Group of Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
R. Martin Wiskemann (71)
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 15 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. As of June 1, 1998, nonaffiliated members of the
Board are no longer paid any fees. 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 fees payable to nonaffiliated Board members by the
Trust are subject to reductions resulting from fee caps limiting the amount
of fees payable to Board members who serve on other boards within the
Franklin Templeton Group of Funds. 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
TOTAL FEES FRANKLIN
TOTAL FEES RECEIVED FROM TEMPLETON GROUP
RECEIVED THE FRANKLIN OF FUNDS ON
FROM THE TEMPLETON GROUP WHICH EACH
NAME TRUST* OF FUNDS** SERVES***
Frank H. Abbott, III $1,100 $165,937 27
Harris J. Ashton 1,050 344,642 49
Robert Carlson+ 450 17,680 9
S. Joseph Fortunato 1,050 361,562 51
David Garbellano++ 200 91,317 N/A
Frank W.T. LaHaye 1,100 141,433 27
Gordon S. Macklin 1,050 337,292 49
+Elected January 15, 1998.
++Deceased September 27, 1997.
*For the fiscal year ended June 30, 1998. During the period from July 1997
through May, 1998, fees at the rate of $50 per month plus $50 per meeting
attended were in effect for the Portfolio.
**For the calendar year ended December 31, 1997.
***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 54 registered investment companies, with
approximately 168 U.S. based funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director 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.
Board members historically have followed a policy of having substantial
investments in one or more of the Franklin Templeton Funds, as is consistent
with their individual financial goals. In February 1998, this policy was
formally adopted. Each board member is required to invest one-third of fees
received for serving as a director or trustee of a Templeton fund in shares
of one or more Templeton funds and one-third of fees received for serving as
a director or trustee of a Franklin fund in shares of one or more Franklin
funds. This is required until the value of such investments equals or exceeds
five times the board member's annual fees. For purposes of this policy, a
board member's investments include those in the name of family members or
entities controlled by the board member and, for investments made after
February 27, 1998, are valued at cost. Investments that existed on February
27, 1998, were valued as of that date. There is a three year phase-in period
for newly elected board members.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 16, 1998, the principal shareholders of the Portfolio,
beneficial or of record, were as follows:
NAME AND ADDRESS SHARE AMOUNT PERCENTAGE
IFT Money Market Portfolio
Fund 140
777 Mariners Island Blvd.
San Mateo, CA 94404-1584 247,456,748 9%
Franklin Cash Reserves
Fund 149
777 Mariners Island Blvd.
San Mateo, CA 94404-1584 157,363,807 6%
Franklin Money Fund 111
777 Mariners Island Blvd.
San Mateo, CA 94404-1584 2,187,430,631 80%
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 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, 1998, 1997 and 1996 management fees of
the Portfolio, before any advance waiver, totaled $2,963,304, $2,547,891 and
$2,162,519, respectively. Under an agreement by Advisers to limit its fees,
the Portfolio paid management fees totaling $2,830,858, $2,429,509 and
$2,034,014 and for the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1999. It may continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a
vote of the holders of a majority of the Portfolio's outstanding voting
securities or by a vote of the Board, and in either event by a vote of a
majority of the Trustees of the Trust 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. The fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the fund. The amount of reimbursements for these
services per benefit plan participant fund account per year may not exceed
the per account fee payable by the fund to Investor Services in connection
with maintaining shareholder accounts.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Portfolio. The custodian does not participate in decisions relating to
the purchase and sale of portfolio securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the Portfolio's independent auditor. During the fiscal
year ended June 30, 1998, the auditor's services consisted of rendering an
opinion on the financial statements of the Portfolio included in the Annual
Report to Shareholders of Franklin Money Fund, Institutional Fiduciary Trust
- - Money Market Portfolio, Institutional Fiduciary Trust - Franklin Cash
Reserves Fund and Franklin Templeton Money Fund Trust for the fiscal year
ended June 30, 1998.
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 may improve execution
and reduce transaction costs 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, 1998, 1997 and 1996, the Portfolio
paid no brokerage commissions.
As of June 30, 1998, the Portfolio owned securities issued by Morgan Stanley
Dean Witter & Co. valued in the aggregate at $80 million, J.P. Morgan & Co.
valued in the aggregate at $49 million, and Swiss Bank Corp., valued in the
aggregate at $25 million. Morgan Stanley Dean Witter & Co, J.P. Morgan & Co.
and Swiss Bank Corp. are regular broker-dealers of the Portfolio. Except as
noted, neither the fund nor the Portfolio owned securities issued by its
regular broker-dealers as of the end of the fiscal year.
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 portfolio securities, including any
securities held in a separate account maintained for when-issued securities,
is based on the amortized cost of the securities, which does not take into
account unrealized capital gains or losses. This method involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. While this method
provides certainty in calculation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price the
Portfolio would receive if it sold the instrument. During periods of
declining interest rates, the daily yield on shares of the Portfolio computed
as described above may tend to be higher than a like computation made by a
fund with identical investments but utilizing a method of valuation based
upon market prices and estimates of market prices for all of its portfolio
instruments. Thus, if the use of amortized cost by the Portfolio resulted in
a lower aggregate portfolio value on a particular day, a prospective investor
in the Portfolio would be able to obtain a somewhat higher yield than would
result from an investment in a fund utilizing only market values, and
existing investors in the Portfolio would receive less investment income. The
opposite would be true in a period of rising interest rates.
The Portfolio's use of amortized cost, which helps the Portfolio maintain its
net asset value per share of $1, is permitted by a rule adopted by the SEC.
Under this rule, the Portfolio must adhere to certain conditions. The
Portfolio must maintain a dollar-weighted average portfolio maturity of 90
days or less and only buy instruments having remaining maturities of 397
calendar days or less. The Portfolio must also invest only in those U.S.
dollar-denominated securities that the Board 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
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Portfolio declares dividends for
each day that the Portfolio's net asset value is calculated. These dividends
will equal all of the Portfolio's daily net income payable to shareholders of
record as of the close of business the preceding day. The Portfolio's daily
net income includes accrued interest and any original issue or acquisition
discount, plus or minus any gain or loss on the sale of securities and
changes in unrealized appreciation or depreciation in securities (to the
extent required to maintain a constant net asset value per share), less the
estimated expenses of the Portfolio.
The Portfolio receives income generally in the form of interest derived from
its investments. This income, less expenses incurred in the operation of the
Portfolio, constitutes its net investment income from which dividends may be
paid to shareholders. Any distributions by the Portfolio from such income
will be taxable to shareholders as ordinary income, whether shareholders take
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Portfolio may derive capital gains and
losses in connection with sales or other dispositions of its securities.
Distributions derived from the excess of net short-term capital gain (over
any net long-term capital loss) will be taxable to shareholders as ordinary
income. Any distributions paid from net long-term capital gains realized by
the Portfolio will be taxable to shareholders as long-term capital gain,
regardless of how long shareholders have held their shares in the Portfolio.
Because the Portfolio is a money market Portfolio, it does not anticipate
realizing any long-term capital gains, however.
MAINTENANCE OF $1.00 NET ASSET VALUE. Gains and losses on the sale of
securities held by the Portfolio and unrealized appreciation or depreciation
in the value of these securities may require the Portfolio to distribute
income or make distribution adjustments in order to maintain a $1.00 net
asset value. These procedures may result in under- or over-distributions of
net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Portfolio will inform
shareholders of the amount and character of their distributions at the time
they are paid, and will advise shareholders of the tax status for federal
income tax purposes of such distributions shortly after the close of each
calendar year.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Portfolio has
elected to be treated as a regulated investment company under Subchapter M of
the Code, has qualified as such for its most recent fiscal year, and intends
so to qualify during the current fiscal year. The Board reserves the right
not to maintain the qualification of the Portfolio as a regulated investment
company if it determines such course of action to be beneficial to its
shareholders. In such case, the Portfolio will be subject to federal, and
possibly state, corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxed as ordinary dividend income to
the extent of the Portfolio's available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, the
Portfolio must meet certain specific requirements, including:
o The Portfolio must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities
of other regulated investment companies) can exceed 25% of the Portfolio's
total assets, and, with respect to 50% of the Portfolio's total assets, no
investment (other than cash and cash items, U.S. government securities and
securities of other regulated investment companies) can exceed 5% of the
Portfolio's total assets or 10% of the outstanding voting securities of
the issuer;
o The Portfolio must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains
from the sale or disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such
stock, securities, or currencies; and
o The Portfolio must distribute to its shareholders at least 90% of its
investment company taxable income (i.e., net investment income plus net
short-term capital gains) and net tax-exempt income for each of its fiscal
years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Portfolio to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to shareholders by December 31 of each year in order to avoid
federal excise taxes. The Portfolio intends to declare and pay sufficient
dividends in December (or in January of the following year that are treated
by shareholders as received in December of the prior year) but does not
guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
REDEMPTION OF PORTFOLIO SHARES. Redemptions and exchanges of Portfolio
shares are taxable transactions for federal and state income tax purposes.
For most shareholders, gain or loss will be recognized in an amount equal to
the difference between the shareholder's tax basis and the amount the
shareholder received in exchange for its shares, subject to the rules
described below. If such shares are a capital asset in the hands of the
shareholder, the gain or loss is capital gain or loss and is long-term for
federal income tax purposes if the shares have been held for more than one
year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed with respect to such shares.
All or a portion of any loss realized upon a redemption of shares will be
disallowed to the extent that other shares in the Portfolio are purchased
(through reinvestment of dividends or otherwise) within 30 days before or
after such redemption. Any loss disallowed under these rules will be added
to the shareholder's tax basis in the new shares purchased. Because the
Portfolio seeks to maintain a constant $1.00 per share net asset value,
shareholders should not expect to realize a gain or loss upon redemption of
their Portfolio shares, however.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to shareholders from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the Portfolio. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
After the end of each calendar year, the Portfolio will provide shareholders
with the percentage of any dividends paid that may qualify for tax-free
treatment on their tax return. Shareholders should consult with their own
tax advisor to determine the application of their state and local laws to
these distributions. Because the rules on exclusion of this income are
different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes. Shareholders that are regulated
investment companies may not be eligible to pass through to their investors
dividends from the Portfolio that qualify for such exemption, however.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the Portfolio's
income is derived primarily from interest rather than dividends, no portion
of its distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the Portfolio
for the most recent fiscal year qualified for such deduction, and it is
anticipated that none of the current year's dividends will so qualify.
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 and statements must be sent to a
compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) 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 to Shareholders of the Trust for the fiscal year ended June 30, 1998,
including the auditor's report, are incorporated herein by reference.
APPENDIX
DESCRIPTION OF RATINGS
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings, which are also applicable to municipal paper investments
permitted to be made by the fund, are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months.
Moody's employs the following designations, judged to be investment grade,
used for both short-term debt and commercial paper to indicate the relative
repayment ability 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 - including
commercial paper. 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.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, CDs, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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.
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 try to maintain a stable net asset value of $1.
AN INVESTMENT IN THE PORTFOLIO IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE PORTFOLIO WILL BE ABLE TO
MAINTAIN A STABLE $1 SHARE PRICE.
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 GOAL AND POLICIES OF THE PORTFOLIO
The Portfolio's investment goal is to provide investors with as high a level
of current income as is consistent with the preservation of shareholders'
capital and liquidity. The goal is fundamental which means that it not be
changed without shareholder approval. Of course, there is no assurance that
the Portfolio will achieve its goal.
Because the Portfolio limits its investments to high-quality securities, it
will generally earn lower yields than a portfolio with lower quality
securities that are subject to greater risk. Accordingly, the yield to
shareholders in the Portfolio, and thus the fund, will likely be relatively
lower.
QUALITY, MATURITY AND DIVERSIFICATION STANDARDS. The Portfolio, like all
money funds, follows SEC guidelines on the quality, maturity and
diversification of its investments. These guidelines are designed to help
reduce a money fund's risks so that it is more likely to keep its share price
at $1.
o The Portfolio only buys securities that Franklin Advisers, Inc.
("Advisers") determines present minimal credit risks and that are rated in
one of the top two short-term rating categories or that are comparable
unrated securities in Advisers' opinion.
o The Portfolio only buys securities with remaining maturities of 397
calendar days or less and maintains a dollar-weighted average portfolio
maturity of 90 days or less.
Generally, the Portfolio may not invest more than 5% of its total assets in
the securities of a single issuer, other than in U.S. government securities.
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.
STRIPPED SECURITIES are the separate income and principal components of a
debt security. Once the securities have been stripped they are referred to as
zero coupon securities. Their risks are similar to those of other money
market securities although they may be more volatile. Stripped securities do
not make periodic payments of interest prior to maturity and the stripping of
the interest coupons causes them to be offered at a discount from their face
amount. This results in the securities being subject to greater fluctuations
in response to changing interest rates than interest-paying securities of
similar maturities.
The Portfolio only intends to buy stripped securities that are issued or
guaranteed by the U.S. Treasury or by an agency or instrumentality of the
U.S. government.
REPURCHASE AGREEMENTS. The Portfolio will generally have a portion of its
assets in cash or cash equivalents. To earn income on this portion of its
assets, the Portfolio may enter into repurchase agreements with certain banks
and broker-dealers. Under a repurchase agreement, the Portfolio agrees to buy
a U.S. government security from one of these issuers and then to sell the
security back to the issuer after a short period of time (generally, less
than seven days) at a higher price. The bank or broker-dealer must transfer
to the Portfolio's custodian securities with an initial value of at least
102% of the dollar amount invested by the Portfolio in each repurchase
agreement.
Under a repurchase agreement, the seller is required to maintain the value of
the securities subject to the repurchase agreement at not less than the
repurchase price. Advisers will monitor the value of such securities daily
to determine that the value equals or exceed the repurchase price.
Repurchase agreements may involve risks in the event of default or insolvency
of the seller, including possible delays or restrictions upon the Portfolio's
ability to dispose of the underlying securities. The Portfolio will enter
into repurchase agreements only with parties who meet creditworthiness
standards approved by the Board of Trustees of the Trust ("Board"), i.e.,
banks or broker-dealers that have been determined by Advisers to present no
serious risk of becoming involved in bankruptcy proceedings within the time
frame contemplated by the repurchase transaction.
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.
PORTFOLIO TRADING. The Portfolio may actively trade securities in its
portfolio, without any limits, if Advisers believes that yields can be
increased by doing so. Advisers considers current market conditions, cash
requirements and its revised evaluations of a security when determining
whether or not to hold securities until maturity. The yield on some
securities held by the Portfolio may decline if the securities are sold
before maturity.
LOANS OF PORTFOLIO SECURITIES. Consistent with procedures approved by the
Board and subject to the following conditions, the Portfolio may lend its
portfolio securities to qualified securities dealers or other institutional
investors, if such loans do not exceed 10% of the value of the Portfolio's
total assets at the time of the most recent loan. The Portfolio, however,
currently intends to limit its lending of securities to nor more than 5% of
it total assets. The borrower must deposit with the Portfolio's custodian
bank collateral with an initial market value of at least 102% of the market
value of the securities loaned, including any accrued interest, with the
value of the collateral and loaned securities marked-to-market daily to
maintain collateral coverage of at least 100%. This collateral shall consist
of cash, securities issued by the U.S. government, its agencies or
instrumentalities, or irrevocable letters of credit. The lending of
securities is a common practice in the securities industry. The Portfolio may
engage in security loan arrangements with the primary objective of increasing
the Portfolio's income either through investing cash collateral in short-term
interest- bearing obligations or by receiving a loan premium from the
borrower. Under the securities loan agreement, the Portfolio continues to be
entitled to all dividends or interest on any loaned securities. As with any
extension of credit, there are risks of delay in recovery and loss of rights
in the collateral should the borrower of the security fail financially.
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 assets. No new investments will be made by the Portfolio
while any outstanding loans exceed 5% of its total assets.
OTHER POLICIES AND RESTRICTIONS
The Portfolio has a number of additional investment policies and restrictions
that govern its activities. Those that are identified as "fundamental" may
only be changed with shareholder approval. The others may be changed by the
Board alone. For a list of these restrictions and more information about the
Portfolio's investment policies, including those described above, please see
Part B.
Generally, each of the Portfolio's policies and restrictions discussed above
and in Part B apply when the Portfolio makes an investment. In most cases,
the Portfolio is not required to sell a security because circumstances change
and the security no longer meets one or more of the Portfolio's policies or
restrictions.
INVESTMENT RISK CONSIDERATIONS
Like all investments, an investment in the Portfolio involves risk. The risks
of the Portfolio are basically the same as those of other investments in
money market securities. The short duration and high credit quality of the
securities in which the Portfolio invests may help reduce the risks detailed
below.
There is no assurance that the Portfolio will meet its investment goal.
Although the Portfolio tries to maintain a stable share price of $1, there is
no assurance that it will be able to do so.
INTEREST RATE RISK is the risk that changes in interest rates can reduce the
value of a security. Generally when interest rates rise, the value of a
security falls. The opposite is also true: security prices rise when interest
rates fall.
INCOME RISK is the risk that the Portfolio's income will decrease due to
falling interest rates. Since the Portfolio can only distribute what it
earns, the Portfolio's distributions to its shareholders may decline when
interest rates fall.
CREDIT RISK is the possibility that an issuer will be unable to make interest
payments or repay principal. Changes in an issuer's financial strength or in
a security's credit rating may affect its value.
MARKET RISK is the risk that a security's value will be reduced by market
activity or the results of supply and demand. This a basic risk associated
with all securities. When there are more sellers than buyers, prices tend to
fall. Likewise, when there are more buyers, prices tend to rise.
5. MANAGEMENT OF THE FUND
MANAGEMENT OF THE PORTFOLIO
The Board oversees the 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 $207 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, 1998, 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.
YEAR 2000 ISSUE. Like other mutual funds, the Portfolio could be adversely
affected if the computer systems used by Advisers and other service providers
do not properly process date-related information on or after January 1, 2000
("Year 2000 Issue"). The Year 2000 Issue could affect portfolio and
operational areas including securities trade processing, interest and
dividend payments, securities pricing, shareholder account services,
reporting, custody functions, and others. While there can be no assurance
that the Portfolio will not be adversely affected, Advisers and its
affiliated service providers are taking steps that they believe are
reasonably designed to address the Year 2000 Issue, including seeking
reasonable assurances from the fund's other major service providers.
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
TAXATION OF THE PORTFOLIO. As a regulated investment company, the Portfolio
generally pays no federal income tax on the income and gains that it
distributes to shareholders.
DISTRIBUTIONS. Distributions from the Portfolio, whether paid in cash or in
additional shares, are generally subject to income tax.
DIVIDENDS-RECEIVED DEDUCTION. It is anticipated that no portion of the
Portfolio's distributions will qualify for the corporate dividends-received
deduction.
REDEMPTIONS AND EXCHANGES. Because the Portfolio expects to maintain a $1.00
net asset value per share, shareholders should not have any gain or loss on
the redemption or exchange of Portfolio shares.
U.S. GOVERNMENT INTEREST. Many states grant tax-free status to dividends paid
from interest earned on direct obligations of the U.S. Government, subject to
certain restrictions. The Portfolio will provide shareholders with
information after the end of each calendar year on the amount of such
dividends that may qualify for exemption from reporting on a shareholder's
income tax return. Shareholders that are regulated investment companies may
not be eligible to pass through to their investors dividends from the
Portfolio that qualify for such exemption, however.
NON-U.S. INVESTORS. Ordinary dividends generally will be subject to U.S.
income tax withholding. A non-U.S. shareholder's home country may also tax
ordinary dividends. Non-U.S. shareholders may wish to contact their tax
advisor to determine the U.S. and non-U.S. tax consequences of their
investment in the Portfolio.
STATE TAXES. Ordinary dividends that shareholders receive from the Portfolio
will generally be subject to state and local income tax. The holding of
Portfolio shares may also be subject to state and local intangibles taxes.
THIS TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY. PROSPECTIVE INVESTORS
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL OR
FOREIGN TAX CONSEQUENCES OF AN INVESTMENT IN THE PORTFOLIO. A MORE COMPLETE
DISCUSSION OF THESE RULES AND RELATED MATTERS IS CONTAINED IN THE SECTION
ENTITLED "TAX STATUS" IN 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 1/100 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 goal 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 goals 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 Trust,
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 Trust under the 1940 Act are indicated by an asterisk (*).
POSITIONS AND PRINCIPAL OCCUPATION
NAME, AGE AND OFFICES WITH THE DURING THE PAST FIVE
ADDRESS TRUST YEARS
Frank H. Abbott, III (77)
1045 Sansome Street
San Francisco, CA 94111
Trustee
President and Director, Abbott Corporation (an investment company); director
or trustee, as the case may be, of 27 of the investment companies in the
Franklin Templeton Group of Funds; and FORMERLY, Director, MotherLode Gold
Mines Consolidated (gold mining) and Vacu-Dry Co. (food processing).
Harris J. Ashton (66)
191 Clapboard Ridge Road
Greenwich, CT 06830
Trustee
Director, RBC Holdings, Inc. (a bank holding company) and Bar-S Foods (a meat
packing company); director or trustee, as the case may be, of 49 of the
investment companies in the Franklin Templeton Group of Funds; and FORMERLY,
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers).
Robert F. Carlson (70)
2120 Lambeth Way
Carmichael, CA 95608
Trustee
Member and past President, Board of Administration, California Public
Employees Retirement Systems (CALPERS); director or trustee, as the case may
be, of nine of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, member and Chairman of the Board, Sutter Community
Hospitals, Sacramento, CA, member, Corporate Board, Blue Shield of
California, and Chief Counsel, California Department of Transportation.
S. Joseph Fortunato (66)
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 or trustee,
as the case may be, of 51 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Charles B. Johnson (65)
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. and Franklin Templeton Services, Inc.; officer and/or director
or trustee, as the case may be, of most of the other subsidiaries of Franklin
Resources, Inc. and of 50 of the investment companies in the Franklin
Templeton Group of Funds; and FORMERLY, Director, General Host Corporation
(nursery and craft centers).
*Charles E. Johnson (42)
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 other
subsidiaries of Franklin Resources, Inc.; and officer and/or director or
trustee, as the case may be, of 34 of the investment companies in the
Franklin Templeton Group of Funds.
*Rupert H. Johnson, Jr. (58)
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
53 of the investment companies in the Franklin Templeton Group of Funds.
Frank W.T. LaHaye (69)
20833 Stevens Creek Blvd.
Suite 102
Cupertino, CA 95014
Trustee
General Partner, Miller & LaHaye, which is the General Partner of Peregrine
Ventures II (venture capital firm); Chairman of the Board and Director,
Quarterdeck Corporation (software firm); Director, Digital Transmission
Systems, Inc. (wireless communications); director or trustee, as the case may
be, of 27 of the investment companies in the Franklin Templeton Group of
Funds; and FORMERLY, Director, Fischer Imaging Corporation (medical imaging
systems) and General Partner, Peregrine Associates, which was the General
Partner of Peregrine Ventures (venture capital firm).
Gordon S. Macklin (70)
8212 Burning Tree Road
Bethesda, MD 20817
Trustee
Director, Fund American Enterprises Holdings, Inc., MCI Communications
Corporation, MedImmune, Inc. (biotechnology), Spacehab, Inc. (aerospace
services) and Real 3D (software); director or trustee, as the case may be, of
49 of the investment companies in the Franklin Templeton Group of Funds; and
FORMERLY, Chairman, White River Corporation (financial services) and
Hambrecht and Quist Group (investment banking), and President, National
Association of Securities Dealers, Inc.
Harmon E. Burns (53)
777 Mariners Island Blvd.
San Mateo, CA 94404
Vice President
Executive Vice President and Director, Franklin Resources, Inc., 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
53 of the investment companies in the Franklin Templeton Group of Funds.
Martin L. Flanagan(38)
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.; Executive Vice President and Chief Financial Officer, Franklin
Advisers, Inc.; Chief Financial Officer, Franklin Advisory Services, Inc. and
Franklin Investment Advisory Services, Inc.; President and Director, Franklin
Templeton Services, Inc.; Senior Vice President and Chief Financial Officer,
Franklin/Templeton Investor Services, Inc.; officer and/or director of some
of the other subsidiaries of Franklin Resources, Inc.; and officer and/or
director or trustee, as the case may be, of 53 of the investment companies in
the Franklin Templeton Group of Funds.
Deborah R. Gatzek (49)
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.; Executive Vice President, Franklin Advisers, Inc.; Vice
President, Franklin Advisory Services, Inc.; Vice President, Chief Legal
Officer and Chief Operating Officer, Franklin Investment Advisory Services,
Inc.; and officer of 53 of the investment companies in the Franklin Templeton
Group of Funds.
Diomedes Loo-Tam (59)
777 Mariners Island Blvd.
San Mateo, CA 94404
Treasurer and Principal Accounting Officer
Senior Vice President, Franklin Templeton Services, Inc.; and officer of 32
of the investment companies in the Franklin Templeton Group of Funds.
R. Martin Wiskemann (71)
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 15 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. As of June 1, 1998, nonaffiliated members of the
Board are no longer paid any fees. 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 fees payable to nonaffiliated Board members by the
Trust are subject to reductions resulting from fee caps limiting the amount
of fees payable to Board members who serve on other boards within the
Franklin Templeton Group of Funds. 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
TOTAL FEES FRANKLIN
TOTAL FEES RECEIVED FROM TEMPLETON GROUP
RECEIVED THE FRANKLIN OF FUNDS ON
FROM THE TEMPLETON GROUP WHICH EACH
NAME TRUST* OF FUNDS** SERVES***
Frank H. Abbott, III $1,100 $165,937 27
Harris J. Ashton 1,050 344,642 49
Robert Carlson+ 450 17,680 9
S. Joseph Fortunato 1,050 361,562 51
David Garbellano++ 200 91,317 N/A
Frank W.T. LaHaye 1,100 141,433 27
Gordon S. Macklin 1,050 337,292 49
+Elected January 15, 1998.
++Deceased September 27, 1997.
*For the fiscal year ended June 30, 1998. During the period from July 1997
through May, 1998, fees at the rate of $50 per month plus $50 per meeting
attended were in effect for the Portfolio.
**For the calendar year ended December 31, 1997.
***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 54 registered investment companies, with
approximately 168 U.S. based funds or series.
Nonaffiliated members of the Board are reimbursed for expenses incurred in
connection with attending board meetings, paid pro rata by each fund in the
Franklin Templeton Group of Funds for which they serve as director 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.
Board members historically have followed a policy of having substantial
investments in one or more of the Franklin Templeton Funds, as is consistent
with their individual financial goals. In February 1998, this policy was
formally adopted. Each board member is required to invest one-third of fees
received for serving as a director or trustee of a Templeton fund in shares
of one or more Templeton funds and one-third of fees received for serving as
a director or trustee of a Franklin fund in shares of one or more Franklin
funds. This is required until the value of such investments equals or exceeds
five times the board member's annual fees. For purposes of this policy, a
board member's investments include those in the name of family members or
entities controlled by the board member and, for investments made after
February 27, 1998, are valued at cost. Investments that existed on February
27, 1998, were valued as of that date. There is a three year phase-in period
for newly elected board members.
15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of October 16, 1998, 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
10600 White Rock Rd.
Rancho Cordova, CA
95670-6032 177,319,208 50%
Franklin Federal Money
Fund 113
10600 White Rock Rd
Rancho Cordova, CA
95670-6032 178,191,100 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 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, 1998, 1997 and 1996 management fees of
the Portfolio, before any advance waiver, totaled $394,321, $404,358 and
$484,382, respectively. Under an agreement by Advisers to limit its fees, the
Portfolio paid management fees totaling $367,433, $364,509 and $424,848 for
the same periods.
MANAGEMENT AGREEMENT. The management agreement for the Portfolio is in effect
until February 28, 1999. It may continue in effect for successive annual
periods if its continuance is specifically approved at least annually by a
vote of the holders of a majority of the Portfolio's outstanding voting
securities or by a vote of the Board, and in either event by a vote of a
majority of the Trustees of the Trust 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. The fund may also reimburse Investor
Services for certain out-of-pocket expenses, which may include payments by
Investor Services to entities, including affiliated entities, that provide
sub-shareholder services, recordkeeping and/or transfer agency services to
beneficial owners of the fund. The amount of reimbursements for these
services per benefit plan participant fund account per year may not exceed
the per account fee payable by the fund to Investor Services in connection
with maintaining shareholder accounts.
CUSTODIAN. Bank of New York, Mutual Funds Division, 90 Washington Street, New
York, New York 10286, acts as custodian of the securities and other assets of
the Portfolio. The custodian does not participate in decisions relating to
the purchase and sale of portfolio securities.
AUDITOR. PricewaterhouseCoopers LLP, 333 Market Street, San Francisco,
California 94105, is the Portfolio's independent auditor. During the fiscal
year ended June 30, 1998, the auditor's services consisted of rendering an
opinion on the financial statements of the Portfolio included in the Annual
Report to Shareholders of Franklin Federal Money Fund and Institutional
Fiduciary Trust - Franklin U.S. Government Securities Money Market Portfolio
for the fiscal year ended June 30, 1998.
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 may improve execution
and reduce transaction costs 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, 1998, 1997 and 1996, the Portfolio
paid no brokerage commissions.
As of June 30, 1998, 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 portfolio 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
DISTRIBUTIONS
DISTRIBUTIONS OF NET INVESTMENT INCOME. The Portfolio declares dividends for
each day that the Portfolio's net asset value is calculated. These dividends
will equal all of the Portfolio's daily net income payable to shareholders of
record as of the close of business the preceding day. The Portfolio's daily
net income includes accrued interest and any original issue or acquisition
discount, plus or minus any gain or loss on the sale of securities and
changes in unrealized appreciation or depreciation in securities (to the
extent required to maintain a constant net asset value per share), less the
estimated expenses of the Portfolio.
The Portfolio receives income generally in the form of interest derived from
its investments. This income, less expenses incurred in the operation of the
Portfolio, constitutes its net investment income from which dividends may be
paid to shareholders. Any distributions by the Portfolio from such income
will be taxable to shareholders as ordinary income, whether shareholders take
them in cash or in additional shares.
DISTRIBUTIONS OF CAPITAL GAINS. The Portfolio may derive capital gains and
losses in connection with sales or other dispositions of its securities.
Distributions derived from the excess of net short-term capital gain (over
any net long-term capital loss) will be taxable to shareholders as ordinary
income. Any distributions paid from net long-term capital gains realized by
the Portfolio will be taxable to shareholders as long-term capital gain,
regardless of how long shareholders have held their shares in the Portfolio.
Because the Portfolio is a money market Portfolio, it does not anticipate
realizing any long-term capital gains, however.
MAINTENANCE OF $1.00 NET ASSET VALUE. Gains and losses on the sale of
securities held by the Portfolio and unrealized appreciation or depreciation
in the value of these securities may require the Portfolio to distribute
income or make distribution adjustments in order to maintain a $1.00 net
asset value. These procedures may result in under- or over-distributions of
net investment income.
INFORMATION ON THE TAX CHARACTER OF DISTRIBUTIONS. The Portfolio will inform
shareholders of the amount and character of their distributions at the time
they are paid, and will advise shareholders of the tax status for federal
income tax purposes of such distributions shortly after the close of each
calendar year.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY. The Portfolio has
elected to be treated as a regulated investment company under Subchapter M of
the Code, has qualified as such for its most recent fiscal year, and intends
so to qualify during the current fiscal year. The Board reserves the right
not to maintain the qualification of the Portfolio as a regulated investment
company if it determines such course of action to be beneficial to its
shareholders. In such case, the Portfolio will be subject to federal, and
possibly state, corporate taxes on its taxable income and gains, and
distributions to shareholders will be taxed as ordinary dividend income to
the extent of the Portfolio's available earnings and profits.
In order to qualify as a regulated investment company for tax purposes, the
Portfolio must meet certain specific requirements, including:
o The Portfolio must maintain a diversified portfolio of securities,
wherein no security (other than U.S. government securities and securities
of other regulated investment companies) can exceed 25% of the Portfolio's
total assets, and, with respect to 50% of the Portfolio's total assets, no
investment (other than cash and cash items, U.S. government securities and
securities of other regulated investment companies) can exceed 5% of the
Portfolio's total assets or 10% of the outstanding voting securities of
the issuer;
o The Portfolio must derive at least 90% of its gross income from
dividends, interest, payments with respect to securities loans, and gains
from the sale or disposition of stock, securities or foreign currencies,
or other income derived with respect to its business of investing in such
stock, securities, or currencies; and
o The Portfolio must distribute to its shareholders at least 90% of its
investment company taxable income (i.e., net investment income plus net
short-term capital gains) and net tax-exempt income for each of its fiscal
years.
EXCISE TAX DISTRIBUTION REQUIREMENTS. The Code requires the Portfolio to
distribute at least 98% of its taxable ordinary income earned during the
calendar year and 98% of its capital gain net income earned during the twelve
month period ending October 31 (in addition to undistributed amounts from the
prior year) to shareholders by December 31 of each year in order to avoid
federal excise taxes. The Portfolio intends to declare and pay sufficient
dividends in December (or in January of the following year that are treated
by shareholders as received in December of the prior year) but does not
guarantee and can give no assurances that its distributions will be
sufficient to eliminate all such taxes.
REDEMPTION OF PORTFOLIO SHARES. Redemptions and exchanges of Portfolio
shares are taxable transactions for federal and state income tax purposes.
For most shareholders, gain or loss will be recognized in an amount equal to
the difference between the shareholder's tax basis and the amount the
shareholder received in exchange for its shares, subject to the rules
described below. If such shares are a capital asset in the hands of the
shareholder, the gain or loss is capital gain or loss and is long-term for
federal income tax purposes if the shares have been held for more than one
year at the time of redemption or exchange. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated
as a long-term capital loss to the extent of any long-term capital gains
distributed with respect to such shares.
All or a portion of any loss realized upon a redemption of shares will be
disallowed to the extent that other shares in the Portfolio are purchased
(through reinvestment of dividends or otherwise) within 30 days before or
after such redemption. Any loss disallowed under these rules will be added
to the shareholder's tax basis in the new shares purchased. Because the
Portfolio seeks to maintain a constant $1.00 per share net asset value,
shareholders should not expect to realize a gain or loss upon redemption of
their Portfolio shares, however.
U.S. GOVERNMENT OBLIGATIONS. Many states grant tax-free status to dividends
paid to shareholders from interest earned on direct obligations of the U.S.
government, subject in some states to minimum investment requirements that
must be met by the Portfolio. Investments in GNMA/FNMA securities, bankers'
acceptances, commercial paper and repurchase agreements collateralized by
U.S. government securities do not generally qualify for tax-free treatment.
After the end of each calendar year, the Portfolio will provide shareholders
with the percentage of any dividends paid that may qualify for tax-free
treatment on their tax return. Shareholders should consult with their own
tax advisor to determine the application of their state and local laws to
these distributions. Because the rules on exclusion of this income are
different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of their distributions may be exempt
from corporate income or franchise taxes. Shareholders that are regulated
investment companies may not be eligible to pass through to their investors
dividends from the Portfolio that qualify for such exemption, however.
DIVIDENDS-RECEIVED DEDUCTION FOR CORPORATIONS. Because the Portfolio's
income is derived primarily from interest rather than dividends, no portion
of its distributions will generally be eligible for the intercorporate
dividends-received deduction. None of the dividends paid by the Portfolio
for the most recent fiscal year qualified for such deduction, and it is
anticipated that none of the current year's dividends will so qualify.
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 and statements must be sent to a
compliance officer; (iii) all brokerage accounts must be disclosed on an
annual basis; and (iv) access persons involved in preparing and making
investment decisions must, in addition to (i), (ii) and (iii) 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 to Shareholders of the Trust for the fiscal year ended June 30, 1998,
including the auditor's report, are incorporated herein by reference.
APPENDIX
DESCRIPTION OF RATINGS
SHORT-TERM DEBT & COMMERCIAL PAPER RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Moody's short-term debt ratings are opinions of the ability of issuers to
repay punctually senior debt obligations. These obligations have an original
maturity not exceeding one year, unless explicitly noted. Moody's commercial
paper ratings, which are also applicable to municipal paper investments
permitted to be made by the fund, are opinions of the ability of issuers to
repay punctually their promissory obligations not having an original maturity
in excess of nine months.
Moody's employs the following designations, judged to be investment grade,
used for both short-term debt and commercial paper to indicate the relative
repayment ability 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 - including
commercial paper. 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.
The relative degree of safety, however, is not as overwhelming as for issues
designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects
of changes in circumstances than obligations carrying the higher designations.
FITCH
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, CDs, medium-term notes, and municipal and investment
notes. The short-term rating places greater emphasis than a long-term rating
on the existence of liquidity necessary to meet the issuer's obligations in a
timely manner.
F-1+: Exceptionally strong credit quality. Regarded as having the strongest
degree of assurance for timely payment.
F-1: Very strong credit quality. Reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+.
F-2: Good credit quality. A satisfactory degree of assurance for timely
payment, but the margin of safety is not as great as for issues assigned F-1+
and F-1 ratings.
LOC: The symbol LOC indicates that the rating is based on a letter of credit
issued by a commercial bank.
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.
THE MONEY MARKET PORTFOLIOS
FORM N-1A
PART C: OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) Financial Statements incorporated herein by reference to the
Registrant's Annual Report to Shareholders dated June 30, 1998 as
filed with the SEC on Form Type N-30D on August 18, 1998.
(i) Financial Highlights
(ii) Statement of Investments June 30, 1998
(iii) Statement of Assets and Liabilities, June 30, 1998
(iv) Statement of Operations for the year ended June 30, 1998
(v) Statement of Changes in Net Assets for the years ended June
30, 1998 and 1997
(vi) Notes to Financial Statements
(vii) Independent Auditor's Report
(b) Exhibits:
The following exhibits are incorporated by reference, with the
exception of exhibits 8(iv), 17(i), 17(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 dated June 16, 1992
Filing: Amendment No. 6 to
Registration Statement on Form N-1A
File No. 811-7038
Filing Date: October 31, 1995
(ii) Certificate of Trust dated June 16, 1992
Filing: Amendment No. 6 to
Registration Statement 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
Filing: Amendment No. 6 to
Registration Statement 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 5 percent of any class of equity securities of the
Registrant;
Not Applicable
(4) copies of all instruments defining the rights of the
holders of the securities being registered including, where
applicable, the relevant portion of the articles of
incorporation or by-laws of the Registrant
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 Statement 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 Statement 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 Statement on Form N-1A
File No. 811-7038
Filing Date: October 30, 1996
(ii) Terminal Link Agreement between Registrant and Bank
of New York dated February 16, 1996
Filing: Amendment No. 7 to
Registration Statement on Form N-1A
File No. 811-7038
Filing Date: October 30, 1996
(iii) Amendment dated May 7, 1997 to Master Custody
Agreement dated February 16, 1996 between Registrant
and Bank of New York
Filing: Amendment No. 8 to
Registration Statement on Form N-1A
File No. 811-7038
Filing Date: October 30, 1997
(iv) Amendment to Exhibit A of the Master Custody
Agreement dated February 16, 1995 between Registrant
and Bank of New York dated February 27, 1998 on
behalf of all funds listed on Exhibit A
(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 dated July 22, 1992
Filing: Amendment No. 6 to
Registration Statement 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) Power of Attorney
(i) Power of Attorney dated June 16, 1998
(ii) Certificate of Secretary dated June 16, 1998
(27) Financial Data Schedule
(i) Financial Data Schedule for The Money Market
Portfolios
(ii) Financial Data Schedule for The U.S. Government
Securities Money Market Portfolios
Item 25. Persons Controlled by or under Common Control with Registrant
None
Item 26. Number of Holders of Securities
Not Applicable
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.
Item 28. Business and Other Connections of Investment Adviser.
The officers and directors of the Registrant's manager also serve as officers
and/or directors 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 was formerly a director of
General Host Corporation. For additional information please see Part B and
Schedules A and D of Form ADV of the Funds' 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.
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 29th
day of October 1998.
THE MONEY MARKET PORTFOLIOS
(Registrant)
By: Charles E. Johnson*
President
*By:/s/ Larry L. Greene
Attorney in Fact
(Pursuant to Power of Attorney filed herewith)
THE MONEY MARKET PORTFOLIOS
REGISTRATION STATEMENT
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION LOCATION
EX-99.B1(i) Agreement and Declaration of Trust of *
The Money Market Portfolios dated June
16, 1992
EX-99.B1(ii) Certificate of Trust of The Money *
Market Portfolios dated June 16, 1992
EX-99.B2(i) By-Laws *
EX-99.B5(i) Management Agreement between Registrant *
and Franklin Advisers, Inc. dated
August 27, 1992
EX-99.B5(ii) Amendment to Management Agreement dated *
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) Terminal Link Agreement between *
Registrant and Bank of New York dated
February 16, 1996
EX-99.B8(iii) Amendment dated May 7, 1997 to the *
Master Custody Agreement dated February
16, 1996 between Registrant and Bank of
New York
EX-99.B8(iv) Amendment to Master Custody Agreement Attached
dated February 27, 1998 on behalf of
all funds listed on Exhibit A
EX-99.B13(i) Letter of Understanding dated July 22, *
1992
EX-99.B17(i) Power of Attorney dated June 16, 1998 Attached
EX-99.B17(ii) Certificate of Secretary dated June 16, Attached
1998
EX-27.(i) Financial Data Schedule for The Money Attached
Market Portfolios
EX-27.(ii) Financial Data Schedule for The U.S. Attached
Government Money Market Portfolios
* Incorporated by reference
Amendment to Master Custody Agreement
Effective February 27, 1998, The Bank of New York and each of the Investment
Companies listed in the Attachment appended to this Amendment, for themselves
and each series listed in the Attachment, hereby amend the Master Custody
Agreement dated as of February 16, 1996 by:
1. Replacing Exhibit A with the attached; and
2. Only with respect to the Investment Companies and series thereof listed
in the Attachment, deleting paragraphs (a) and (b) of Subsection 3.5 and
replacing them with the following:
(a) Promptly after each purchase of Securities by the Fund, the Fund
shall deliver to the Custodian Proper Instructions specifying with
respect to each such purchase: (a) the Series to which such Securities
are to be specifically allocated; (b) the name of the issuer and the
title of the Securities; (c) the number of shares or the principal
amount purchased and accrued interest, if any; (d) the date of purchase
and settlement; (e) the purchase price per unit; (f) the total amount
payable upon such purchase; (g) the name of the person from whom or the
broker through whom the purchase was made, and the name of the clearing
broker, if any; and (h) the name of the broker to whom payment is to be
made. The Custodian shall, upon receipt of Securities purchased by or
for the Fund, pay to the broker specified in the Proper Instructions
out of the money held for the account of such Series the total amount
payable upon such purchase, provided that the same conforms to the
total amount payable as set forth in such Proper Instructions.
(b) Promptly after each sale of Securities by the Fund, the Fund shall
deliver to the Custodian Proper Instructions specifying with respect to
each such sale: (a) the Series to which such Securities were
specifically allocated; (b) the name of the issuer and the title of the
Security; (c) the number of shares or the principal amount sold, and
accrued interest, if any; (d) the date of sale; (e) the sale price per
unit; (f) the total amount payable to the Fund upon such sale; (g) the
name of the broker through whom or the person to whom the sale was
made, and the name of the clearing broker, if any; and (h) the name of
the broker to whom the Securities are to be delivered. The Custodian
shall deliver the Securities specifically allocated to such Series to
the broker specified in the Proper Instructions against payment of the
total amount payable to the Fund upon such sale, provided that the same
conforms to the total amount payable as set forth in such Proper
Instructions.
Investment Companies The Bank of New York
By: /s/ Elizabeth N. Cohernour By: /s/ Stephen E. Grunston
Name: Elizabeth N. Cohernour Name: Stephen E. Grunston
Title: Authorized Officer Title: Vice President
Attachment
INVESTMENT COMPANY SERIES
Franklin Mutual Series Fund Inc. Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin Valuemark Funds Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Templeton Variable Products Mutual Shares Investments Fund
Series Fund Mutual Discovery Investments Fund
<TABLE>
<CAPTION>
THE BANK OF NEW YORK
MASTER CUSTODY AGREEMENT
EXHIBIT A
The following is a list of the Investment Companies and their respective Series for which the Custodian shall serve under the
Master Custody Agreement dated as of February 16, 1996.
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
<S> <C> <C>
Adjustable Rate Securities Portfolios Delaware Business Trust U.S. Government Adjustable Rate Mortgage Portfolio
Adjustable Rate Securities Portfolio
Franklin Asset Allocation Fund Delaware Business Trust
Franklin California Tax-Free Income Maryland Corporation
Fund, Inc.
Franklin California Tax-Free Trust Massachusetts Business Franklin California Insured Tax-Free Income Fund
Trust Franklin California Tax-Exempt Money Fund
Franklin California Intermediate-Term Tax-Free
Income Fund
Franklin Custodian Funds, Inc. Maryland Corporation Growth Series
Utilities Series
Dynatech Series
Income Series
U.S. Government Securities Series
Franklin Equity Fund California Corporation
Franklin Federal Money Fund California Corporation
Franklin Federal Tax- Free Income Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Gold Fund California Corporation
Franklin Government Securities Trust Massachusetts Business
Trust
Franklin High Income Trust Delaware Business Trust AGE High Income Fund
Franklin Investors Securities Trust Massachusetts Business Franklin Global Government Income Fund
Trust Franklin Short-Intermediate U.S. Govt Securities Fund
Franklin Convertible Securities Fund
Franklin Adjustable U.S. Government Securities Fund
Franklin Equity Income Fund
Franklin Adjustable Rate Securities Fund
Franklin Managed Trust Massachusetts Business Franklin Corporate Qualified Dividend Fund
Trust Franklin Rising Dividends Fund
Franklin Investment Grade Income Fund
Franklin Money Fund California Corporation
Franklin Municipal Securities Trust Delaware Business Trust Franklin Hawaii Municipal Bond Fund
Franklin California High Yield Municipal Fund
Franklin Washington Municipal Bond Fund
Franklin Tennessee Municipal Bond Fund
Franklin Arkansas Municipal Bond Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Mutual Series Fund Inc. Maryland Corporation Mutual Shares Fund
Mutual Qualified Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual European Fund
Mutual Discovery Fund
Franklin New York Tax-Free Income Delaware Business Trust
Fund
Franklin New York Tax-Free Trust Massachusetts Business Franklin New York Tax-Exempt Money Fund
Trust Franklin New York Intermediate-Term Tax-Free
Income Fund
Franklin New York Insured Tax-Free Income Fund
Franklin Real Estate Securities Trust Delaware Business Trust Franklin Real Estate Securities Fund
Franklin Strategic Mortgage Portfolio Delaware Business Trust
Franklin Strategic Series Delaware Business Trust Franklin California Growth Fund
Franklin Strategic Income Fund
Franklin MidCap Growth Fund
Franklin Global Utilities Fund
Franklin Small Cap Growth Fund
Franklin Global Health Care Fund
Franklin Natural Resources Fund
Franklin Blue Chip Fund
Franklin Biotechnology Discovery Fund
Franklin Tax-Exempt Money Fund California Corporation
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Tax-Free Trust Massachusetts Business Franklin Massachusetts Insured Tax-Free Income Fund
Trust Franklin Michigan Insured Tax-Free Income Fund
Franklin Minnesota Insured Tax-Free Income Fund
Franklin Insured Tax-Free Income Fund
Franklin Ohio Insured Tax-Free Income Fund
Franklin Puerto Rico Tax-Free Income Fund
Franklin Arizona Tax-Free Income Fund
Franklin Colorado Tax-Free Income Fund
Franklin Georgia Tax-Free Income Fund
Franklin Pennsylvania Tax-Free Income Fund
Franklin High Yield Tax-Free Income Fund
Franklin Missouri Tax-Free Income Fund
Franklin Oregon Tax-Free Income Fund
Franklin Texas Tax-Free Income Fund
Franklin Virginia Tax-Free Income Fund
Franklin Alabama Tax-Free Income Fund
Franklin Florida Tax-Free Income Fund
Franklin Connecticut Tax-Free Income Fund
Franklin Indiana Tax-Free Income Fund
Franklin Louisiana Tax-Free Income Fund
Franklin Maryland Tax-Free Income Fund
Franklin North Carolina Tax-Free Income Fund
Franklin New Jersey Tax-Free Income Fund
Franklin Kentucky Tax-Free Income Fund
Franklin Federal Intermediate-Term Tax-Free Income
Fund
Franklin Arizona Insured Tax-Free Income Fund
Franklin Florida Insured Tax-Free Income fund
Franklin Michigan Tax-Free Income Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Templeton Fund Delaware Business Trust Franklin Templeton Conservative Target Fund
Allocator Series Franklin Templeton Moderate Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Global Trust Delaware Business Trust Franklin Templeton German Government Bond Fund
Franklin Templeton Global Currency Fund
Franklin Templeton Hard Currency Fund
Franklin Templeton High Income Currency Fund
Franklin Templeton International Trust Delaware Business Trust Templeton Pacific Growth Fund
Templeton Foreign Smaller Companies Fund
Franklin Templeton Money Fund Trust Delaware Business Trust Franklin Templeton Money Fund II
Franklin Value Investors Trust Massachusetts Business Franklin Balance Sheet Investment Fund
Trust Franklin MicroCap Value Fund
Franklin Value Fund
Franklin Valuemark Funds Massachusetts Business Money Market Fund
Trust Growth and Income Fund
Natural Resources Securities Fund
Real Estate Securities Fund
Global Utilities Securities Fund
High Income Fund
Templeton Global Income Securities Fund
Income Securities Fund
U.S. Government Securities Fund
Zero Coupon Fund - 2000
Zero Coupon Fund - 2005
Zero Coupon Fund - 2010
Rising Dividends Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES ---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
Franklin Valuemark Funds (cont.) Massachusetts Business Templeton Pacific Growth Fund
Trust Templeton International Equity Fund
Templeton Developing Markets Equity Fund
Templeton Global Growth Fund
Templeton Global Asset Allocation Fund
Small Cap Fund
Capital Growth Fund
Templeton International Smaller Companies Fund
Mutual Discovery Securities Fund
Mutual Shares Securities Fund
Global Health Care Securities Fund
Value Securities Fund
Institutional Fiduciary Trust Massachusetts Business Money Market Portfolio
Trust Franklin U.S. Government Securities Money Market
Portfolio
Franklin U.S. Treasury Money Market Portfolio
Franklin Institutional Adjustable U.S. Government
Securities Fund
Franklin Institutional Adjustable Rate Securities Fund
Franklin U.S. Government Agency Money Market Fund
Franklin Cash Reserves Fund
The Money Market Portfolios Delaware Business Trust The Money Market Portfolio
The U.S. Government Securities Money Market Portfolio
Templeton Variable Products Series Fund Mutual Shares Investments Fund
Mutual Discovery Investments Fund
Franklin Growth Investments Fund
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
INVESTMENT COMPANY ORGANIZATION SERIES---(IF APPLICABLE)
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
CLOSED END FUNDS:
Franklin Multi-Income Trust Massachusetts Business
Trust
Franklin Principal Maturity Trust Massachusetts Business
Trust
Franklin Universal Trust Massachusetts Business
Trust
INTERVAL FUND
Franklin Floating Rate Trust Delaware Business Trust
- -------------------------------------------- ---------------------------- ---------------------------------------------------------
</TABLE>
POWER OF ATTORNEY
The undersigned officers and trustees of THE MONEY MARKET PORTFOLIOS (the
"Registrant") hereby appoint HARMON E. BURNS, DEBORAH R. GATZEK, KAREN L.
SKIDMORE, LARRY L. GREENE, and MARK H. PLAFKER (with full power to each of them
to act alone) as their attorney-in-fact and agent, in all capacities, to
execute, and to file any of the documents referred to below relating to
Post-Effective Amendments to the Registrant's registration statement, or the
registration statements of other funds investing all or substantially all of
their assets in shares issued by the Registrant, on Form N-1A under the
Investment Company Act of 1940, as amended, and, in the case of a fund investing
all or substantially all of its assets in shares issued by the Registrant, the
Securities Act of 1933, covering the sale of shares of beneficial interest by
the Registrant or such other fund under prospectuses becoming effective after
the date hereof, including any amendment or amendments filed for the purpose of
updating the prospectus/or SAI, registering securities to be issued in
transactions permitted under the federal securities laws or increasing or
decreasing the amount of securities for which registration is being sought, with
all exhibits and any and all documents required to be filed with respect thereto
with any regulatory authority. Each of the undersigned grants to each of said
attorneys full authority to do every act necessary to be done in order to
effectuate the same as fully, to all intents and purposes as he could do if
personally present, thereby ratifying all that said attorneys-in-fact and agents
may lawfully do or cause to be done by virtue hereof.
The undersigned officers and trustees hereby execute this Power of Attorney as
of this 16th day of June 1998.
/s/ Charles E. Johnson /s/ C. B. Johnson
- ---------------------- ----------------------
Charles E. Johnson, Charles B. Johnson,
Principal Executive Officer Trustee
and Trustee
/s/ R. H. Johnson, Jr. /s/ Frank H. Abbott, III
- ------------------------ --------------------------
Rupert H. Johnson, Jr., Frank H. Abbott, III,
Trustee Trustee
/s/ Harris J. Ashton
- ------------------------ --------------------------
Harris J. Ashton, Robert F. Carlson,
Trustee Trustee
/s/ S. Joseph Fortunato /s/ Frank W. T. LaHaye
- ------------------------ --------------------------
S. Joseph Fortunato, Frank W. T. LaHaye,
Trustee Trustee
/s/ Gordon S. Macklin /s/ Diomedes Loo-Tam
- ----------------------- --------------------------
Gordon S. Macklin, Diomedes Loo-Tam,
Trustee Principal Accounting Officer
/s/ Martin L. Flanagan
- -----------------------
Martin L. Flanagan,
Principal Financial Officer
CERTIFICATE OF SECRETARY
I, Deborah R. Gatzek, certify that I am Secretary of The Money Market
Portfolios (the "Trust").
As Secretary of the Trust, I further certify that the following resolution
was adopted by a majority of the Trustees of the Trust present at a meeting
held at 777 Mariners Island Boulevard, San Mateo, California, on June 16,
1998.
RESOLVED, that a Power of Attorney, substantially in the form of the Power
of Attorney presented to his Board, appointing Harmon E. Burns,
Deborah R. Gatzek, Karen L. Skidmore, Larry L. Greene and Mark H.
Plafker as attorneys-in-fact for the purpose of filing documents with
the Securities and Exchange Commission, be executed by each Trustee
and designated officer.
I declare under penalty of perjury that the matters set forth in this
certificate are true and correct of my own knowledge.
Dated: June 16, 1998
/s/ DEBORAH R. GATZEK
Deborah R. Gatzek
Secretary
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MONEY MARKET PORTFOLIOS JUNE 30, 1998 ANNUAL REPORT AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> THE MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,725,242,664
<INVESTMENTS-AT-VALUE> 1,725,242,664
<RECEIVABLES> 318,939,888
<ASSETS-OTHER> 4,644
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,044,187,196
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 557,893
<TOTAL-LIABILITIES> 557,893
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,043,629,303
<SHARES-COMMON-STOCK> 2,043,629,303
<SHARES-COMMON-PRIOR> 1,773,545,989
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 2,043,629,303
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 111,619,440
<OTHER-INCOME> 0
<EXPENSES-NET> (2,965,776)
<NET-INVESTMENT-INCOME> 108,653,664
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 108,653,664
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (108,653,664)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,690,107,931
<NUMBER-OF-SHARES-REDEEMED> (5,528,677,570)
<SHARES-REINVESTED> 108,652,953
<NET-CHANGE-IN-ASSETS> 270,083,314
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (2,963,304)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (3,098,222)
<AVERAGE-NET-ASSETS> 1,976,218,654
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.055
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.055)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.150<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> .000
<FN>
<F1>RATIO OF EXPENSES EXCLUDING WAIVER AND PAYMENTS BY AFFILIATE
AMOUNTED TO 0.16%.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MONEY
MARKET PORTFOLIOS JUNE 30, 1998 ANNUAL REPORT AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> US GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 49,986,992
<INVESTMENTS-AT-VALUE> 49,986,992
<RECEIVABLES> 213,559,004
<ASSETS-OTHER> 2,198
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 263,548,194
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 321,816
<TOTAL-LIABILITIES> 321,816
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,226,378
<SHARES-COMMON-STOCK> 263,226,378
<SHARES-COMMON-PRIOR> 258,629,177
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 263,226,378
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,584,936
<OTHER-INCOME> 0
<EXPENSES-NET> (394,492)
<NET-INVESTMENT-INCOME> 14,190,444
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14,190,444
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (14,190,444)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 963,956,819
<NUMBER-OF-SHARES-REDEEMED> (973,549,880)
<SHARES-REINVESTED> 14,190,262
<NET-CHANGE-IN-ASSETS> 4,597,201
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> (394,321)
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> (421,380)
<AVERAGE-NET-ASSETS> 262,994,938
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.054
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> (0.054)
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.150<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
<FN>
<F1>RATIO OF EXPENSES EXCLUDING WAIVER AND PAYMENTS BY AFFILIATE
AMOUNTED TO 0.16%.
</FN>
</TABLE>
