UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-02605
Franklin U.S. Government Money Fund
(Exact name of registrant as specified in charter)
One Franklin Parkway, San Mateo, CA 94403-1906
(Address of principal executive offices) (Zip code)
Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906
(Name and address of agent for service)
Registrant’s telephone number, including area code: 650 312-2000
Date of fiscal year end: 6/30
Date of reporting period: 6/30/17
| Item 1. | Reports to Stockholders. |
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| | Annual Report and Shareholder Letter June 30, 2017 |
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Franklin U.S. Government Money Fund |
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Franklin Templeton Investments
Gain From Our Perspective®
At Franklin Templeton Investments, we’re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we’re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world’s largest asset managers. This has helped us to become a trusted partner to individual and institutional investors across the globe.
Dear Shareholder:
Overall, the 12 months ended June 30, 2017, benefited from mostly upbeat economic data, improved U.S. corporate earnings and generally supportive monetary policies. The U.S. job market remained healthy as the unemployment rate declined.
After maintaining its target interest rate in the 0.25%–0.50% range for nearly a year, the U.S. Federal Reserve (Fed), at its December meeting, increased its target range for the federal funds rate to 0.50%–0.75%. In March, the Fed raised its target range 0.25% for the second time in three months to 0.75%–1.00%. The Fed once again raised its target range a quarter point to 1.00%–1.25% at its June meeting. Despite low inflation, the Fed made its most recent decision amid signs of a strengthening labor market and moderately rising economic activity. The 10-year U.S. Treasury yield began the period at 1.49% and rose to 2.31% at period-end. Fixed income markets, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index, had a -0.31% total return for the 12 months ended June 30, 2017.1
Franklin U.S. Government Money Fund’s annual report goes into greater detail about prevailing conditions during the period. In addition, you will find performance data, financial information and a discussion from the portfolio manager. As always, we recommend investors consult their financial
advisors and review their financial plan to design a long-term strategy and portfolio allocation that meet their individual needs, goals and risk tolerance. We firmly believe most people benefit from professional advice and that advice is invaluable as investors navigate current market conditions.
We thank you for investing with Franklin Templeton, welcome your questions and comments, and look forward to serving your future investment needs.
Sincerely,
Rupert H. Johnson, Jr.
Chairman
Franklin U.S. Government Money Fund
This letter reflects our analysis and opinions as of June 30, 2017, unless otherwise indicated. The information is not a complete analysis of every aspect of any market, country, industry, security or fund. Statements of fact are from sources considered reliable.
1. Source: Morningstar.
See www.franklintempletondatasources.com for additional data provider information.
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| Not FDIC Insured | | | | | May Lose Value | | | | | No Bank Guarantee |
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| franklintempleton.com | | Not part of the annual report | | | 1 | |
Contents
Annual Report
Visit franklintempleton.com for fund updates, to access your account, or to find helpful financial planning tools.
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| | 2 | | | Annual Report | | franklintempleton.com |
Annual Report
Franklin U.S. Government Money Fund
We are pleased to bring you Franklin U.S. Government Money Fund’s annual report for the fiscal year ended June 30, 2017.
Your Fund’s Goal and Main Investments
The Fund seeks to provide as high a level of current income as is consistent with preservation of shareholders’ capital and liquidity. The Fund invests through The U.S. Government Money Market Portfolio (the Portfolio) mainly in government securities, cash and repurchase agreements collateralized fully by government securities or cash.1 The Fund attempts to maintain a stable $1.00 share price.
An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency or institution. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Performance Overview
The U.S. Federal Reserve Board (Fed) raised interest rates in June for the third time during the reporting period to 1.00%–1.25%. Consequently, the Fund’s Class A share’s seven-day effective yield increased from 0.00% on June 30, 2016, to 0.44% on June 30, 2017, as shown in the Performance Summary on page 5.
Performance data represent past performance, which does not guarantee future results. Investment return will fluctuate. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Economic and Market Overview
The U.S. economy expanded during the 12 months under review. The economy strengthened in 2016’s third quarter, but moderated over the next two quarters. Growth accelerated in
Portfolio Composition
6/30/17
| | | | |
| | | % of Total Net Assets | |
U.S. Government and Agency Securities | | | 82.1% | |
Repurchase Agreements | | | 20.4% | |
Other Net Assets | | | (2.5)% | |
2017’s second quarter, however, due to increases in consumer spending, business investment and federal government spending. The manufacturing sector generally expanded, and the services sector also continued to grow. The unemployment rate decreased from 4.9% in June 2016 to 4.4% at period-end.2 Monthly retail sales were volatile, but grew during most of the period. Annual inflation, as measured by the Consumer Price Index, increased from 1.0% in June 2016 to 1.6% during the period.
After maintaining its federal funds target rate in the 0.25%–0.50% range for nearly a year, the U.S. Federal Reserve (Fed), at its December meeting, increased the target range to 0.50%–0.75%, as policymakers noted improvement in the U.S. labor market and inflation. The Fed, at its March and June meetings, made widely anticipated increases in its federal funds target rate to 0.75%–1.00% and 1.00%–1.25%, respectively, amid signs of a growing U.S. economy, a strengthening labor market and an improvement in business spending.
The 10-year Treasury yield, which moves inversely to its price, shifted throughout the period. This yield declined earlier in the period due to negative interest rates in Japan and Europe, central banks’ purchases of government bonds, and uncertainty surrounding the U.K.’s historic referendum to leave the European Union (also known as “Brexit”) in June 2016. The yield rose in October due to positive economic data and signals from the Fed about the possibility of an increase in interest rates in the near term. The yield further increased in November and December, amid a bond market sell-off, based on investor expectations that possible expansionary fiscal policies under new U.S. President Donald Trump could lead to a stronger
1. Although U.S. government-sponsored entities may be chartered by acts of Congress, their securities are neither issued nor guaranteed by the U.S. government. Please see the Fund’s prospectus for a detailed discussion regarding various levels of credit support for government agency or instrumentality securities. The Fund’s yield and share price are not guaranteed and will vary with market conditions.
2. Source: Bureau of Labor Statistics.
The dollar value, number of shares or principal amount, and names of all portfolio holdings are listed in the Fund’s Statement of Investments (SOI). The SOI begins on page 9.
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FRANKLIN U.S. GOVERNMENT MONEY FUND
economy and higher inflation. However, geopolitical tensions in the Middle East and the Korean peninsula, and uncertainty in the U.S. about politics and whether the Fed would raise rates again in 2017, resulted in a decline in the yield in the latter part of the period. Overall, the 10-year Treasury yield rose from 1.49% at the beginning of the period to 2.31% at period-end.
Investment Strategy
Consistent with our strategy, we invest, through the Portfolio, mainly in U.S. government securities, cash and repurchase agreements collateralized fully by government securities or cash. We maintain a dollar-weighted average portfolio maturity of 60 days or less and a dollar-weighted average life of 120 days or less. We seek to provide shareholders with a high-quality, conservative investment vehicle; thus, we do not invest the Fund’s cash in derivatives or other relatively volatile securities that we believe involve undue risk.
Manager’s Discussion
Despite the Fed raising interest rates three times during the reporting period, short-term interest rates remained low, pressuring money market yields. We continued to invest the Portfolio’s assets in high quality, short-term securities.
We appreciate your support, welcome new shareholders and look forward to serving your investment needs in the years ahead.
The foregoing information reflects our analysis, opinions and portfolio holdings as of June 30, 2017, the end of the reporting period. The way we implement our main investment strategies and the resulting portfolio holdings may change depending on factors such as market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Fund. Statements of fact are from sources considered reliable, but the investment manager makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy.
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FRANKLIN U.S. GOVERNMENT MONEY FUND
Performance Summary as of June 30, 2017
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| Share Class (Symbol) | | Seven-Day
| | | | | | Seven-Day Annualized Yield1 | |
| | Effective Yield1,2 | | | | | | (with waiver) | | | (without waiver) | |
| | | | |
| A (FMFXX) | | | 0.44% | | | | | | | | 0.44% | | | | 0.44% | |
Performance data represent past performance, which does not guarantee future results. Investment return will fluctuate. Current performance may differ from figures shown. For most recent month-end performance, go to franklintempleton.com or call (800) 342-5236.
Total Annual Operating Expenses3
1. The Fund has a voluntary fee waiver that may be modified or discontinued at any time, and without further notice. Fund investment results reflect the fee waiver, to the extent applicable; without this reduction, the results would have been lower. There is no guarantee the Fund will be able to avoid a negative yield.
2. The seven-day effective yield assumes compounding of daily dividends, if any.
3. The figure is as stated in the Fund’s current prospectus, does not include the voluntary fee waiver, and may differ from the expense ratios disclosed in the Your Fund’s Expenses and Financial Highlights sections in this report. In periods of market volatility, assets may decline significantly, causing total annual Fund operating expenses to become higher than the figures shown.
Annualized and effective yields are for the seven-day period ended 6/30/17. The Fund’s average weighted life and average weighted maturity were each 41 days. Yield reflects Fund expenses and fluctuations in interest rates on Portfolio investments.
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FRANKLIN U.S. GOVERNMENT MONEY FUND
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs: (1) transaction costs, including sales charges (loads) on Fund purchases and redemptions; and (2) ongoing Fund costs, including management fees, distribution and service (12b-1) fees, and other Fund expenses. All mutual funds have ongoing costs, sometimes referred to as operating expenses. The table below shows ongoing costs of investing in the Fund and can help you understand these costs and compare them with those of other mutual funds. The table assumes a $1,000 investment held for the six months indicated.
Actual Fund Expenses
The table below provides information about actual account values and actual expenses in the columns under the heading “Actual.” In these columns the Fund’s actual return, which includes the effect of Fund expenses, is used to calculate the “Ending Account Value” for each class of shares. You can estimate the expenses you paid during the period by following these steps (of course, your account value and expenses will differ from those in this illustration): Divide your account value by $1,000 (if your account had an $8,600 value, then $8,600 ÷ $1,000 = 8.6). Then multiply the result by the number in the row for your class of shares under the headings “Actual” and “Expenses Paid During Period” (if Actual Expenses Paid During Period were $7.50, then 8.6 x $7.50 = $64.50). In this illustration, the actual expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Under the heading “Hypothetical” in the table, information is provided about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. This information may not be used to estimate the actual ending account balance or expenses you paid for the period, but it can help you compare ongoing costs of investing in the Fund with those of other funds. To do so, compare this 5% hypothetical example for the class of shares you hold with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transactional costs. Therefore, information under the heading “Hypothetical” is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transactional costs were included, your total costs would have been higher.
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| | | | | | | Actual
(actual return after expenses) | | | | Hypothetical
(5% annual return before expenses) | | | | |
Share Class | | Beginning
Account
Value 1/1/17 | | | | Ending
Account
Value 6/30/17 | | Expenses
Paid During
Period
1/1/17–6/30/171,2 | | | | Ending Account Value 6/30/17 | | Expenses Paid During
Period 1/1/17–6/30/171,2 | | | | Net
Annualized
Expense
Ratio2 |
| A | | $1,000 | | | | $1,000.70 | | $2.53 | | | | $1,022.27 | | $2.56 | | | | 0.51% |
| R6 | | $1,000 | | | | $1,001.00 | | $2.23 | | | | $1,022.56 | | $2.26 | | | | 0.45% |
1. Expenses are equal to the annualized expense ratio, which includes the net expenses incurred by the Portfolio, for the six-month period as indicated above—in the far right column—multiplied by the simple average account value over the period indicated, and then multiplied by 181/365 to reflect the one-half year period.
2. Reflects expenses after voluntary fee waivers and expense reimbursements.
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FRANKLIN U.S. GOVERNMENT MONEY FUND
Financial Highlights
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| Class A | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of year | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
| | | | | |
| Income from investment operations – net investment income | | | 0.001 | | | | — | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
| Less distributions from net investment income | | | (0.001 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
| Net asset value, end of year | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
| | | | | |
Total returna | | | 0.07% | | | | —% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliatesb | | | 0.53% | | | | 0.56% | | | | 0.58% | | | | 0.57% | | | | 0.61% | |
| | | | | |
Expenses net of waiver and payments by affiliatesb | | | 0.43% | | | | 0.21% | | | | 0.09% | | | | 0.08% | | | | 0.13% | |
| | | | | |
Net investment income | | | 0.07% | | | | —% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $2,272,504 | | | | $2,344,329 | | | | $1,570,782 | | | | $1,668,506 | | | | $2,068,172 | |
aTotal return does not reflect sales commissions or contingent deferred sales charges, if applicable.
bThe expense ratio includes the Fund’s share of the Portfolio’s allocated expenses.
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 7 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
FINANCIAL HIGHLIGHTS
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013a | |
Class R6 | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Per share operating performance
(for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
Net asset value, beginning of year | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
| | | | | |
| Income from investment operations – net investment income | | | 0.001 | | | | — | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
| Less distributions from net investment income | | | (0.001 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
| Net asset value, end of year | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
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Total returnb | | | 0.10% | | | | —% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Ratios to average net assetsc | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliatesd | | | 0.46% | | | | 0.47% | | | | 0.47% | | | | 0.46% | | | | 0.47% | |
| | | | | |
Expenses net of waiver and payments by affiliatesd | | | 0.40% | | | | 0.21% | | | | 0.09% | | | | 0.08% | | | | 0.13% | |
| | | | | |
Net investment income | | | 0.10% | | | | —% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $68,704 | | | | $61,056 | | | | $58,571 | | | | $54,168 | | | | $5 | |
aFor the period May 1, 2013 (effective date) to June 30, 2013.
bTotal return is not annualized for period less than one year.
cRatios are annualized for periods less than one year.
dThe expense ratio includes the Fund’s share of the Portfolio’s allocated expenses.
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| 8 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Statement of Investments, June 30, 2017
| | | | | | | | | | |
| | | | | Shares | | | Value | |
| | Management Investment Companies (Cost $2,345,320,370) 100.2% | | | | | | | | |
| a | | The U.S. Government Money Market Portfolio, 0.78% | | | 2,345,320,370 | | | $ | 2,345,320,370 | |
| | Other Assets, less Liabilities (0.2)% | | | | | | | (4,112,372 | ) |
| | | | | | | | | | |
| | Net Assets 100.0% | | | | | | $ | 2,341,207,998 | |
| | | | | | | | | | |
aThe rate shown is the annualized seven-day yield at period end.
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 9 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Financial Statements
Statement of Assets and Liabilities
June 30, 2017
| | | | |
Assets: | | | | |
Investment in affiliated Portfolio, at value and cost | | $ | 2,345,320,370 | |
| | | | |
| |
Receivables: | | | | |
Capital shares sold | | | 3,292,000 | |
| | | | |
Total assets | | | 2,348,612,370 | |
| | | | |
| |
Liabilities: | | | | |
Payables: | | | | |
Capital shares redeemed | | | 6,514,745 | |
Administrative fees | | | 574,649 | |
Transfer agent fees | | | 223,074 | |
Distributions to shareholders | | | 946 | |
Accrued expenses and other liabilities | | | 90,958 | |
| | | | |
Total liabilities | | | 7,404,372 | |
| | | | |
Net assets, at value | | $ | 2,341,207,998 | |
| | | | |
Net assets consist of paid-in capital | | $ | 2,341,207,998 | |
| | | | |
| |
| Class A: | | | | |
Net assets, at value | | $ | 2,272,503,758 | |
| | | | |
Shares outstanding | | | 2,272,587,347 | |
| | | | |
Net asset value per sharea | | | $1.00 | |
| | | | |
| |
| Class R6: | | | | |
Net assets, at value | | $ | 68,704,240 | |
| | | | |
Shares outstanding | | | 68,704,240 | |
| | | | |
Net asset value per share | | | $1.00 | |
| | | | |
aRedemption price is equal to net asset value less contingent deferred sales charges, if applicable.
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| 10 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
FINANCIAL STATEMENTS
Statement of Operations
for the year ended June 30, 2017
| | | | |
Investment income: | | | | |
Dividends from affiliated Portfolio | | $ | 8,673,778 | |
| | | | |
| |
Expenses: | | | | |
Administrative fees (Note 3a) | | | 7,367,027 | |
Transfer agent fees: (Note 3c) | | | | |
Class A | | | 1,719,016 | |
Class R6 | | | 135 | |
Reports to shareholders | | | 124,173 | |
Registration and filing fees | | | 149,338 | |
Professional fees | | | 66,607 | |
Trustees’ fees and expenses | | | 46,241 | |
Other | | | 67,038 | |
| | | | |
Total expenses | | | 9,539,575 | |
Expenses waived/paid by affiliates (Note 3d) | | | (2,636,189 | ) |
| | | | |
Net expenses | | | 6,903,386 | |
| | | | |
Net investment income | | | 1,770,392 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | $ | 1,770,392 | |
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| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 11 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
| | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | 2016 | |
| | |
Increase (decrease) in net assets: | | | | | | | | |
Net investment income from operations | | $ | 1,770,392 | | | $ | — | |
| | | | |
| | |
Distributions to shareholders from: | | | | | | | | |
Net investment income: | | | | | | | | |
Class A | | | (1,700,956 | ) | | | — | |
Class R6 | | | (69,436 | ) | | | — | |
| | | | |
Total distributions to shareholders | | | (1,770,392 | ) | | | — | |
| | | | |
| | |
Capital share transactions: (Note 2) | | | | | | | | |
Class A | | | (71,824,750 | ) | | | 773,546,673 | |
Class R6 | | | 7,648,128 | | | | 2,484,925 | |
| | | | |
Total capital share transactions | | | (64,176,622 | ) | | | 776,031,598 | |
| | | | |
Net increase (decrease) in net assets | | | (64,176,622 | ) | | | 776,031,598 | |
Net assets (there is no undistributed net investment income at beginning or end of year): | | | | | | | | |
Beginning of year | | | 2,405,384,620 | | | | 1,629,353,022 | |
| | | | |
End of year | | $ | 2,341,207,998 | | | $ | 2,405,384,620 | |
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| 12 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Notes to Financial Statements
1. Organization and Significant Accounting Policies
Franklin U.S. Government Money Fund (Fund) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Fund offers two classes of shares: Class A and Class R6. Each class of shares may differ by its initial sales load, contingent deferred sales charges, voting rights on matters affecting a single class, its exchange privilege and fees primarily due to differing arrangements for distribution and transfer agent fees.
The Fund invests substantially all of its assets in The U.S. Government Money Market Portfolio (Portfolio), which is registered under the 1940 Act as an open-end management investment company and applies the specialized accounting and reporting guidance in U.S. GAAP. The accounting policies of the Portfolio, including the Portfolio’s security valuation policies, will directly affect the recorded value of the Fund’s investment in the Portfolio. The financial statements of the Portfolio, including the Statement of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements.
The following summarizes the Fund’s significant accounting policies.
a. Financial Instrument Valuation
The Fund holds Portfolio shares that are valued at the closing net asset value of the Portfolio. Under compliance policies and procedures approved by the Fund’s Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Fund’s valuation policies and procedures, which are approved annually by the Board. At June 30, 2017, the Fund owned 10.9% of the Portfolio.
b. Income Taxes
It is the Fund’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Fund intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Fund may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of June 30, 2017, the Fund has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
c. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Income received from the Portfolio and estimated expenses are accrued daily. Dividends from net investment income are normally declared and distributed daily; these dividends may be reinvested or paid monthly to shareholders. Distributions from net realized capital gains and other distributions, if any, are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
Net investment income, not including class specific expenses, is allocated daily to each class of shares based upon the relative value of the settled shares of each class. Realized and unrealized gains and losses are allocated daily to each class of shares based upon the relative proportion of net assets of each class. Differences in per share distributions, by class, are generally due to differences in class specific expenses.
d. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
| | | | | | |
| franklintempleton.com | | Annual Report | | | 13 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies (continued)
e. Guarantees and Indemnifications
Under the Fund’s organizational documents, its officers and trustees are indemnified by the Fund against certain liabilities arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters
into contracts with service providers that contain general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. Currently, the Fund expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At June 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Fund’s shares at $1.00 per share were as follows:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | | | | 2016 | |
| | | |
| Class A Shares: | | | | | | | | | | | | |
Shares sold | | $ | 2,121,360,490 | | | | | | | $ | 3,008,913,486 | |
Shares issued in reinvestment of distributions | | | 1,702,082 | | | | | | | | — | |
Shares redeemed | | | (2,194,887,322 | ) | | | | | | | (2,235,366,813 | ) |
Net increase (decrease) | | $ | (71,824,750 | ) | | | | | | $ | 773,546,673 | |
| | | |
| Class R6 Shares: | | | | | | | | | | | | |
Shares sold | | $ | 46,959,289 | | | | | | | $ | 34,852,174 | |
Shares issued in reinvestment of distributions | | | 514 | | | | | | | | — | |
Shares redeemed | | | (39,311,675 | ) | | | | | | | (32,367,249 | ) |
Net increase (decrease) | | $ | 7,648,128 | | | | | | | $ | 2,484,925 | |
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers, directors and/or trustees of the Portfolio and of the following subsidiaries:
| | |
| Subsidiary | | Affiliation |
Franklin Templeton Services, LLC (FT Services) | | Administrative manager |
Franklin Templeton Distributors, Inc. (Distributors) | | Principal underwriter |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent |
a. Administrative Fees
The Fund pays an administrative fee to FT Services based on the Fund’s average daily net assets as follows:
| | |
| Annualized Fee Rate | | Net Assets |
0.455% | | Up to and including $100 million |
0.330% | | Over $100 million, up to and including $250 million |
0.280% | | In excess of $250 million |
For the year ended June 30, 2017, the effective administrative fee rate was 0.290% of the Fund’s average daily net assets.
| | | | |
| 14 | | Annual Report | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
b. Sales Charges/Underwriting Agreements
Front-end sales charges and contingent deferred sales charges (CDSC) do not represent expenses of the Fund. These charges are deducted from the proceeds of sales of Fund shares prior to investment or from redemption proceeds prior to remittance, as applicable. Distributors has advised the Fund of the following commission transactions related to the sales and redemptions of the Fund’s shares for the year:
c. Transfer Agent Fees
Class A pays transfer agent fees to Investor Services for its performance of shareholder servicing obligations and reimburses Investor Services for out of pocket expenses incurred, including shareholder servicing fees paid to third parties. Class R6 pays Investor Services transfer agent fees specific to that class.
For the year ended June 30, 2017, the Fund paid transfer agent fees of $1,719,151, of which $1,069,214 was retained by Investor Services.
d. Waivers and Expense Reimbursements
In efforts to prevent a negative yield, FT Services and Investor Services have voluntarily agreed to waive or limit their respective fees, assume as their own expense certain expenses otherwise payable by the Fund and if necessary, make a capital infusion into the Fund. These waivers, expense reimbursements and capital infusions are voluntary and may be modified or discontinued by FT Services or Investor Services at any time, and without further notice. Total expenses waived or paid are not subject to recapture subsequent to the Fund’s fiscal year end. There is no guarantee that the Fund will be able to avoid a negative yield.
e. Other Affiliated Transactions
At June 30, 2017, an interested board member owned 22.4% of the Fund’s outstanding shares.
4. Income Taxes
The tax character of distributions paid during the years ended June 30, 2017 and 2016, was as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from ordinary income | | $ | 1,770,392 | | | $ | — | |
| | | | |
At June 30, 2017, the cost of investments and undistributed ordinary income for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 2,345,320,370 | |
| | | | |
Distributable earnings - undistributed ordinary income | | $ | 946 | |
| | | | |
5. Fair Value Measurements
The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 15 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
NOTES TO FINANCIAL STATEMENTS
5. Fair Value Measurements (continued)
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | • | | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
At June 30, 2017, all of the Fund’s investments in financial instruments carried at fair value were valued using Level 1 inputs.
6. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management has reviewed the requirements and believes the adoption of the amendments to Regulation S-X will not have a material impact on the Fund’s financial statements and related disclosures.
7. Subsequent Events
The Fund has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
| | | | |
| 16 | | Annual Report | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Shareholders of the Franklin U.S. Government Money Fund
In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the Franklin U.S. Government Money Fund (the “Fund”) as of June 30, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of June 30, 2017 by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 15, 2017
| | | | | | |
| franklintempleton.com | | Annual Report | | | 17 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Tax Information (unaudited)
Under Section 871(k)(1)(C) of the Internal Revenue Code (Code), the Fund hereby reports the maximum amount allowable but no less than $1,770,392 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended June 30, 2017.
| | | | |
| 18 | | Annual Report | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
Independent Board Members
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Harris J. Ashton (1932) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1982 | | 140 | | Bar-S Foods (meat packing company) (1981-2010). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). |
| | | | |
Mary C. Choksi (1950) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2014 | | 134 | | Avis Budget Group Inc. (car rental) (2007-present) and Omnicom Group Inc. (advertising and marketing communications services) (2011-present). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); Founding Partner and Senior Managing Director, Strategic Investment Group (1987 -2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987). |
| | | | |
Edith E. Holiday (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2005 | | 140 | | Hess Corporation (exploration of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-present), RTI International Metals, Inc. (manufacture and distribution of titanium) (1999-2015) and H.J. Heinz Company (processed foods and allied products) (1994-2013). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). |
| | | | |
J. Michael Luttig (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2009 | | 140 | | Boeing Capital Corporation (aircraft financing) (2006-2013). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 19 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Independent Board Members (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Larry D. Thompson (1945) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 140 | | The Southern Company (energy company) (2014-present; previously 2010-2012), Graham Holdings Company (education and media organization) (2011-present) and Cbeyond, Inc. (business communications provider) (2010-2012) |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-present; previously 2011-2012); and formerly, Executive Vice President - Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). |
| | | | |
John B. Wilson (1959) One Franklin Parkway San Mateo, CA 94403-1906 | | Lead Independent Trustee | | Trustee since 2007 and Lead Independent Trustee since 2008 | | 114 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990). |
|
Interested Board Members and Officers |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 156 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Chairman of the Board, Member - Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015). |
| | | | |
**Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906 | | Chairman of the Board and Trustee | | Chairman of the Board since 2013 and Trustee since 1978 | | 140 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments. |
| | | | |
Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
| 20 | | Annual Report | | franklintempleton.com |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Gaston Gardey (1967) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Financial Officer, Chief Accounting Officer and Treasurer | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments. |
| | | | |
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FT AlphaParity, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since June 2017 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Vice President, U.S. Fund Administration Reporting & Fund Tax, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017). |
| | | | |
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Christopher J. Molumphy (1962) One Franklin Parkway San Mateo, CA 94403-1906 | | President and Chief Executive Officer – Investment Management | | Since 2010 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 22 of the investment companies in Franklin Templeton Investments. |
| | | | |
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 21 | |
FRANKLIN U.S. GOVERNMENT MONEY FUND
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Compliance Officer | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). |
| | | | |
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2006 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2005 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2007. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the trust.
It is possible that after this date, information about officers may change.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
| | | | |
| 22 | | Annual Report | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
Financial Highlights
The U.S. Government Money Market Portfolio
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
| | | | | |
Per share operating performance (for a share outstanding throughout the year) | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net asset value, beginning of year | | | $ 1.00 | | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
| | | | | |
| Income from investment operations: | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net investment income | | | 0.003 | | | | 0.001 | | | | — | | | | — | | | | — | |
| | | | | |
Net realized and unrealized gains (losses)a | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
Total from investment operations | | | 0.003 | | | | 0.001 | | | | — | a | | | — | a | | | — | a |
| | | | |
| | | | | |
Less distributions from net investment income | | | (0.003) | | | | (0.001) | | | | — | | | | — | | | | — | |
| | | | |
| | | | | |
Net asset value, end of year | | | $ 1.00 | | | | $ 1.00 | | | | $1.00 | | | | $1.00 | | | | $1.00 | |
| | | | |
| | | | | |
Total return | | | 0.35% | | | | 0.07% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Ratios to average net assets | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Expenses before waiver and payments by affiliates | | | 0.15% | | | | 0.15% | | | | 0.15% | | | | 0.15% | | | | 0.15% | |
| | | | | |
Expenses net of waiver and payments by affiliatesb | | | 0.15% | | | | 0.13% | | | | 0.09% | | | | 0.08% | | | | 0.13% | |
| | | | | |
Net investment income | | | 0.35% | | | | 0.06% | | | | —% | | | | —% | | | | —% | |
| | | | | |
| Supplemental data | | | | | | | | | | | | | | | | | | | | |
| | | | | |
Net assets, end of year (000’s) | | | $21,564,546 | | | | $22,324,993 | | | | $27,390,400 | | | | $23,491,469 | | | | $18,744,530 | |
aAmount rounds to less than $0.001 per share.
bBenefit of expense reduction rounds to less than 0.01%.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 23 | |
THE MONEY MARKET PORTFOLIOS
Statement of Investments, June 30, 2017
| | | | | | | | | | |
| The U.S. Government Money Market Portfolio | | | | | | |
| | | | | Principal Amount | | | Value | |
| | | Investments 102.5% | | | | | | |
| | | U.S. Government and Agency Securities 82.1% | | | | | | |
| a | | FFCB, | | | | | | | | |
| | 7/24/17 | | $ | 10,000,000 | | | $ | 9,993,675 | |
| | 7/25/17 | | | 20,000,000 | | | | 19,986,800 | |
| | 7/26/17 | | | 30,000,000 | | | | 29,979,375 | |
| | 7/31/17 | | | 100,000,000 | | | | 99,917,500 | |
| | 8/02/17 | | | 20,000,000 | | | | 19,982,400 | |
| | 8/03/17 | | | 25,000,000 | | | | 24,977,313 | |
| | 8/04/17 | | | 50,000,000 | | | | 49,953,250 | |
| a | | FHLB, | | | | | | | | |
| | 7/05/17 | | | 506,000,000 | | | | 505,950,844 | |
| | 7/07/17 | | | 250,000,000 | | | | 249,964,208 | |
| | 7/12/17 | | | 300,000,000 | | | | 299,916,675 | |
| | 7/14/17 | | | 550,000,000 | | | | 549,809,044 | |
| | 7/19/17 | | | 400,000,000 | | | | 399,808,100 | |
| | 7/21/17 | | | 500,000,000 | | | | 499,730,556 | |
| | 7/26/17 | | | 400,000,000 | | | | 399,729,028 | |
| | 7/28/17 | | | 310,000,000 | | | | 309,783,175 | |
| | 8/02/17 | | | 200,000,000 | | | | 199,825,067 | |
| | 8/04/17 | | | 200,000,000 | | | | 199,809,411 | |
| | 8/09/17 | | | 200,000,000 | | | | 199,776,833 | |
| | 8/11/17 | | | 300,000,000 | | | | 299,647,400 | |
| | 8/16/17 | | | 200,000,000 | | | | 199,736,267 | |
| | 8/18/17 | | | 300,000,000 | | | | 299,589,200 | |
| | 8/23/17 | | | 200,000,000 | | | | 199,698,489 | |
| | 8/25/17 | | | 100,000,000 | | | | 99,845,083 | |
| a | | FHLMC, | | | | | | | | |
| | 7/03/17 | | | 794,287,000 | | | | 794,247,522 | |
| | 7/07/17 | | | 45,000,000 | | | | 44,994,113 | |
| | 7/17/17 | | | 102,000,000 | | | | 101,962,827 | |
| | 8/01/17 | | | 117,000,000 | | | | 116,905,295 | |
| | 8/11/17 | | | 90,960,000 | | | | 90,857,443 | |
| | 8/18/17 | | | 41,250,000 | | | | 41,195,000 | |
| | 9/06/17 | | | 13,750,000 | | | | 13,724,794 | |
| a | | FNMA, | | | | | | | | |
| | 7/03/17 | | | 800,000,000 | | | | 799,957,778 | |
| | 7/05/17 | | | 1,000,000,000 | | | | 999,936,722 | |
| | 7/12/17 | | | 222,937,000 | | | | 222,882,504 | |
| | 7/18/17 | | | 100,000,000 | | | | 99,961,750 | |
| | 7/19/17 | | | 100,000,000 | | | | 99,959,500 | |
| | 7/26/17 | | | 314,000,000 | | | | 313,821,194 | |
| | 8/02/17 | | | 300,000,000 | | | | 299,773,333 | |
| | 8/09/17 | | | 13,599,000 | | | | 13,584,268 | |
| | 9/06/17 | | | 110,000,000 | | | | 109,799,372 | |
| a | | U.S. Treasury Bill, | | | | | | | | |
| | 7/06/17 | | | 415,430,000 | | | | 415,384,498 | |
| | 7/13/17 | | | 107,080,000 | | | | 107,058,386 | |
| | 7/20/17 | | | 300,000,000 | | | | 299,892,861 | |
| | 7/27/17 | | | 631,060,000 | | | | 630,691,929 | |
| | 8/03/17 | | | 450,000,000 | | | | 449,701,854 | |
| | 8/10/17 | | | 398,610,000 | | | | 398,289,168 | |
| | 8/17/17 | | | 399,750,000 | | | | 399,311,629 | |
| | 8/24/17 | | �� | 449,750,000 | | | | 449,169,741 | |
| | | | |
| 24 | | Annual Report | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS
The U.S. Government Money Market Portfolio (continued)
| | | | | | | | | | |
| | | | | Principal Amount | | | Value | |
| | | Investments (continued) | | | | | | |
| | | U.S. Government and Agency Securities (continued) | | | | | | |
| a | | U.S. Treasury Bill, (continued) | | | | | | | | |
| | 8/31/17 | | | $ 400,000,000 | | | | $ 399,398,472 | |
| | 9/07/17 | | | 499,750,000 | | | | 498,879,685 | |
| | 9/14/17 | | | 400,000,000 | | | | 399,241,667 | |
| | 9/21/17 | | | 665,980,000 | | | | 664,529,876 | |
| | 9/28/17 | | | 599,750,000 | | | | 598,337,743 | |
| | 10/05/17 | | | 148,780,000 | | | | 148,418,961 | |
| | 10/12/17 | | | 300,000,000 | | | | 299,261,833 | |
| | 10/19/17 | | | 100,000,000 | | | | 99,711,250 | |
| | 10/26/17 | | | 200,000,000 | | | | 199,379,250 | |
| | 11/02/17 | | | 100,000,000 | | | | 99,664,167 | |
| | 11/09/17 | | | 100,000,000 | | | | 99,688,875 | |
| | 11/16/17 | | | 189,780,000 | | | | 189,037,960 | |
| | 11/30/17 | | | 200,000,000 | | | | 199,113,333 | |
| | 12/07/17 | | | 200,000,000 | | | | 199,054,833 | |
| | 12/21/17 | | | 300,000,000 | | | | 298,385,333 | |
| | 12/28/17 | | | 300,000,000 | | | | 298,335,000 | |
| | 1/04/18 | | | 6,545,000 | | | | 6,515,422 | |
| | 2/01/18 | | | 71,100,000 | | | | 70,756,054 | |
| | U.S. Treasury Note, | | | | | | | | |
| | 0.625%, 8/31/17 | | | 200,000,000 | | | | 199,878,249 | |
| | 0.75%, 10/31/17 | | | 250,000,000 | | | | 249,711,758 | |
| | | | | | | | | | |
| | Total U.S. Government and Agency Securities (Cost $17,697,772,895) | | | | | | | 17,697,772,895 | |
| | | | | | | | | | |
| b | | Repurchase Agreements 20.4% | | | | | | | | |
| | Barclays Capital Inc., 1.05%, 7/03/17 (Maturity Value $38,003,325)
Collateralized by U.S. Treasury Note, 2.00%, 7/31/20 (valued at $38,950,193) | | | 38,000,000 | | | | 38,000,000 | |
| | Deutsche Bank Securities Inc., 1.05%, 7/03/17 (Maturity Value $25,002,188)
Collateralized by U.S. Treasury Note, 0.75% - 2.25%, 7/31/18 - 4/30/22 (valued at $25,500,063) | | | 25,000,000 | | | | 25,000,000 | |
| | Deutsche Bank Securities Inc., 1.15%, 7/03/17 (Maturity Value $ 5,000,479)
Collateralized by U.S. Treasury Note, 1.00% - 4.00%, 8/15/18 - 6/30/19 (valued at $5,100,082) | | | 5,000,000 | | | | 5,000,000 | |
| | Federal Reserve Bank of New York, 1.00%, 7/03/17 (Maturity Value $3,875,322,917)
Collateralized by U.S. Treasury Bond, 2.75% - 4.625%, 5/15/38 - 11/15/42; and U.S. Treasury Note, 2.625%, 11/15/20 (valued at $3,875,323,037) | | | 3,875,000,000 | | | | 3,875,000,000 | |
| | Goldman Sachs & Co., 1.00%, 7/03/17 (Maturity Value $125,010,417)
Collateralized by U.S. Treasury Note, 2.25%, 4/30/21 (valued at $127,505,374) | | | 125,000,000 | | | | 125,000,000 | |
| | HSBC Securities Inc., 1.05%, 7/03/17 (Maturity Value $300,026,250)
Collateralized by U.S. Government and Agency Securities, 0.00% - 1.018%, 12/15/17 - 2/01/20 (valued at $306,003,182) | | | 300,000,000 | | | | 300,000,000 | |
| | Merrill Lynch, Pierce, Fenner & Smith Inc., 0.99%, 7/03/17 (Maturity Value $32,412,674)
Collateralized by U.S. Treasury Note, 1.125%, 7/31/21 (valued at $33,237,895) | | | 32,410,000 | | | | 32,410,000 | |
| | | | | | | | | | |
| | Total Repurchase Agreements (Cost $4,400,410,000) | | | | | | | 4,400,410,000 | |
| | | | | | | | | | |
| | Total Investments (Cost $22,098,182,895) 102.5% | | | | | | | 22,098,182,895 | |
| | Other Assets, less Liabilities (2.5)% | | | | | | | (533,636,638 | ) |
| | | | | | | | | | |
| | Net Assets 100.0% | | | | | | $ | 21,564,546,257 | |
| | | | | | | | | | |
See Abbreviations on page 32.
aThe security was issued on a discount basis with no stated coupon rate.
bSee Note 1(b) regarding repurchase agreements.
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 25 | |
THE MONEY MARKET PORTFOLIOS
Financial Statements
Statement of Assets and Liabilities
June 30, 2017
The U.S. Government Money Market Portfolio
| | | | |
Assets: | | | | |
Investments in unaffiliated securities, at amortized cost | | $ | 17,697,772,895 | |
Repurchase agreements, at value and cost | | | 4,400,410,000 | |
| | | | |
Total investments | | $ | 22,098,182,895 | |
Cash | | | 168,425,736 | |
Receivables from interest | | | 858,078 | |
| | | | |
Total assets | | | 22,267,466,709 | |
| | | | |
Liabilities: | | | | |
Payables: | | | | |
Investment securities purchased | | | 699,963,055 | |
Management fees | | | 2,697,285 | |
Distributions to shareholders | | | 6,932 | |
Accrued expenses and other liabilities | | | 253,180 | |
| | | | |
Total liabilities | | | 702,920,452 | |
| | | | |
Net assets, at value | | $ | 21,564,546,257 | |
| | | | |
Net assets consist of: | | | | |
Paid-in capital | | $ | 21,564,541,538 | |
Undistributed net investment income | | | 4,719 | |
| | | | |
Net assets, at value | | $ | 21,564,546,257 | |
| | | | |
Shares outstanding | | | 21,564,543,137 | |
| | | | |
Net asset value per share | | $ | 1.00 | |
| | | | |
| | | | |
| 26 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
Statement of Operations
for the year ended June 30, 2017
The U.S. Government Money Market Portfolio
| | | | |
Investment income: | | | | |
Interest | | $ | 100,880,851 | |
| | | | |
Expenses: | | | | |
Management fees (Note 3a) | | | 30,021,404 | |
Custodian fees (Note 4) | | | 180,852 | |
Reports to shareholders | | | 8,583 | |
Professional fees | | | 222,168 | |
Other | | | 192,020 | |
| | | | |
Total expenses | | | 30,625,027 | |
Expense reductions (Note 4) | | | (183,181 | ) |
| | | | |
Net expenses | | | 30,441,846 | |
| | | | |
Net investment income | | | 70,439,005 | |
| | | | |
Net realized gain (loss) from investments | | | 800 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | $ | 70,439,805 | |
| | | | |
| | | | | | |
| franklintempleton.com | | The accompanying notes are an integral part of these financial statements. | Annual Report | | | 27 | |
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
Statements of Changes in Net Assets
The U.S. Government Money Market Portfolio
| | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | 2016 | |
Increase (decrease) in net assets: | | | | | | | | |
Operations: | | | | | | | | |
Net investment income | | $ | 70,439,005 | | | $ | 14,872,660 | |
Net realized gain (loss) | | | 800 | | | | 2,619,294 | |
| | | | |
Net increase (decrease) in net assets resulting from operations | | | 70,439,805 | | | | 17,491,954 | |
| | | | |
Distributions to shareholders from net investment income | | | (70,439,005 | ) | | | (14,872,660 | ) |
Capital share transactions (Note 2) | | | (760,447,580 | ) | | | (5,068,026,490 | ) |
| | | | |
Net increase (decrease) in net assets | | | (760,446,780 | ) | | | (5,065,407,196 | ) |
Net assets: | | | | | | | | |
Beginning of year | | | 22,324,993,037 | | | | 27,390,400,233 | |
| | | | |
End of year | | $ | 21,564,546,257 | | | $ | 22,324,993,037 | |
| | | | |
Undistributed net investment income included in net assets: | | | | | | | | |
End of year | | $ | 4,719 | | | $ | — | |
| | | | |
| | | | |
| 28 | | Annual Report | The accompanying notes are an integral part of these financial statements. | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
Notes to Financial Statements
The U.S. Government Money Market Portfolio
1. Organization and Significant Accounting Policies
The Money Market Portfolios (Trust) is registered under the Investment Company Act of 1940 (1940 Act) as an open-end management investment company, consisting of one portfolio, The U.S. Government Money Market Portfolio (Portfolio) and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles (U.S. GAAP). The shares of the Portfolio are issued in private placements and are exempt from registration under the Securities Act of 1933.
The following summarizes the Portfolio’s significant accounting policies.
a. Financial Instrument Valuation
Securities are valued at amortized cost, which approximates fair value. Amortized cost is an income-based approach which involves valuing an instrument at its cost and thereafter assuming a constant amortization to maturity of any discount or premium. Under compliance policies and procedures approved by the Portfolio’s Board of Trustees (the Board), Franklin Templeton Services, LLC, an affiliate of the investment manager, has responsibility for oversight of valuation, including leading the cross-functional Valuation Committee (VC). The VC provides administration and oversight of the Portfolio’s valuation policies and procedures, which are approved annually by the Board.
b. Repurchase Agreements
The Portfolio enters into repurchase agreements, which are accounted for as a loan by the Portfolio to the seller, collateralized by securities which are delivered to the Portfolio’s custodian. The fair value, including accrued interest, of the initial collateralization is required to be at least 102% (if the counterparty is a bank or broker-dealer) or 100% (if the counterparty is the Federal Reserve Bank of New York) of the dollar amount invested by the Portfolio, with the value of the underlying securities marked to market daily to maintain coverage of at least 100%. Repurchase agreements are subject to the terms of Master Repurchase Agreements (MRAs) with approved counterparties (sellers). The MRAs contain various provisions, including but not limited to events of default and maintenance of collateral for repurchase agreements. In the event of default by either the seller or the Portfolio, certain MRAs may permit the non-defaulting party to net and close-out all transactions, if any, traded under such agreements. The
Portfolio may sell securities it holds as collateral and apply the proceeds towards the repurchase price and any other amounts owed by the seller to the Portfolio in the event of default by the seller. This could involve costs or delays in addition to a loss on the securities if their value falls below the repurchase price owed by the seller. All repurchase agreements held by the Portfolio at year end, as indicated in the Statement of Investments, had been entered into on June 30, 2017.
c. Income Taxes
It is the Portfolio’s policy to qualify as a regulated investment company under the Internal Revenue Code. The Portfolio intends to distribute to shareholders substantially all of its taxable income and net realized gains to relieve it from federal income and excise taxes. As a result, no provision for U.S. federal income taxes is required.
The Portfolio may recognize an income tax liability related to its uncertain tax positions under U.S. GAAP when the uncertain tax position has a less than 50% probability that it will be sustained upon examination by the tax authorities based on its technical merits. As of June 30, 2017, the Portfolio has determined that no tax liability is required in its financial statements related to uncertain tax positions for any open tax years (or expected to be taken in future tax years). Open tax years are those that remain subject to examination and are based on each tax jurisdiction’s statute of limitation.
d. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Amortization of premium and accretion of discount on debt securities are included in interest income. Dividends from net investment income are normally declared daily; these dividends may be reinvested or paid monthly to shareholders. Distributions from net realized capital gains and other distributions, if any, are recorded on the ex-dividend date. Distributable earnings are determined according to income tax regulations (tax basis) and may differ from earnings recorded in accordance with U.S. GAAP. These differences may be permanent or temporary. Permanent differences are reclassified among capital accounts to reflect their tax character. These reclassifications have no impact on net assets or the results of operations. Temporary differences are not reclassified, as they may reverse in subsequent periods.
| | | | | | |
| franklintempleton.com | | Annual Report | | | 29 | |
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
The U.S. Government Money Market Portfolio (continued)
1. Organization and Significant Accounting Policies (continued)
e. Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
f. Guarantees and Indemnifications
Under the Trust’s organizational documents, its officers and trustees are indemnified by the Trust against certain liabilities arising out of the performance of their duties to the Trust.
Additionally, in the normal course of business, the Trust, on behalf of the Portfolio, enters into contracts with service providers that contain general indemnification clauses. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. Currently, the Trust expects the risk of loss to be remote.
2. Shares of Beneficial Interest
At June 30, 2017, there were an unlimited number of shares authorized (without par value). Transactions in the Portfolio’s shares at $1.00 per share were as follows:
| | | | | | | | | | | | |
| | | Year Ended June 30, | |
| | | 2017 | | | | | | 2016 | |
Shares sold | | $ | 34,473,692,804 | | | | | | | $ | 42,309,318,184 | |
Shares issued in reinvestment of distributions | | | 70,429,295 | | | | | | | | 14,875,438 | |
Shares redeemed | | | (35,304,569,679 | ) | | | | | | | (47,392,220,112 | ) |
Net increase (decrease) | | $ | (760,447,580 | ) | | | | | | $ | (5,068,026,490 | ) |
3. Transactions with Affiliates
Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Trust are also officers, directors, and/or trustees of Franklin Templeton U.S. Government Money Fund, Franklin U.S. Government Money Fund, Institutional Fiduciary Trust, and of the following subsidiaries:
| | |
| Subsidiary | | Affiliation |
Franklin Advisers, Inc. (Advisers) | | Investment manager |
Franklin Templeton Investor Services, LLC (Investor Services) | | Transfer agent |
a. Management Fees
The Portfolio pays an investment management fee to Advisers of 0.15% per year of the average daily net assets of the Portfolio.
b. Transfer Agent Fees
Investor Services, under terms of an agreement, performs shareholder servicing for the Portfolio and is not paid by the Portfolio for the services.
| | | | |
| 30 | | Annual Report | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
The U.S. Government Money Market Portfolio (continued)
c. Waiver and Expense Reimbursements
In efforts to prevent a negative yield, Advisers has voluntarily agreed to waive or limit its fees, assume as its own expense certain expenses otherwise payable by the Portfolio and if necessary, make a capital infusion into the Portfolio. These waivers, expense reimbursements and capital infusions are voluntary and may be modified or discontinued by Advisers at any time, and without further notice. Total expenses waived or paid are not subject to recapture subsequent to the Portfolio’s fiscal year end. There is no guarantee that the Portfolio will be able to avoid a negative yield. There were no expenses waived during the year ended June 30, 2017.
d. Other Affiliated Transactions
At June 30, 2017, the shares of the Portfolio were owned by the following investment companies:
| | | | | | | | |
| | | Shares | | | Percentage of
Outstanding Shares | |
Institutional Fiduciary Trust – Money Market Portfolio | | | 18,974,892,011 | | | | 88.0% | |
Franklin U.S. Government Money Fund | | | 2,345,320,370 | | | | 10.9% | |
Franklin Templeton Money Fund Trust — Franklin Templeton U.S.
Government Money Fund | | | 244,330,756 | | | | 1.1% | |
| | | | |
| | | 21,564,543,137 | | | | 100.0% | |
| | | | |
4. Expense Offset Arrangement
The Portfolio has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Portfolio’s custodian expenses. During the year ended June 30, 2017, the custodian fees were reduced as noted in the Statement of Operations.
5. Income Taxes
The tax character of distributions paid during the years ended June 30, 2017 and 2016, was as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from ordinary income | | $ | 70,439,005 | | | $ | 14,872,660 | |
| | | | |
At June 30, 2017, the cost of investments and undistributed ordinary income for income tax purposes were as follows:
| | | | |
Cost of investments | | $ | 22,098,182,895 | |
| | | | |
Distributable earnings - undistributed ordinary income | | $ | 11,650 | |
| | | | |
6. Fair Value Measurements
The Portfolio follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Portfolio’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Portfolio’s financial instruments and are summarized in the following fair value hierarchy:
| | • | | Level 1 – quoted prices in active markets for identical financial instruments |
| | • | | Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.) |
| | | | | | |
| franklintempleton.com | | Annual Report | | | 31 | |
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
The U.S. Government Money Market Portfolio (continued)
6. Fair Value Measurements (continued)
| | • | | Level 3 – significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of financial instruments) |
The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level. Money market securities may be valued using amortized cost, in accordance with the 1940 Act. Generally, amortized cost reflects the current fair value of a security, but since the value is not obtained from a quoted price in an active market, such securities were valued using Level 2 inputs.
For movements between the levels within the fair value hierarchy, the Portfolio has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.
At June 30, 2017, all of the Portfolio’s investments in financial instruments carried at fair value were valued using Level 2 inputs.
7. Investment Company Reporting Modernization
In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, final rules) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosures about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management has reviewed the requirements and believes the adoption of the amendments to Regulation S-X will not have a material impact on the Porfolio’s financial statements and related disclosures.
8. Subsequent Events
The Portfolio has evaluated subsequent events through the issuance of the financial statements and determined that no events have occurred that require disclosure.
Abbreviations
| | | | | | |
| Selected Portfolio | | | | |
| FFCB | | Federal Farm Credit Bank | | | | |
| FHLB | | Federal Home Loan Bank | | | | |
| FHLMC | | Federal Home Loan Mortgage Corp. | | | | |
| FNMA | | Federal National Mortgage Association | | | | |
| | | | |
| 32 | | Annual Report | | franklintempleton.com |
THE MONEY MARKET PORTFOLIOS
Report of Independent Registered Public Accounting Firm
To the Board of Trustees of The Money Market Portfolios and Shareholders of The U.S. Government Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The U.S. Government Money Market Portfolio (the “Fund”) as of June 30, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of June 30, 2017 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 15, 2017
| | | | | | |
| franklintempleton.com | | Annual Report | | | 33 | |
THE MONEY MARKET PORTFOLIOS
Tax Information (unaudited)
The U.S. Government Money Market Portfolio
Under Section 871(k)(2)(C) of the Internal Revenue Code (Code), the Portfolio hereby reports the maximum amount allowable but no less than $800 as a short term capital gain dividend for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended June 30, 2017.
Under Section 871(k)(1)(C) of the Code, the Porfolio hereby reports the maximum amount allowable but no less than $70,439,005 as interest related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of the Code for the fiscal year ended June 30, 2017.
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THE MONEY MARKET PORTFOLIOS
Board Members and Officers
The name, year of birth and address of the officers and board members, as well as their affiliations, positions held with the Fund, principal occupations during at least the past five years and number of U.S. registered portfolios overseen in the Franklin Templeton Investments fund complex, are shown below. Generally, each board member serves until that person’s successor is elected and qualified.
Independent Board Members
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Harris J. Ashton (1932) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 1985 | | 140 | | Bar-S Foods (meat packing company) (1981-2010). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). |
| | | | |
Mary C. Choksi (1950) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2014 | | 134 | | Avis Budget Group Inc. (car rental) (2007-present) and Omnicom Group Inc. (advertising and marketing communications services) (2011-present). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; and formerly, Founder and Senior Advisor, Strategic Investment Group (investment management group) (2015-2017); Founding Partner and Senior Managing Director, Strategic Investment Group (1987-2015); Founding Partner and Managing Director, Emerging Markets Management LLC (investment management firm) (1987-2011); and Loan Officer/Senior Loan Officer/Senior Pension Investment Officer, World Bank Group (international financial institution) (1977-1987). |
| | | | |
Edith E. Holiday (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2005 | | 140 | | Hess Corporation (exploration of oil and gas) (1993-present), Canadian National Railway (railroad) (2001-present), White Mountains Insurance Group, Ltd. (holding company) (2004-present), Santander Consumer USA Holdings, Inc. (consumer finance) (2016-present), RTI International Metals, Inc. (manufacture and distribution of titanium) (1999-2015) and H.J. Heinz Company (processed foods and allied products) (1994-2013). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director or Trustee of various companies and trusts; and formerly, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). |
| | | | |
J. Michael Luttig (1954) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2009 | | 140 | | Boeing Capital Corporation (aircraft financing) (2006-2013). |
|
| Principal Occupation During at Least the Past 5 Years: |
| Executive Vice President, General Counsel and member of the Executive Council, The Boeing Company (aerospace company) (2006-present); and formerly, Federal Appeals Court Judge, U.S. Court of Appeals for the Fourth Circuit (1991-2006). |
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THE MONEY MARKET PORTFOLIOS
Independent Board Members (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Larry D. Thompson (1945) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 140 | | The Southern Company (energy company) (2014-present; previously 2010-2012), Graham Holdings Company (education and media organization) (2011-present) and Cbeyond, Inc. (business communications provider) (2010-2012) |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director of various companies; John A. Sibley Professor of Corporate and Business Law, University of Georgia School of Law (2015-present; previously 2011-2012); and formerly, Executive Vice President - Government Affairs, General Counsel and Corporate Secretary, PepsiCo, Inc. (consumer products) (2012-2014); Senior Vice President - Government Affairs, General Counsel and Secretary, PepsiCo, Inc. (2004-2011); Senior Fellow of The Brookings Institution (2003-2004); Visiting Professor, University of Georgia School of Law (2004); and Deputy Attorney General, U.S. Department of Justice (2001-2003). |
| | | | |
John B. Wilson (1959) One Franklin Parkway San Mateo, CA 94403-1906 | | Lead Independent Trustee | | Trustee since 2007 and Lead Independent Trustee since 2008 | | 114 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); serves on private and non-profit boards; and formerly, President, Staples International and Head of Global Transformation (office supplies) (2012-2016); Chief Operating Officer and Executive Vice President, Gap, Inc. (retail) (1996-2000); Chief Financial Officer and Executive Vice President - Finance and Strategy, Staples, Inc. (1992-1996); Senior Vice President - Corporate Planning, Northwest Airlines, Inc. (airlines) (1990-1992); and Vice President and Partner, Bain & Company (consulting firm) (1986-1990). |
|
Interested Board Members and Officers |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
**Gregory E. Johnson (1961) One Franklin Parkway San Mateo, CA 94403-1906 | | Trustee | | Since 2007 | | 156 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Chairman of the Board, Member - Office of the Chairman, Director and Chief Executive Officer, Franklin Resources, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 44 of the investment companies in Franklin Templeton Investments; Vice Chairman, Investment Company Institute; and formerly, President, Franklin Resources, Inc. (1994-2015). |
| | | | |
**Rupert H. Johnson, Jr. (1940) One Franklin Parkway San Mateo, CA 94403-1906 | | Chairman of the Board and Trustee | | Chairman of the Board and Trustee since 2013 | | 140 | | None |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 42 of the investment companies in Franklin Templeton Investments. |
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Alison E. Baur (1964) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2012 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Deputy General Counsel, Franklin Templeton Investments; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
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THE MONEY MARKET PORTFOLIOS
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Gaston Gardey (1967) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Financial Officer, Chief Accounting Officer and Treasurer | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 27 of the investment companies in Franklin Templeton Investments. |
| | | | |
Aliya S. Gordon (1973) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Steven J. Gray (1955) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2009 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and FT AlphaParity, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Matthew T. Hinkle (1971) One Franklin Parkway San Mateo, CA 94403-1906 | | Chief Executive Officer – Finance and Administration | | Since June 2017 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Vice President, U.S. Fund Administration Reporting & Fund Tax, Franklin Templeton Investments; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Vice President, Global Tax (2012-April 2017) and Treasurer/Assistant Treasurer, Franklin Templeton Investments (2009-2017). |
| | | | |
Robert Lim (1948) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President – AML Compliance | | Since 2016 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Vice President, Franklin Templeton Companies, LLC; Chief Compliance Officer, Franklin Templeton Distributors, Inc. and Franklin Templeton Investor Services, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Christopher J. Molumphy (1962) One Franklin Parkway San Mateo, CA 94403-1906 | | President and Chief Executive Officer – Investment Management | | Since 2010 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director and Executive Vice President, Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Institutional, LLC; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 22 of the investment companies in Franklin Templeton Investments. |
| | | | |
Kimberly H. Novotny (1972) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; Vice President and Corporate Secretary, Fiduciary Trust International of the South; Vice President, Templeton Investment Counsel, LLC; Assistant Secretary, Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. |
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THE MONEY MARKET PORTFOLIOS
Interested Board Members and Officers (continued)
| | | | | | | | |
Name, Year of Birth and Address | | Position | | Length of Time Served | | Number of Portfolios in Fund Complex Overseen by Board Member* | | Other Directorships Held During at Least the Past 5 Years |
| | | | |
Robert C. Rosselot (1960) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Chief Compliance Officer | | Since 2013 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Director, Global Compliance, Franklin Templeton Investments; Vice President, Franklin Templeton Companies, LLC; officer of 45 of the investment companies in Franklin Templeton Investments; and formerly, Senior Associate General Counsel, Franklin Templeton Investments (2007-2013); and Secretary and Vice President, Templeton Group of Funds (2004-2013). |
| | | | |
Karen L. Skidmore (1952) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President and Secretary | | Since 2006 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Navid J. Tofigh (1972) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2015 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Associate General Counsel, Franklin Templeton Investments; and officer of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Craig S. Tyle (1960) One Franklin Parkway San Mateo, CA 94403-1906 | | Vice President | | Since 2005 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| General Counsel and Executive Vice President, Franklin Resources, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin Templeton Investments. |
| | | | |
Lori A. Weber (1964) 300 S.E. 2nd Street Fort Lauderdale, FL 33301-1923 | | Vice President | | Since 2011 | | Not Applicable | | Not Applicable |
|
| Principal Occupation During at Least the Past 5 Years: |
| Senior Associate General Counsel, Franklin Templeton Investments; Assistant Secretary, Franklin Resources, Inc.; Vice President and Secretary, Templeton Investment Counsel, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. |
The Sarbanes-Oxley Act of 2002 and Rules adopted by the Securities and Exchange Commission require the Fund to disclose whether the Fund’s Audit Committee includes at least one member who is an audit committee financial expert within the meaning of such Act and Rules. The Fund’s Board has determined that there is at least one such financial expert on the Audit Committee and has designated John B. Wilson as its audit committee financial expert. The Board believes that Mr. Wilson qualifies as such an expert in view of his extensive business background and experience, including service as chief financial officer of Staples, Inc. from 1992 to 1996. Mr. Wilson has been a Member and Chairman of the Fund’s Audit Committee since 2007. As a result of such background and experience, the Board believes that Mr. Wilson has acquired an understanding of generally accepted accounting principles and financial statements, the general application of such principles in connection with the accounting estimates, accruals and reserves, and analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues generally comparable to those of the Fund, as well as an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions. Mr. Wilson is an independent Board member as that term is defined under the relevant Securities and Exchange Commission Rules and Releases.
We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment manager or affiliated investment managers.
**Gregory E. Johnson is considered to be an interested person of the Fund under the federal securities laws due to his position as an officer and director of Franklin Resources, Inc. (Resources), which is the parent company of the Fund’s investment manager and distributor. Rupert H. Johnson, Jr. is considered to be an interested person of the Fund under the federal securities laws due to his position as officer and director and major shareholder of Resources.
Note 1: Rupert H. Johnson, Jr. is the uncle of Gregory E. Johnson.
Note 2: Officer information is current as of the date of this report.
Note 3: Effective November 1, 2016, Frank Olson ceased to be a trustee of the trust.
It is possible that after this date, information about officers may change.
The Statement of Additional Information (SAI) includes additional information about the board members and is available, without charge, upon request. Shareholders may call (800) DIAL BEN/342-5236 to request the SAI.
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FRANKLIN U.S. GOVERNMENT MONEY FUND
Shareholder Information
Board Approval of Investment Management Agreements
FRANKLIN U.S. GOVERNMENT MONEY FUND
Franklin U.S. Government Money Fund (Feeder Fund) is a feeder fund that invests all of its assets in The U.S. Government Money Market Portfolio (Master Portfolio). The Feeder Fund does not have an investment manager or an investment management agreement, unlike the Master Portfolio. The Board of Trustees (collectively or individually the Board) of each of the Feeder Fund and the Master Portfolio is comprised of the same individuals. At an in-person meeting held on February 28, 2017 (Meeting), the Board, including a majority of the trustees who are not “interested persons” as defined in the Investment Company Act of 1940 (Independent Trustees), reviewed and approved the continuance of the investment management agreement between Franklin Advisers, Inc. (Manager) and the Master Portfolio (Management Agreement) for an additional one-year period. The Independent Trustees received advice from and met separately with Independent Trustee counsel in considering whether to approve the continuation of the Management Agreement. References herein to “the Fund” refer to the Feeder Fund and/or Master Portfolio as the context requires.
In considering the continuation of the Management Agreement, the Board reviewed and considered information about the Fund provided by the Manager at the Meeting and throughout the year at meetings of the Board and its committees. The Board also reviewed and considered information provided in response to a detailed set of requests for information submitted to the Manager by Independent Trustee counsel on behalf of the Independent Trustees in connection with the annual contract renewal process. In addition, prior to the Meeting, the Independent Trustees held a telephonic contract renewal meeting at which the Independent Trustees conferred amongst themselves and Independent Trustee counsel about contract renewal matters. The Board reviewed and considered all of the factors it deemed relevant in approving the continuance of the Management Agreement, including, but not limited to: (i) the nature, extent, and quality of the services provided by the Manager; (ii) the investment performance of the Fund; (iii) the costs of the services provided and profits realized by the Manager and its affiliates from the relationship with the Fund; (iv) the extent to which economies of scale are realized as the Fund grows; and (v) whether fee levels reflect these economies of scale for the benefit of Fund investors.
In approving the continuance of the Management Agreement, the Board, including a majority of the Independent Trustees, determined that the existing management fees are fair and reasonable and that the continuance of such Management Agreement is in the interests of the Fund and its shareholders. While attention was given to all information furnished, the following discusses some primary factors relevant to the Board’s determination.
Nature, Extent and Quality of Services
The Board reviewed and considered information regarding the nature, extent and quality of investment management services provided by the Manager and its affiliates to the Fund and its shareholders. This information included, among other things, the qualifications, background and experience of the senior management and investment personnel of the Manager; the structure of investment personnel compensation; oversight of third-party service providers; investment performance reports and related financial information for the Fund; reports on expenses, shareholder services, marketing support payments made to financial intermediaries and third party servicing arrangements; legal and compliance matters; risk controls; pricing and other services provided by the Manager and its affiliates; and management fees charged by the Manager and its affiliates to U.S. funds and other accounts, including management’s explanation of differences among accounts where relevant. The Board noted management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address areas of heightened concern in the mutual fund industry, such as cybersecurity, derivatives and liquidity risk management.
The Board also reviewed and considered the benefits provided to Fund shareholders of investing in a fund that is part of the Franklin Templeton family of funds. The Board noted the financial position of Franklin Resources, Inc. (FRI), the Manager’s parent, and its commitment to the mutual fund business as evidenced by its continued introduction of new funds, reassessment of the fund offerings in response to the market environment and project initiatives and capital investments relating to the services provided to the Fund by the Franklin Templeton Investments (FTI) organization.
Following consideration of such information, the Board was satisfied with the nature, extent and quality of services provided by the Manager and its affiliates to the Fund and its shareholders.
Fund Performance
The Board reviewed and considered the performance results of
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FRANKLIN U.S. GOVERNMENT MONEY FUND
SHAREHOLDER INFORMATION
the Fund over various time periods ended December 31, 2016. The Board considered the performance returns for the Fund in comparison to the performance returns of mutual funds deemed comparable to the Fund included in a universe (Performance Universe) selected by Broadridge Financial Solutions, Inc. (Broadridge), an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds included in a Performance Universe. The Board also reviewed and considered Fund performance reports provided and discussions that occurred with portfolio managers at Board meetings throughout the year. A summary of the Fund’s performance results is below.
The Performance Universe for the Fund included the Fund and all retail U.S. government money market funds. The Board noted that the Fund’s annualized total return for the one-, three-, and five-year periods was below the median of its Performance Universe, but for the 10-year period was above the median of its Performance Universe. In discussing such performance, management explained that the Fund was managed in a conservative manner with at least 99.5% of its total assets invested in Government securities, cash and repurchase agreements collateralized fully by Government securities and/or cash, which minimizes liquidity risk. While the Performance Universe is comprised of U.S. Government money market funds (very high quality), the Fund did not purchase less liquid callable agency paper or utilize longer-dated repurchase agreements. This may have resulted in slightly lower yields, but management believes that the added liquidity is acceptable compensation resulting in a very high quality and highly liquid portfolio. After further discussion with management, the Board concluded that the Fund’s performance was acceptable.
Comparative Fees and Expenses
The Board reviewed and considered information regarding the Fund’s actual total expense ratio and its various components, including, as applicable, management fees; transfer agent expenses; underlying fund expenses; Rule 12b-1 and non-Rule 12b-1 service fees; and other non-management fees. The Board also noted that at its February meeting each year, it receives an annual report on all marketing support payments made by FTI to financial intermediaries. The Board considered the actual total expense ratio and, separately, the contractual management fee rate, without the effect of fee waivers, if any (Management Rate) of the Fund in comparison to the median ratio and median Management Rate, respectively, of other mutual funds deemed comparable to and with a similar expense
structure as the Fund selected by Broadridge (Expense Group). Broadridge fee and expense data is based upon information taken from the fund’s most recent annual report, which reflects historical asset levels that may be quite different from those currently existing, particularly in a period of market volatility. While recognizing such inherent limitation and the fact that expense ratios and Management Rates generally increase as assets decline and decrease as assets grow, the Board believed the independent analysis conducted by Broadridge to be an appropriate measure of comparative fees and expenses. The Broadridge Management Rate includes administrative charges. The Board received a description of the methodology used by Broadridge to select the mutual funds included in an Expense Group.
The Expense Group for Fund included the Fund and eleven other U.S. government money market funds. The Board noted that the Management Rate for the Fund was above the median of its Expense Group, but its actual total expense ratio was below the median of its Expense Group. The Board concluded that the Management Rate charged to the Fund is fair and reasonable. The Board also noted that the Management Rate is paid by the Master Portfolio.
Profitability
The Board reviewed and considered information regarding the profits realized by the Manager and its affiliates in connection with the operation of the Fund. In this respect, the Board considered the Fund profitability analysis provided by the Manager that addresses the overall profitability of FTI’s U.S. fund business, as well as its profits in providing investment management and other services to each of the individual funds during the 12-month period ended September 30, 2016, being the most recent fiscal year-end for FRI. The Board noted that although management continually makes refinements to its methodologies used in calculating profitability in response to organizational and product related changes, the overall methodology has remained consistent with that used in the Fund’s profitability report presentations from prior years. Additionally, the Fund’s independent registered public accounting firm has been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Fund’s Board with respect to the profitability analysis.
The Board noted management’s belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its affiliates may not be fully reflected in the expenses allocated to the Fund
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FRANKLIN U.S. GOVERNMENT MONEY FUND
SHAREHOLDER INFORMATION
in determining its profitability, as well as the fact that the level of profits, to a certain extent, reflected operational cost savings and efficiencies initiated by management. The Board also noted management’s expenditures in improving shareholder services provided to the Fund, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from recent SEC and other regulatory requirements.
The Board also considered the extent to which the Manager and its affiliates might derive ancillary benefits from fund operations, including revenues generated from transfer agent services, potential benefits resulting from personnel and systems enhancements necessitated by fund growth, as well as increased leverage with service providers and counterparties. Based upon its consideration of all these factors, the Board concluded that the level of profits realized by the Manager and its affiliates from providing services to the Fund was not excessive in view of the nature, quality and extent of services provided to the Fund.
Economies of Scale
The Board reviewed and considered the extent to which the Manager may realize economies of scale, if any, as the Fund grows larger and whether the Fund’s management fee structure reflects any economies of scale for the benefit of shareholders. The Board considered the Manager’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments the Manager incurs across the Franklin Templeton family of funds as a whole. The Board concluded that it was unlikely that the Manger and its affiliates realized economies of scale in furnishing advisory services to the Fund in view of the transitory nature of its investment role within the Franklin Templeton family of funds, the services provided its shareholders and management’s subsidization of expenses.
Conclusion
Based on its review, consideration and evaluation of all factors it believed relevant, including the above-described factors and conclusions, the Board unanimously approved the continuation of the Management Agreement for an additional one-year period.
Proxy Voting Policies and Procedures
The Fund’s investment manager has established Proxy Voting Policies and Procedures (Policies) that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund’s complete Policies online at franklintempleton.com. Alternatively, shareholders may request
copies of the Policies free of charge by calling the Proxy Group collect at (954) 527-7678 or by sending a written request to: Franklin Templeton Companies, LLC, 300 S.E. 2nd Street, Fort Lauderdale, FL 33301, Attention: Proxy Group. Copies of the Fund’s proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission’s website at sec.gov and reflect the most recent 12-month period ended June 30.
Quarterly Consolidated Statement of Investments
The Fund files a complete consolidated statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission’s website at sec.gov. The filed form may also be viewed and copied at the Commission’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling (800) SEC-0330.
Householding of Reports and Prospectuses
You will receive the Fund’s financial reports every six months as well as an annual updated summary prospectus (prospectus available upon request). To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the financial reports and summary prospectus. This process, called “householding,” will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at (800) 632-2301. At any time you may view current prospectuses/summary prospectuses and financial reports on our website. If you choose, you may receive these documents through electronic delivery.
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Annual Report and Shareholder Letter
Franklin U.S. Government Money Fund
Investment Manager
Franklin Advisers, Inc.
Distributor
Franklin Templeton Distributors, Inc.
(800) DIAL BEN® / 342-5236
franklintempleton.com
Shareholder Services
(800) 632-2301
Authorized for distribution only when accompanied or preceded by a summary prospectus and/or prospectus. Investors should carefully consider a fund’s investment goals, risks, charges and expenses before investing. A prospectus contains this and other information; please read it carefully before investing.
To help ensure we provide you with quality service, all calls to and from our service areas are monitored and/or recorded.
| | |
| © 2017 Franklin Templeton Investments. All rights reserved. | | 111 A 08/17 |
(a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer.
| Item 3. | Audit Committee Financial Expert. |
(a)(1) The Registrant has an audit committee financial expert serving on its audit committee.
(2) The audit committee financial expert is John B. Wilson and he is “independent” as defined under the relevant Securities and Exchange Commission Rules and Releases.
| Item 4. | Principal Accountant Fees and Services. |
The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant’s annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $24,104 for the fiscal year ended June 30, 2017 and $28,646 for the fiscal year ended June 30, 2016.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported under paragraph (a) of Item 4.
There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of their financial statements.
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning.
There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning.
The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended June 30, 2017 and $819 for the fiscal year ended June 30, 2016. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process.
There were no fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant other than services reported in paragraphs (a) - (c) of Item 4.
(e) (1) The registrant’s audit committee is directly responsible for approving the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors;
(iii) pre-approval of all non-audit related services to be provided to the registrant by the auditors to the registrant’s investment adviser or to any entity that controls, is controlled by or is under common control with the registrant’s investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant’s investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $0 for the fiscal year ended June 30, 2017 and $819 for the fiscal year ended June 30, 2016.
(h) The registrant’s audit committee of the board has considered whether the provision of non-audit services that were rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
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Item 5. Audit Committee of Listed Registrants. | | N/A | | |
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Item 6. Schedule of Investments. | | N/A | | |
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Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed- | | | | |
EndManagement Investment Companies. | | N/A | | |
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Item 8. Portfolio Managers of Closed-End Management Investment Companies. | | N/A | | |
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Item 9. Purchases of Equity Securities by Closed-End Management InvestmentCompany and Affiliated Purchasers. | | N/A | | |
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Item 10. Submission of Matters to a Vote of Security Holders. | | | | |
There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees that would require disclosure herein.
| Item 11. | Controls and Procedures. |
(a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant’s filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and
communicated to the Registrant’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant’s management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant’s management, including the Registrant’s principal executive officer and the Registrant’s principal financial officer, of the effectiveness of the design and operation of the Registrant’s disclosure controls and procedures. Based on such evaluation, the Registrant’s principal executive officer and principal financial officer concluded that the Registrant’s disclosure controls and procedures are effective.
(b) Changes in Internal Controls. There have been no changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Matthew T. Hinkle, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN U.S. GOVERNMENT MONEY FUND
| | | | |
| By | | | | /s/ Matthew T. Hinkle |
| | | | Matthew T. Hinkle |
| | | | Chief Executive Officer - Finance and Administration |
| Date | | | | August 25, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | |
| By | | | | /s/ Matthew T. Hinkle |
| | | | Matthew T. Hinkle |
| | | | Chief Executive Officer - Finance and Administration |
| Date | | | | August 25, 2017 |
| | |
| By | | | | /s/ Gaston Gardey |
| | | | Gaston Gardey |
| | | | Chief Financial Officer and Chief Accounting Officer |
| Date | | | | August 25, 2017 |
