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 811-07038
The Money Market Portfolios
(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: 6/30/16
Item 1. Reports to Stockholders.
THE MONEY MARKET PORTFOLIOS
Your Fund’s Expenses
As a Fund shareholder, you can incur two types of costs:
- Transaction costs, including sales charges (loads) on Fund purchases; and
- 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 following table 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 first line (Actual) for each class in the table provides actual account values and expenses. The “Ending Account Value” is derived from the Fund’s actual return, which includes the effect of Fund expenses.
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:
1. Divide your account value by $1,000.
If an account had an $8,600 value, then $8,600¸ $1,000 = 8.6.
2. Multiply the result by the number under the heading “Expenses Paid During Period.”
If Expenses Paid During Period were $7.50, then 8.6´ $7.50 = $64.50.
In this illustration, the estimated expenses paid this period are $64.50.
Hypothetical Example for Comparison with Other Funds
Information in the second line (Hypothetical) for each class in the table can help you compare ongoing costs of investing in the Fund with those of other mutual funds. This information may not be used to estimate the actual ending account balance or expenses you paid during the period. The hypothetical “Ending Account Value” is based on the actual expense ratio for each class and an assumed 5% annual rate of return before expenses, which does not represent the Fund’s actual return. The figure under the heading “Expenses Paid During Period” shows the hypothetical expenses your account would have incurred under this scenario. You can compare this figure with the 5% hypothetical examples that appear in shareholder reports of other funds.
Annual Report
THE MONEY MARKET PORTFOLIOS
Please note that expenses shown in the table are meant to highlight ongoing costs and do not reflect any transaction costs, such as sales charges. Therefore, the second line for each class is useful in comparing ongoing costs only, and will not help you compare total costs of owning different funds. In addition, if transaction costs were included, your total costs would have been higher. Please refer to the Fund prospectus for additional information on operating expenses.
| Expenses Paid During | ||||||
| Beginning Account | Ending Account | Period* | ||||
| Value 1/1/16 | Value 06/30/16 | 1/1/16–6/30/16 | ||||
| Actual | $ | 1,000 | $ | 1,000 | $ | 0.75 |
| Hypothetical (5% return before expenses) | $ | 1,000 | $ | 1,024.12 | $ | 0.75 |
*Expenses are calculated using the most recent six-month expense ratio, net of voluntary expense waivers,
of 0.15% (annualized), multiplied by the average account value over the period, multiplied by 182/366 to
reflect the one-half year period.
Annual Report
THE MONEY MARKET PORTFOLIOS
| Financial Highlights | |||||||||||||||
| The U.S. Government Money Market Portfolio | |||||||||||||||
| Year Ended June 30, | |||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||
| 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 (loss) | 0.001 | — | — | — | (—)a | ||||||||||
| Net realized and unrealized gains (losses)a | — | — | — | — | — | ||||||||||
| Total from investment operations | 0.001 | —a | —a | —a | —a | ||||||||||
| 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 return | 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 | 0.13 | % | 0.09 | % | 0.08 | % | 0.13 | % | 0.13 | % | |||||
| Net investment income (loss) | 0.06 | % | —% | —% | —% | (—)%c | |||||||||
| Supplemental data | |||||||||||||||
| Net assets, end of year (000’s) | $ | 22,324,993 | $ | 27,390,400 | $ | 23,491,469 | $ | 18,744,530 | $ | 14,065,932 | |||||
aAmount rounds to less than $0.001 per share.
bBenefit of expense reduction rounds to less than 0.01%.
cRounds to less than 0.01%.
The accompanying notes are an integral part of these financial statements. | Annual Report
THE MONEY MARKET PORTFOLIOS
| Statement of Investments, June 30, 2016 | ||||
| The U.S. Government Money Market Portfolio | ||||
| Principal | ||||
| Amount | Value | |||
| Investments 104.1% | ||||
| U.S. Government and Agency Securities 85.7% | ||||
| a FFCB, | ||||
| 7/01/16 | $ | 100,000,000 | $ | 100,000,000 |
| 7/18/16 | 150,000,000 | 149,984,417 | ||
| 7/05/16 - 8/02/16 | 829,000,000 | 828,892,898 | ||
| a FHLB, | ||||
| 7/01/16 | 347,000,000 | 347,000,000 | ||
| 7/05/16 | 265,014,000 | 265,005,138 | ||
| 7/06/16 | 576,600,000 | 576,579,078 | ||
| 7/07/16 | 209,575,000 | 209,565,236 | ||
| 7/08/16 | 550,277,000 | 550,244,995 | ||
| 7/12/16 | 213,100,000 | 213,082,418 | ||
| 7/13/16 | 324,000,000 | 323,968,300 | ||
| 7/22/16 | 200,000,000 | 199,964,504 | ||
| 8/02/16 | 190,000,000 | 189,947,644 | ||
| 8/03/16 | 183,600,000 | 183,548,559 | ||
| 8/05/16 | 335,000,000 | 334,899,472 | ||
| 8/09/16 | 150,000,000 | 149,949,625 | ||
| 8/10/16 | 310,000,000 | 309,890,333 | ||
| 8/12/16 | 309,300,000 | 309,184,528 | ||
| 8/19/16 | 150,000,000 | 149,928,542 | ||
| 7/11/16 - 9/15/16 | 530,700,000 | 530,548,021 | ||
| 9/16/16 | 150,000,000 | 149,871,667 | ||
| 10/13/16 | 250,000,000 | 249,671,389 | ||
| a FHLMC, | ||||
| 7/01/16 | 700,000,000 | 700,000,000 | ||
| 7/07/16 - 7/12/16 | 173,447,000 | 173,439,002 | ||
| 7/19/16 | 200,000,000 | 199,979,000 | ||
| 7/25/16 | 276,924,000 | 276,881,538 | ||
| a FNMA, | ||||
| 7/01/16 | 896,936,000 | 896,936,000 | ||
| 7/05/16 | 1,100,000,000 | 1,099,975,556 | ||
| a U.S. Treasury Bill, | ||||
| 7/07/16 | 625,000,000 | 624,977,771 | ||
| 7/14/16 | 610,350,000 | 610,298,765 | ||
| 7/21/16 | 777,140,000 | 777,055,028 | ||
| 7/28/16 | 700,000,000 | 699,819,625 | ||
| 8/11/16 | 250,000,000 | 249,922,015 | ||
| 8/18/16 | 700,000,000 | 699,741,667 | ||
| 8/25/16 | 550,000,000 | 549,686,729 | ||
| 9/01/16 | 275,290,000 | 275,068,525 | ||
| 9/08/16 | 450,000,000 | 449,736,937 | ||
| 9/15/16 | 650,000,000 | 649,667,817 | ||
| 9/22/16 | 700,000,000 | 699,368,278 | ||
| 9/29/16 | 300,000,000 | 299,751,250 | ||
| 10/06/16 | 500,000,000 | 499,481,319 | ||
| 10/13/16 | 250,000,000 | 249,811,608 | ||
| 10/20/16 | 402,300,000 | 401,865,851 | ||
| 10/27/16 | 300,000,000 | 299,606,667 | ||
| 11/03/16 | 250,000,000 | 249,657,118 | ||
| 2/02/17 | 150,000,000 | 149,493,000 | ||
| 11/10/16 - 3/02/17 | 491,270,000 | 490,153,860 | ||
| 4/27/17 | 200,000,000 | 198,991,667 |
Annual Report
THE MONEY MARKET PORTFOLIOS
STATEMENT O F INVESTMENTS
| The U.S. Government Money Market Portfolio (continued) | |||||
| Principal | |||||
| Amount | Value | ||||
| Investments (continued) | |||||
| U.S. Government and Agency Securities (continued) | |||||
| U.S. Treasury Note, | |||||
| a 8/31/16 | $ | 100,000,000 | $ | 100,000,000 | |
| 0.375%,10/31/16 | 250,000,000 | 249,976,524 | |||
| Total U.S. Government and Agency Securities (Cost $19,143,069,881) | 19,143,069,881 | ||||
| b Repurchase Agreements 18.4% | |||||
| Barclays Capital Inc., 0.38%, 7/01/16 (Maturity Value $40,000,422) | |||||
| Collateralized by U.S. Treasury Note, 1.00%, 3/15/18 (valued at $40,990,973) | 40,000,000 | 40,000,000 | |||
| Deutsche Bank Securities Inc., 0.36%, 7/01/16 (Maturity Value $38,340,153) | |||||
| Collateralized by U.S. Treasury Note, 0.75% - 1.375%, 10/31/17 - 12/31/18 | |||||
| (valued at $39,106,664) | 38,339,770 | 38,339,770 | |||
| Federal Reserve Bank, 0.25%, 7/01/16 (Maturity Value $3,750,026,042) | |||||
| Collateralized by U.S. Treasury Bond, 4.375% - 6.125%, 8/15/29 - 11/15/39; and U.S. Treasury | |||||
| Note, 1.625% - 3.50%, 5/15/20 - 8/15/22 (valued at $3,750,026,101) | 3,750,000,000 | 3,750,000,000 | |||
| Goldman Sachs & Co., 0.25%, 7/01/16 (Maturity Value $125,000,868) | |||||
| Collateralized by U.S. Treasury Note, 4.75%, 8/15/17 (valued at $127,576,142) | 125,000,000 | 125,000,000 | |||
| HSBC Securities Inc., 0.38%, 7/01/16 (Maturity Value $85,000,897) | |||||
| Collateralized by U.S. Government and Agency Securities, 1.125% - 5.325%, | |||||
| 6/12/17 - 5/30/19 (valued at $86,703,600) | 85,000,000 | 85,000,000 | |||
| Merrill Lynch, Pierce, Fenner & Smith Inc., 0.41%, 7/01/16 (Maturity Value $69,700,794) | |||||
| Collateralized by U.S. Treasury Note, 1.625%, 3/30/20 (valued at $71,111,753) | 69,700,000 | 69,700,000 | |||
| Total Repurchase Agreements (Cost $4,108,039,770) | 4,108,039,770 | ||||
| Total Investments (Cost $23,251,109,651) 104.1% | 23,251,109,651 | ||||
| Other Assets, less Liabilities (4.1)% | (926,116,614 | ) | |||
| Net Assets 100.0% | $ | 22,324,993,037 | |||
See Abbreviations on page 19.
a The security is traded on a discount basis with no stated coupon rate.
b See Note 1(b) regarding repurchase agreements.
The accompanying notes are an integral part of these financial statements. | Annual Report
THE MONEY MARKET PORTFOLIOS
| Financial Statements | ||
| Statement of Assets and Liabilities | ||
| June 30, 2016 | ||
| The U.S. Government Money Market Portfolio | ||
| Assets: | ||
| Investments in securities, at amortized cost | $ | 19,143,069,881 |
| Repurchase agreements, at value and cost | 4,108,039,770 | |
| Total investments | $ | 23,251,109,651 |
| Cash | 176,473,554 | |
| Receivables from interest | 354,474 | |
| Total assets | 23,427,937,679 | |
| Liabilities: | ||
| Payables: | ||
| Investment securities purchased | 1,099,975,556 | |
| Management fees | 2,739,665 | |
| Accrued expenses and other liabilities | 229,421 | |
| Total liabilities | 1,102,944,642 | |
| Net assets, at value | $ | 22,324,993,037 |
| Net assets consist of: | ||
| Paid-in capital | $ | 22,324,989,118 |
| Accumulated net realized gain (loss) | 3,919 | |
| Net assets, at value | $ | 22,324,993,037 |
| Shares outstanding | 22,324,990,717 | |
| Net asset value per share | $ | 1.00 |
Annual Report | The accompanying notes are an integral part of these financial statements.
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
Statement of Operations
for the year ended June 30, 2016
| The U.S. Government Money Market Portfolio | |||
| Investment income: | |||
| Interest | $ | 46,530,785 | |
| Expenses: | |||
| Management fees (Note 3a) | 35,561,387 | ||
| Custodian fees (Note 4) | 208,471 | ||
| Reports to shareholders | 8,875 | ||
| Professional fees | 206,755 | ||
| Other | 53,217 | ||
| Total expenses | 36,038,705 | ||
| Expense reductions (Note 4) | (63,786 | ) | |
| Expenses waived/paid by affiliates (Note 3c) | (4,316,794 | ) | |
| Net expenses | 31,658,125 | ||
| Net investment income | 14,872,660 | ||
| Net realized gain (loss) from investments | 2,619,294 | ||
| Net increase (decrease) in net assets resulting from operations | $ | 17,491,954 | |
The accompanying notes are an integral part of these financial statements. | Annual Report
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
| Statements of Changes in Net Assets | ||||||
| The U.S. Government Money Market Portfolio | ||||||
| Year Ended June 30, | ||||||
| 2016 | 2015 | |||||
| Increase (decrease) in net assets: | ||||||
| Operations: | ||||||
| Net investment income | $ | 14,872,660 | $ | — | ||
| Net realized gain (loss) | 2,619,294 | 10,429 | ||||
| Net increase (decrease) in net assets resulting from operations | 17,491,954 | 10,429 | ||||
| Distributions to shareholders from net investment income | (14,872,660 | ) | — | |||
| Capital share transactions (Note 2) | (5,068,026,490 | ) | 3,898,920,727 | |||
| Net increase (decrease) in net assets | (5,065,407,196 | ) | 3,898,931,156 | |||
| Net assets (there is no undistributed net investment income at the beginning or end of year): | ||||||
| Beginning of year | 27,390,400,233 | 23,491,469,077 | ||||
| End of year | $ | 22,324,993,037 | $ | 27,390,400,233 | ||
Annual Report | The accompanying notes are an integral part of these financial statements.
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.
Effective November 1, 2015, The Money Market Portfolio was renamed The U.S. Government Money Market Portfolio and implemented changes to the investment strategies.
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), the Portfolio’s administrator 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, 2016.
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, 2016, 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 to shareholders are determined according to income tax regulations (tax basis). Distributable earnings determined on a tax basis 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.
Annual Report
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, 2016, 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, | ||||||
| 2016 | 2015 | |||||
| Shares sold | $ | 42,309,318,184 | $ | 36,617,933,208 | ||
| Shares issued in reinvestment of distributions | 14,875,438 | — | ||||
| Shares redeemed | (47,392,220,112 | ) | (32,719,012,481 | ) | ||
| Net increase (decrease) | $ | (5,068,026,490 | ) | $ | 3,898,920,727 | |
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 U.S. Government Money Fund, Franklin Templeton 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.
c. Waiver and Expense Reimbursements
In efforts to prevent a negative yield, Advisers has voluntarily agreed to waive or limit 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.
Annual Report
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
| The U.S. Government Money Market Portfolio (continued) | |||
| d. Other Affiliated Transactions | |||
| At June 30, 2016, the shares of Portfolio were owned by the following entities: | |||
| Percentage of | |||
| Outstanding | |||
| Shares | Shares | ||
| Institutional Fiduciary Trust – Money Market Portfolio | 19,610,572,088 | 87.9 | % |
| Franklin U.S. Government Money Fund | 2,414,703,887 | 10.8 | % |
| Franklin Templeton Money Fund Trust — Franklin Templeton U.S. Government Money Fund | 299,714,742 | 1.3 | % |
| 22,324,990,717 | 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, 2016, the custodian fees were reduced as noted in the Statement of Operations.
5. Income Taxes
For tax purposes, capital losses may be carried over to offset future capital gains, if any. During the year ended June 30, 2016, the Fund utilized $2,615,375 of capital loss carryforwards.
| The tax character of distributions paid during the years ended June 30, 2016 and 2015, was as follows: | ||||
| 2016 | 2015 | |||
| Distributions paid from ordinary income | $ | 14,872,660 | $ | — |
| At June 30, 2016, the cost of investments and undistributed ordinary income for income tax purposes were as follows: | |||
| Cost of investments | $ | 23,251,109,651 | |
| Distributable earnings — undistributed ordinary income | $ | 3,919 | |
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, prepay- ment speed, credit risk, etc.)
- Level 3 – significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of finan- cial 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.
Annual Report
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
The U.S. Government Money Market Portfolio (continued)
6. Fair Value Measurements (continued)
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, 2016, all of the Portfolio’s investments in financial instruments carried at fair value were valued using Level 2 inputs.
7. Money Fund Reform
In July 2014, the Securities and Exchange Commission (SEC) adopted amendments to the rules that govern money market mutual funds under the 1940 Act, to reform the structure and operations of these funds. In connection with amendments to the rules the Board approved changes to the Portfolio’s investment policies to allow the Portfolio to qualify and begin operating as a U.S. government money market fund, effective November 1, 2015. The Portfolio invests at least 99.5% of its total assets in U.S. government securities, cash and repurchase agreements collateralized fully by U.S. government securities or cash. The Portfolio will continue to use the amortized cost method of valuation to seek to maintain a stable $1.00 share price and does not currently intend to impose liquidity fees or redemption gates on Portfolio redemptions. The Portfolio is implementing the various amendments as they become effective at various dates through October 2016.
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 |
Annual Report
THE MONEY MARKET PORTFOLIOS
Report of Independent Registered Public Accounting Firm
To the Board of Trustees 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”) at June 30, 2016, 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 at June 30, 2016 by correspondence with the custodian, transfer agent and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
August 15, 2016
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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 | ||||
| Number of Portfolios in | ||||
| Name, Year of Birth | Length of Time | Fund Complex Overseen | Other Directorships Held During at | |
| and Address | Position | Served | by Board Member* | Least the Past 5 Years |
| Harris J. Ashton (1932) | Trustee | Since 1985 | 145 | Bar-S Foods (meat packing company) |
| One Franklin Parkway | (1981-2010). | |||
| San Mateo, CA 94403-1906 | ||||
| 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) | Trustee | Since 2014 | 121 | Avis Budget Group Inc. (car rental) |
| One Franklin Parkway | (2007-present), Omnicom Group Inc. | |||
| San Mateo, CA 94403-1906 | (advertising and marketing | |||
| communications services) (2011- | ||||
| present) and H.J. Heinz Company | ||||
| (processed foods and allied products) | ||||
| (1998-2006). | ||||
| Principal Occupation During at Least the Past 5 Years: | ||||
| Senior Advisor, Strategic Investment Group (investment management group) (2015-present); director of various companies; and formerly, | ||||
| 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) | Trustee | Since 2005 | 145 | Hess Corporation (exploration and |
| One Franklin Parkway | refining of oil and gas) (1993-present), | |||
| San Mateo, CA 94403-1906 | Canadian National Railway (railroad) | |||
| (2001-present), White Mountains | ||||
| Insurance Group, Ltd. (holding | ||||
| company) (2004-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) | Trustee | Since 2009 | 145 | Boeing Capital Corporation (aircraft |
| One Franklin Parkway | financing) (2006-2013). | |||
| San Mateo, CA 94403-1906 | ||||
| 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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| Independent Board Members (continued) | |||||
| Number of Portfolios in | |||||
| Name, Year of Birth | Length of Time | Fund Complex Overseen | Other Directorships Held During at | ||
| and Address | Position | Served | by Board Member* | Least the Past 5 Years | |
| Frank A. Olson (1932) | Trustee | Since 2005 | 145 | Hess Corporation (exploration and | |
| One Franklin Parkway San Mateo, | refining of oil and gas) (1998-2013). | ||||
| CA 94403-1906 | |||||
| Principal Occupation During at Least the Past 5 Years: | |||||
| Director of various companies; and formerly, Chairman of the Board, The Hertz Corporation (car rental) (1980-2000) and Chief Executive | |||||
| Officer (1977-1999); and Chairman of the Board, President and Chief Executive Officer, UAL Corporation (airlines) (June–December 1987). | |||||
| Larry D. Thompson (1945) | Trustee | Since 2007 | 145 | The Southern Company (energy | |
| One Franklin Parkway | company) (2014-present; previously | ||||
| San Mateo, CA 94403-1906 | 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) | Lead | Trustee since | 121 | None | |
| One Franklin Parkway | Independent | 2007 and Lead | |||
| San Mateo, CA 94403-1906 | Trustee | Independent | |||
| Trustee | |||||
| since 2008 | |||||
| Principal Occupation During at Least the Past 5 Years: | |||||
| President, Staples Europe (office supplies) (2012-present); President and Founder, Hyannis Port Capital, Inc. (real estate and private equity | |||||
| investing); serves on private and non-profit boards; and formerly, 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 | |||||
| Number of Portfolios in | |||||
| Name, Year of Birth | Length of | Fund Complex Overseen | Other Directorships Held During at | ||
| and Address | Position | Time Served | by Board Member* | Least the Past 5 Years | |
| **Gregory E. Johnson (1961) | Trustee | Since 2007 | 160 | None | |
| One Franklin Parkway | |||||
| San Mateo, CA 94403-1906 | |||||
| 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). | |||||
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| Interested Board Members and Officers (continued) | ||||
| Number of Portfolios in | ||||
| Name, Year of Birth | Length of | Fund Complex Overseen | Other Directorships Held During at | |
| and Address | Position | Time Served | by Board Member* | Least the Past 5 Years |
| **Rupert H. Johnson, Jr. (1940) | Chairman of | Chairman of the | 145 | None |
| One Franklin Parkway | the Board and | Board and | ||
| San Mateo, CA 94403-1906 | Trustee | Trustee since | ||
| 2013 | ||||
| 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) | Vice | Since 2012 | Not Applicable | Not Applicable |
| One Franklin Parkway | President | |||
| San Mateo, CA 94403-1906 | ||||
| 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. | ||||
| Laura F. Fergerson (1962) | Chief | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Executive | |||
| San Mateo, CA 94403-1906 | Officer – | |||
| Finance and | ||||
| Administration | ||||
| Principal Occupation During at Least the Past 5 Years: | ||||
| Senior Vice President, Franklin Templeton Services, LLC; Vice President, Franklin Advisers, Inc. and Franklin Templeton Institutional, LLC; | ||||
| and officer of 45 of the investment companies in Franklin Templeton Investments. | ||||
| Gaston Gardey (1967) | Treasurer, | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | Chief | |||
| San Mateo, CA 94403-1906 | Financial | |||
| Officer and | ||||
| Chief | ||||
| Accounting | ||||
| Officer | ||||
| Principal Occupation During at Least the Past 5 Years: | ||||
| Treasurer, U.S. Fund Administration & Reporting, Franklin Templeton Investments; and officer of 28 of the investment companies in Franklin | ||||
| Templeton Investments. | ||||
| Aliya S. Gordon (1973) | Vice | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | President | |||
| San Mateo, CA 94403-1906 | ||||
| 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) | Vice | Since 2009 | Not Applicable | Not Applicable |
| One Franklin Parkway | President | |||
| San Mateo, CA 94403-1906 | ||||
| Principal Occupation During at Least the Past 5 Years: | ||||
| Senior Associate General Counsel, Franklin Templeton Investments; Vice President, Franklin Templeton Distributors, Inc. and Franklin | ||||
| Alternative Strategies Advisers, LLC; and officer of 45 of the investment companies in Franklin Templeton Investments. | ||||
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| Interested Board Members and Officers (continued) | ||||
| Number of Portfolios in | ||||
| Name, Year of Birth | Length of | Fund Complex Overseen | Other Directorships Held During at | |
| and Address | Position | Time Served | by Board Member* | Least the Past 5 Years |
| Robert Lim (1948) | Vice | Since May 2016 | Not Applicable | Not Applicable |
| One Franklin Parkway | President – | |||
| San Mateo, CA 94403-1906 | AML | |||
| Compliance | ||||
| 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) President and | Since 2010 | Not Applicable | Not Applicable | |
| One Franklin Parkway | Chief | |||
| San Mateo, CA 94403-1906 | Executive | |||
| Officer – | ||||
| Investment | ||||
| Management | ||||
| 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) | Vice | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | President | |||
| Fort Lauderdale, FL 33301-1923 | ||||
| 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. | ||||
| Robert C. Rosselot (1960) | Chief | Since 2013 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | Compliance | |||
| Fort Lauderdale, FL 33301-1923 | Officer | |||
| 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) | Vice | Since 2006 | Not Applicable | Not Applicable |
| One Franklin Parkway | President and | |||
| San Mateo, CA 94403-1906 | Secretary | |||
| 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 Tofigh (1972) | Vice | Since | Not Applicable | Not Applicable |
| One Franklin Parkway | President | November 2015 | ||
| San Mateo, CA 94403-1906 | ||||
| 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. | ||||
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| Interested Board Members and Officers (continued) | ||||
| Number of Portfolios in | ||||
| Name, Year of Birth | Length of | Fund Complex Overseen | Other Directorships Held During at | |
| and Address | Position | Time Served | by Board Member* | Least the Past 5 Years |
| Craig S. Tyle (1960) | Vice | Since 2005 | Not Applicable | Not Applicable |
| One Franklin Parkway | President | |||
| San Mateo, CA 94403-1906 | ||||
| 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) | Vice | Since 2011 | Not Applicable | Not Applicable |
| 300 S.E. 2nd Street | President | |||
| Fort Lauderdale, FL 33301-1923 | ||||
| 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. | ||||
**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. It is possible that after this date, information about officers may change.
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 2006. 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.
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/ (800) 342-5236 to request the SAI.
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Shareholder Information
Board Review of Investment Management Agreement
The Franklin U.S. Government Money Fund (Fund) is a feeder fund that invests all of its assets in The U.S. Government Money Market Portfolio (USGMMP); as a result, the Fund does not have an investment adviser or an investment advisory agreement, unlike USGMMP. The Fund, however, does have a Fund Administration Agreement. The Boards of Trustees of the Fund and USGMMP are comprised of the same individuals. At a meeting held on February 23, 2016, the Board of Trustees of USGMMP, including a majority of non-interested or independent Trustees, approved renewal of the investment management agreement with Franklin Advisers, Inc. (Manager) for USGMMP, and the Board of Trustees of the Fund (Board, and with the Board of Trustees of USGMMP, Boards), including a majority of the non-interested or independent Trustees, approved the renewal of the Fund Administration Agreement for the Fund. The following discussion reflects the deliberations of the Boards with respect to the services under both agreements.
The Boards took into account information about USGMMP and the Fund furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information, along with periodic reports on expenses, shareholder services, legal and compliance matters, pricing, and other services provided by the Manager and its affiliates. Information furnished specifically in connection with the renewal process included a report for the Fund prepared by Broadridge Financial Solutions, Inc. (Broadridge), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Broadridge report, which utilized data from Lipper, Inc. (Lipper), compared the Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Frank-lin Templeton Investments (FTI) from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis was information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Fund and USGMMP by the FTI organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager. The Boards also received a memorandum relating to third-party servicing arrangements in response to a Guidance Update from the U.S. Securities and Exchange Commission (SEC) relating to mutual fund distribution and sub-accounting fees.
In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. The Boards noted the unique nature of the Fund as a feeder fund that invests solely in the master fund, USGMMP. The Boards, including a majority of independent Trustees, determined that the existing investment management and administration fee structure for USGMMP and the Fund was fair and reasonable. While attention was given to all information furnished, the following discusses some primary factors relevant to the Boards’ decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Boards were satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to USGMMP, as the master fund, and therefore to the Fund, as the feeder fund, and its shareholders. In addition to investment performance and expenses discussed later, the Boards’ opinion was based, in part, upon periodic reports showing that the investment policies and restrictions for USGMMP and the Fund were consistently complied with as well as other reports periodically furnished the Boards covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, as well as procedures adopted pursuant to Rule 2a-7. The Boards also noted the extent of benefits provided to Fund shareholders from being part of the Franklin Templeton family of funds. For example, favorable consideration was given to management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address cybersecurity threats. Consideration was also given to the experience of USGMMP’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Boards noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Boards also took into account the quality of transfer agent
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SHAREHOLDER INFORMATION
and shareholder services provided Fund shareholders by an affiliate of the Manager and steps taken by FTI to enhance analytical support to the investment management groups and provide additional oversight of liquidity risk and complex securities. The Boards also took into account, among other things, the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its continued introduction of new funds and reassessment of the fund offerings in response to the market environment.
INVESTMENT PERFORMANCE. While consideration was given to performance reports and discussions with portfolio managers at Board meetings during the year, particular attention in assessing Fund performance was given to the Broadridge report furnished for the agreement renewal. The Broadridge report prepared for the Fund showed its investment performance for the year ended December 31, 2015, as well as the previous 10 years ended that date in comparison to a performance universe consisting of the Fund and all retail U.S. government money market funds as selected by Lipper. The Broadridge report showed the Fund’s total return for 2015 to be in the second-lowest performing quintile of the performance universe, and on an annualized basis to be in the second-lowest performing quintile of such universe for the previous three- and five-year periods, and in the second-highest performing quintile of such universe for the previous 10-year period. In discussing performance, management explained that it reflected USGMMP’s and the Fund’s conservative policy, which focused on safety and liquidity by investing in short-term securities. They also discussed changes that would result from the conversion of the Fund to a U.S. government fund. After further discussion with management, the Boards found such performance to be acceptable, noting that the Fund’s and USGMMP’s expenses were subsidized by management.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fee and total expense ratio of the Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each 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 generally increase as assets decline and decrease as assets grow, the Boards believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on USGMMP’s contractual investment management fee in comparison with the contractual investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to USGMMP through which the Fund invests, as well as the actual total expense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis includes administrative charges as well as USGMMP’s management fee as being part of the investment management fee for the Fund. The results of such comparisons showed the Fund’s contractual investment management fee rate, as well as its actual total expense ratio, in each case to be in the second most expensive quintile of its Lipper expense group. Management pointed out that the Fund is not actively marketed and that its expenses were being subsidized by management. The Boards found such comparative expenses to be acceptable, noting the points made by management.
MANAGEMENT PROFITABILITY. The Boards also considered the level of profits realized by the Manager and its affiliates in connection with the operation of the Fund and USGMMP. In this respect, the Boards reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2015, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, the Boards recognized that allocation methodologies are inherently subjective and various allocation methodologies may be reasonable while producing different results. In this respect, the Boards noted that while management continually makes refinements to its methodologies in response to organizational and product related changes, the overall approach as defined by the primary drivers and activity measurements 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 had been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Fund’s Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Boards its 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 and USGMMP 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 Boards also took into account management’s expenditures in improving shareholder services
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provided the Fund, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Boards considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Boards 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 and potential benefits resulting from personnel and systems enhancements necessitated by fund growth, as well as increased leverage with the service providers and counterparties. Based upon its consideration of all these factors, and taking into account the fact that the Fund’s and USGMMP’s expenses were being subsidized, the Boards determined that the level of profits realized by the Manager and its affiliates from providing services to the Fund and USGMMP was not excessive in view of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Boards also considered whether economies of scale are realized by the Manager as the Fund (and USGMMP) grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Boards noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Boards also noted that economies of scale are shared with a fund and its shareholders through management fee breakpoints so that as a fund grows in size, its effective management fee rate declines. The Fund is part of a master-feeder relationship and the Fund’s net assets were approximately $2.02 billion as of December 31, 2015, representing an increase from last year. While intending to continually review this issue, the Boards believed it unlikely that the Manager and its affiliates realized any economies of scale in furnishing advisory and administrative services to the Fund and USGMMP in view of the transitory nature of the Fund’s investment role within the Franklin Templeton fund complex, the services provided its shareholders and management’s subsidization of its expenses.
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SHAREHOLDER INFORMATION
Board Review of Investment Management Agreement
Franklin Templeton U.S. Government Money Fund (Fund), a series of Franklin Templeton Money Fund Trust, is a feeder fund that invests all of its assets in The U.S. Government Money Market Portfolio (USGMMP); as a result, the Fund does not have an investment adviser or an investment advisory agreement, unlike USGMMP. The Fund, however, does have a Fund Administration Agreement. The Boards of Trustees of the Fund and USGMMP are comprised of the same individuals. At a meeting held on February 23, 2016, the Board of Trustees of USGMMP, including a majority of trustees that are not “interested persons” as such term is defined in section 2(a)(19) of the Investment Company Act of 1940 (hereinafter referred to as “non-interested Trustees” or “independent Trustees”), approved renewal of the investment management agreement with Franklin Advisers, Inc. (Manager) for USGMMP, and the Board of Trustees of the Fund (Board, and with the Board of Trustees of USGMMP, Boards), including a majority of the non-interested or independent Trustees, approved the renewal of the Fund Administration Agreement for the Fund. The following discussion reflects the deliberations of both Boards of Trustees with respect to the services under both agreements.
The Boards took into account information about USGMMP and the Fund furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information, along with periodic reports on expenses, shareholder services, legal and compliance matters, pricing and other services provided by the Manager and its affiliates. Information furnished specifically in connection with the renewal process included a report for the Fund prepared by Broadridge Financial Solutions, Inc. (Broadridge), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Broadridge report, which utilized data from Lipper, Inc. (Lipper), compared the Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis report discussed the profitability to Franklin Templeton Investments (FTI) from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Fund and USGMMP by the FTI organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager. The Boards also received a memorandum relating to third-party servicing arrangements in response to a Guidance Update from the U.S. Securities and Exchange Commission (SEC) relating to mutual fund distribution and sub-accounting fees.
In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. The Boards noted the unique nature of the Fund as a feeder fund that invests solely in a master fund, USGMMP. The Boards, including a majority of independent Trustees, determined that the existing investment management and administration fee structure for USGMMP and the Fund was fair and reasonable. While attention was given to all information furnished, the following discusses some primary factors relevant to the Boards’ decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Boards were satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to USGMMP, as the master fund, and therefore to the Fund, as the feeder fund, and its shareholders. In addition to investment performance and expenses discussed later, the Boards’ opinion was based, in part, upon periodic reports furnished to it showing that the investment policies and restrictions for USGMMP and the Fund were consistently complied with as well as other reports periodically furnished to the Boards covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, as well as procedures adopted pursuant to Rule 2a-7. The Boards also noted the extent of benefits provided to Fund shareholders from being part of the Franklin Templeton family of funds. For example, favorable consideration was given to management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address cybersecurity threats. Consideration was also given to the experience of USGMMP’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Boards noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the
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funds he or she managed and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of shareholders. The Boards also took into account the quality of transfer agent and shareholder services provided Fund shareholders by an affiliate of the Manager and steps taken by FTI to enhance analytical support to the investment management groups and provide additional oversight of liquidity risk and complex securities. The Boards also took into account, among other things, the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its continued introduction of new funds and reassessment of the fund offerings in response to the market environment.
INVESTMENTPERFORMANCE.Whileconsiderationwas given to performance reports and discussions with portfolio managers at Board meetings during the year, attention in assessing Fund performance was given to the Broadridge report furnished for the agreement renewal. The Broadridge report prepared for the Fund showed the investment performance of its Class C shares during the year ended December 31, 2015, as well as for previous 10-year period ended on such date in comparison to a performance universe consisting of the Fund and all retail U.S. government money market funds as selected by Lipper. The Broadridge report showed the Fund’s total return for 2015 to be in the second-lowest performing quintile of its performance universe and on an annualized basis to be in the second-lowest performing quintile of such universe for the previous three- and five-year periods, and the lowest performing quintile of such universe for the previous 10-year period. In discussing such performance, the Board noted that the Fund is not marketed to and cannot be purchased by the public, but is available only in exchange for Class C or R shares purchased by persons investing in the same class of shares of other Franklin Templeton funds sold subject to a contingent deferred sales charge. Management further pointed out that the Fund was utilized by such holders as an alternative and frequently temporary investment and was managed in a conservative manner with investments in high-quality short-term securities, which minimizes liquidity risk but such securities generally earn lower yields than a portfolio with lower quality and longer term securities subject to more risk. In connection with this discussion, the Boards and management noted that the Fund recently converted to a U.S. government fund, which would dictate eligible investments for the Fund. In view of these factors, the Boards found the investment performance to be acceptable, noting also that the Fund’s and USGMMP’s expenses were subsidized by management to avoid net asset value falling below one dollar per share and that the median return of the performance universe for the one-year period was one basis point.
COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the management fees and total expense ratio of the Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each 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 generally increase as assets decline and decrease as assets grow, the Boards believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on USGMMP’s contractual investment management fee in comparison with the contractual investment management fee that would have been charged by other funds within its Lipper expense group assuming they were similar in size to USGMMP, through which the Fund invests, as well as the actual total expense ratio of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis for the Fund includes administrative charges as well as USGMMP’s management fee as being part of the investment management fee for the Fund. The results of such comparison showed the Fund’s contractual investment management fee rate to be less than 1.5 basis points above the median of such expense group, but its actual total expense ratio to be in the most expensive quintile of such group. The Boards believed such comparative expenses to be acceptable, noting that its expenses were subsidized by management.
MANAGEMENTPROFITABILITY. The Boards also considered the level of profits realized by the Manager and its affiliates in connection with the operation of the Fund and USGMMP. In this respect, the Boards reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2015, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, the Boards recognized that allocation methodologies are inherently subjective and various allocation methodologies may be reasonable while producing different results. In this respect, the Boards noted that while management continually makes refinements to its methodologies in response to organizational and product related changes, the overall approach as defined by the primary drivers and activity measurements has
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remained consistent with that used in the Fund’s profitability report presentations from prior years. Additionally, the Fund’s independent registered public accounting firm had been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Fund’s Board in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Boards its 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 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 Boards also took into account management’s expenditures in improving shareholder services provided the Fund, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Boards considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Boards 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 and potential benefits from personnel and systems enhancements necessitated by fund growth, as well as increased leverage with the service providers and coun-terparties. Based upon its consideration of all these factors, and taking into account the fact that the Fund’s and USGMMP’s expenses were being subsidized, the Boards determined 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.
ECONOMIES OF SCALE. The Boards also considered whether economies of scale are realized by the Manager as the Fund (and USGMMP) grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Boards noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Boards also noted that economies of scale are shared with a fund and its shareholders through management fee breakpoints so that as a fund grows in size, its effective management fee rate declines. The Fund is part of a master-feeder relationship and had net assets of approximately $327 million as of December 31, 2015. The Boards believed it unlikely that the Manager and its affiliates realized economies of scale in furnishing advisory and administrative services to the Fund and USGMMP in view of the transitory nature of its investment role within the Franklin Templeton fund complex, the services provided its shareholders and management’s subsidization of expenses.
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Board Review of Investment Management Agreement
The Money Market Portfolio (Fund), a series of Institutional Fiduciary Trust, is a feeder fund that invests all of its assets in The Money Market Portfolio, doing business as the U.S. Government Money Market Portfolio (USGMMP); as a result, the Fund does not have an investment adviser or an investment advisory agreement, unlike USGMMP. The Fund, however, does have a Fund Administration Agreement. The Boards of Trustees of the Fund and USGMMP are comprised of the same individuals. At a meeting held on February 23, 2016, the Board of Trustees (Board) of USGMMP, including a majority of non-interested or independent Trustees, approved renewal of the investment management agreement with Franklin Advisers, Inc. (Manager) for USGMMP, and the Board of Trustees of the Fund (Board, and with the Board of Trustees of USGMMP, Boards), including a majority of the non-interested or independent Trustees, approved the renewal of the Fund Administration Agreement for the Fund. The following discussion reflects the deliberations of the Boards with respect to the services under these agreements.
The Boards took into account information about USGMMP and the Fund furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the annual renewal review process. Information furnished and discussed throughout the year included investment performance reports and related financial information , along with periodic reports on expenses, shareholder services, legal and compliance matters, pricing and other services provided by the Manager and its affiliates. Information furnished specifically in connection with the renewal process included a report for the Fund prepared by Broadridge Financial Solutions, Inc. (Broadridge), an independent organization, as well as additional material, including a Fund profitability analysis prepared by management. The Broadridge report, which utilized data from Lipper, Inc. (Lipper), compared the Fund’s investment performance and expenses with those of other mutual funds deemed comparable to the Fund as selected by Lipper. The Fund profitability analysis discussed the profitability to Frank-lin Templeton Investments (FTI) from its overall U.S. fund operations, as well as on an individual fund-by-fund basis. Additional material accompanying such profitability analysis included information on a fund-by-fund basis listing portfolio managers and other accounts they manage, as well as information on management fees charged by the Manager and its affiliates to U.S. mutual funds and other accounts, including management’s explanation of differences where relevant. Such material also included a memorandum prepared by management describing project initiatives and capital investments relating to the services provided to the Fund and USGMMP by the FTI organization, as well as a memorandum relating to economies of scale and an analysis concerning transfer agent fees charged by an affiliate of the Manager. The Boards also received a memorandum relating to third party servicing arrangements in response to a Guidance Update from the U.S. Securities and Exchange Commission (SEC) relating to mutual fund distribution and sub accounting fees.
In considering such materials, the independent Trustees received assistance and advice from and met separately with independent counsel. The Boards noted the unique nature of the Fund as a feeder fund that invests solely in the master fund, USGMMP. The Boards, including a majority of independent Trustees, determined that the existing management and administration fee structure for USGMMP and the Fund was fair and reasonable. While attention was given to all information furnished, the following discusses some primary factors relevant to the Boards’ decision.
NATURE, EXTENT AND QUALITY OF SERVICES. The Boards were satisfied with the nature and quality of the overall services provided by the Manager and its affiliates to USGMMP, as the master fund, and therefore to the Fund, as the feeder fund, and its shareholders. In addition to investment performance and expenses discussed later, the Boards’ opinion was based, in part, upon periodic reports furnished it showing that the investment policies and restrictions for USGMMP and the Fund were consistently complied with as well as other reports periodically furnished the Boards covering matters such as the compliance of portfolio managers and other management personnel with the code of ethics adopted throughout the Franklin Templeton fund complex, as well as procedures adopted pursuant to Rule 2a-7. The Boards also noted the extent of benefits provided to Fund shareholders from being part of the Franklin Templeton family of funds. For example, favorable consideration was given to management’s continual efforts and expenditures in establishing effective business continuity plans and developing strategies to address cybersecurity threats. Consideration was also given to the experience of USGMMP’s portfolio management team, the number of accounts managed and general method of compensation. In this latter respect, the Boards noted that a primary factor in management’s determination of a portfolio manager’s bonus compensation was the relative investment performance of the funds he or she man- aged and that a portion of such bonus was required to be invested in a predesignated list of funds within such person’s fund management area so as to be aligned with the interests of share- holders. The Boards also took into account the quality of transfer
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agent and shareholder services provided Fund shareholders by an affiliate of the Manager and steps taken by FTI to enhance analytical support to the investment management groups and provide additional oversight of liquidity risk and complex securities. The Boards also took into account, among other things, the strong financial position of the Manager’s parent company and its commitment to the mutual fund business as evidenced by its continued introduction of new funds and reassessment of the fund offerings in response to the market environment.
INVESTMENT PERFORMANCE. The Boards placed significant emphasis on the investment performance of the Fund in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Broadridge report furnished for the agreement renewal. The Broadridge report prepared for the Fund showed its investment performance for the one-year period ended December 31, 2015, as well as for the previous 10-year period ended that date in comparison to a performance universe consisting of the Fund and all institutional U.S. government money market funds as selected by Lipper. The Broadridge report comparison showed the Fund’s total return to be in the lowest performing quintile of such universe for the one-year period, and on an annualized basis to be in the lowest performing quintile of such universe for each of the previous three- and five-year periods, and the middle performing quintile for the previous 10-year period. In discussing such performance, management pointed out that it reflected the Fund’s conservative strategy of investing and commented on changes expected along with the future conversion of the fund to a U.S. government fund. Management also pointed out that this Fund is not actively marketed and largely serves as an alternative and frequently temporary investment vehicle (i.e., sweep vehicle) for institutional investors and other funds within the Franklin/Templeton/New Jersey/Alternative Strategies family of funds. The Boards found such performance to be acceptable in light of such explanations, noting also that the Fund’s and USGMMP’s expenses were subsidized by management to avoid net asset value falling below one dollar per share and that the median return within the Lipper universe for the one-year period was one basis point.
COMPARATIVE EXPENSES. Consideration was given to the management fees and total expense ratio of the Fund compared with those of a group of other funds selected by Lipper as its appropriate Lipper expense group. Lipper expense data is based upon information taken from each 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 generally increase as assets decline and decrease as assets grow, the Boards believed the independent analysis conducted by Lipper to be an appropriate measure of comparative expenses. In reviewing comparative costs, Lipper provides information on USGMMP’s contractual investment management fee in comparison with the contractual investment management fee that would have been charged by other funds within its Lipper expense group assuming they were the same size as USGMMP, the master money fund through which the Fund invests, as well as the actual total expenses of the Fund in comparison with those of its Lipper expense group. The Lipper contractual investment management fee analysis for the Fund includes administrative charges as well as USGMMP’s management fee as being part of the investment management fee for the Fund. The Broadridge report showed that while the Fund’s contractual investment management fee rate was in the most expensive quintile of its Lipper expense group, its actual total expense ratio was in the middle quintile of such group as a result of management fee waivers. The Board found the Fund’s comparative expenses as set forth in the Broadridge report to be acceptable.
MANAGEMENTPROFITABILITY. The Boards also considered the level of profits realized by the Manager and its affiliates in connection with the operation of the Fund and USGMMP. In this respect, the Boards reviewed the Fund profitability analysis that addresses the overall profitability of Franklin Templeton’s U.S. fund business, as well as its profits in providing management and other services to each of the individual funds during the 12-month period ended September 30, 2015, being the most recent fiscal year-end for Franklin Resources, Inc., the Manager’s parent. In reviewing the analysis, the Boards recognized that allocation methodologies are inherently subjective and various allocation methodologies may be reasonable while producing different results. In this respect, the Boards noted that while management continually makes refinements to its methodologies in response to organizational and product related changes, the overall approach as defined by the primary drivers and activity measurements 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 had been engaged by the Manager to periodically review the reasonableness of the allocation methodologies to be used solely by the Boards in reference to the profitability analysis. In reviewing and discussing such analysis, management discussed with the Boards its belief that costs incurred in establishing the infrastructure necessary for the type of mutual fund operations conducted by the Manager and its
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affiliates may not be fully reflected in the expenses allocated to the Fund and USGMMP 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 Boards also took into account management’s expenditures in improving shareholder services provided the Fund, as well as the need to implement systems and meet additional regulatory and compliance requirements resulting from statutes such as the Sarbanes-Oxley and Dodd-Frank Acts and recent SEC and other regulatory requirements. In addition, the Boards considered a third-party study comparing the profitability of the Manager’s parent on an overall basis to other publicly held managers broken down to show profitability from management operations exclusive of distribution expenses, as well as profitability including distribution expenses. The Boards 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 the service providers and counterparties. Based upon its consideration of all these factors, and taking into account the fact that the Fund’s and USGMMP’s expenses were being subsidized, the Boards determined that the level of profits realized by the Manager and its affiliates from providing services to the Fund and USGMMP was not excessive in view of the nature, quality and extent of services provided.
ECONOMIES OF SCALE. The Boards also considered whether economies of scale are realized by the Manager as the Fund and USGMMP grow larger and the extent to which this is reflected in the level of management fees charged. While recognizing that any precise determination is inherently subjective, the Board noted that based upon the Fund profitability analysis, it appears that as some funds get larger, at some point economies of scale do result in the Manager realizing a larger profit margin on management services provided such a fund. The Fund is part of a master-feeder relationship and the advisory fee at the USGMMP or master fund level is a flat 0.15% of net assets at all asset levels. In addition, the Fund is charged a separate administrative fee amounting to 0.20% of net assets at all asset levels. In discussing such fees, management pointed out that a significant portion of the Fund’s assets at any given time consisted of investments by other funds within the Frank-lin Templeton complex pursuant to cash sweep arrangements aimed at efficient management of their excess cash. It was further noted that shareholders of funds participating in such arrangements benefited from the fact that their fund’s normally higher advisory and administrative fees were reduced to the levels charged the Fund on assets invested under such cash sweep arrangements. The Fund’s net assets at December 31, 2015, had increased to approximately $20 billion. The Boards believed it unlikely in view of the nature and role served by this Fund within the Franklin Templeton complex, the services it provides, and the subsidization of its expenses through fee waivers that the Manager and its affiliates benefited from any meaningful economies of scale.
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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 Statement of Investments
The Trust, on behalf of the Fund, files a complete 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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Item 2. Code of Ethics.
(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.
(a) Audit Fees
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 $96,217 for the fiscal year ended June 30, 2016 and $88,223 for the fiscal year ended June 30, 2015.
(b) Audit-Related Fees
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.
(c) Tax Fees
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.
(d) All Other Fees
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 $8,134 for the fiscal year ended June 30, 2016 and $0 for the fiscal year ended June 30, 2015. 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.
The aggregate 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 were $442,751 for the fiscal year ended June 30, 2016 and $229,400 for the fiscal year ended June 30, 2015. The services for which these fees were paid included preparation and review of materials provided to the fund Board in connection with the investment management contract renewal process and derivatives assessment, and review of system processes related to fixed income securities.
(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 $450,885 for the fiscal year ended June 30, 2016 and $229,400 for the fiscal year ended June 30, 2015.
(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.
Item 5. Audit Committee of Listed Registrants. N/A
Item 6. Schedule of Investments. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. N/A
Item 8. Portfolio Managers of Closed-End Management Investment Companies. N/A
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. N/A
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.
Item 12. Exhibits.
(a)(1) Code of Ethics
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Laura F. Fergerson, 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 Laura F. Fergerson, 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.
THE MONEY MARKET PORTFOLIOS
By /s/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date August 25, 2016
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/Laura F. Fergerson
Laura F. Fergerson
Chief Executive Officer - Finance and Administration
Date August 25, 2016
By /s/Gaston Gardey
Gaston Gardey
Chief Financial Officer and Chief Accounting Officer
Date August 25, 2016