UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-03052
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FRANKLIN FEDERAL MONEY FUND
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(Exact name of registrant as specified in charter)

ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)

CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)

Registrant's telephone number, including area code: 650 312-2000
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Date of fiscal year end: 6/30
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Date of reporting period: 6/30/06
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ITEM 1. REPORTS TO STOCKHOLDERS.

[GRAPHIC OMITTED]

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JUNE 30, 2006
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ANNUAL REPORT AND SHAREHOLDER LETTER INCOME
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WANT TO RECEIVE
THIS DOCUMENT
FASTER VIA EMAIL?
FRANKLIN
FEDERAL MONEY FUND Eligible shareholders can
sign up for eDelivery at
franklintempleton.com.
See inside for details.
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS

FRANKLIN o Templeton o Mutual Series

Franklin Templeton Investments

GAIN FROM OUR PERSPECTIVE(R)

Franklin Templeton's distinct multi-manager
structure combines the specialized expertise of
three world-class investment management
groups--Franklin, Templeton and Mutual Series.

SPECIALIZED EXPERTISE Each of our portfolio management groups operates
autonomously, relying on its own research and
staying true to the unique investment disciplines
that underlie its success.

FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing and
also brings expertise in growth- and value-style
U.S. equity investing.

TEMPLETON. Founded in 1940, Templeton pioneered
international investing and, in 1954, launched
what has become the industry's oldest global fund.
Today, with offices in over 25 countries,
Templeton offers investors a truly global
perspective.

MUTUAL SERIES. Founded in 1949, Mutual Series is
dedicated to a unique style of value investing,
searching aggressively for opportunity among what
it believes are undervalued stocks, as well as
arbitrage situations and distressed securities.

TRUE DIVERSIFICATION Because our management groups work independently
and adhere to different investment approaches,
Franklin, Templeton and Mutual Series funds
typically have distinct portfolios. That's why our
funds can be used to build truly diversified
allocation plans covering every major asset class.

RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with exceptional
risk-adjusted returns over the long term, as well
as the reliable, accurate and personal service
that has helped us become one of the most trusted
names in financial services.

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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]

Not part of the annual report

Contents

SHAREHOLDER LETTER ........................................................ 1

ANNUAL REPORT

Franklin Federal Money Fund ............................................... 3

Performance Summary ....................................................... 4

Your Fund's Expenses ...................................................... 6

Financial Highlights and Statement of Investments ......................... 8

Financial Statements ...................................................... 10

Notes to Financial Statements ............................................. 13

Report of Independent Registered Public Accounting Firm ................... 18

Tax Designation ........................................................... 19

Board Members and Officers ................................................ 20

The Money Market Portfolios ............................................... 25

Shareholder Information ................................................... 45

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Annual Report

Franklin Federal Money Fund

YOUR FUND'S GOAL AND MAIN INVESTMENTS: Franklin Federal Money Fund seeks to
provide as high a level of current income as is consistent with liquidity and
preservation of capital. The Fund invests all of its assets in the shares of The
U.S. Government Securities Money Market Portfolio (the Portfolio), which has the
same investment goal. At present, the Portfolio's policy is to limit investments
to U.S. Treasury bills, notes and bonds (including stripped securities), and to
repurchase agreements collateralized by such securities. 1 The Fund attempts to
maintain a stable $1.00 share price.

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PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN WILL FLUCTUATE. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.
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AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY OR INSTITUTION. ALTHOUGH
THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT
IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
- --------------------------------------------------------------------------------

We are pleased to bring you Franklin Federal Money Fund's annual report for the
fiscal year ended June 30, 2006.

PERFORMANCE OVERVIEW

Rising short-term interest rates during the year under review resulted in an
increase in the Fund's yield. In this environment, the Fund's seven-day
effective yield rose from 2.11% on June 30, 2005, to 4.05% on June 30, 2006.

ECONOMIC AND MARKET OVERVIEW

The U.S. economy continued to grow at a healthy pace during the year under
review, although the second quarter's pace slowed to an estimated annualized
2.5% rate from the first quarter's 5.6% annualized rate. Overall, several
factors contributed to real growth. During the reporting period, the labor
markets continued to improve, indicated by nonfarm payroll data and the
unemployment rate. Rising personal income also helped support consumer spending
increases. Finally, business spending and productivity also rose during the
reporting period. Double-digit profit growth provided companies with strong
revenues, and ample cash helped some companies to support their capital
spending.

1. Yield and share price are not guaranteed and will vary with market
conditions. U.S. government securities owned by the Portfolio or held
under repurchase agreement, but not shares of the Portfolio, are
guaranteed by the U.S. government, its agencies or instrumentalities.

THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 9.

Annual Report | 3

PORTFOLIO BREAKDOWN
6/30/06

- --------------------------------------------------
% OF TOTAL
INVESTMENTS
- --------------------------------------------------
Repurchase Agreements 92.1%
- --------------------------------------------------
U.S. Government Agency Securities 7.9%
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PERFORMANCE SUMMARY
SYMBOL: FMNXX
6/30/06

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Seven-day effective yield* 4.05%
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Seven-day annualized yield 3.97%
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* The seven-day effective yield assumes compounding of daily dividends.

Annualized and effective yields are for the seven-day period ended 6/30/06. The
Fund's average weighted maturity was 5 days. Yield reflects Fund expenses and
fluctuations in interest rates on Portfolio investments.

Franklin Advisers, Inc., the Fund's administrator and the manager of the
underlying Portfolio, agreed in advance to waive a portion of its fees. If the
manager had not taken this action, the Portfolio's annualized and effective
yields for the period would have been lower. The fee waiver may be discontinued
at any time upon notice to the Fund's Board of Directors.

PERFORMANCE DATA REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE
RESULTS. INVESTMENT RETURN WILL FLUCTUATE. CURRENT PERFORMANCE MAY DIFFER FROM
FIGURES SHOWN. PLEASE VISIT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236 FOR
MOST RECENT MONTH-END PERFORMANCE.

Oil prices reached a historical high during the year, which contributed to the
rise in headline, or overall, inflation. Core inflation, which excludes food and
energy costs, remained more contained but nonetheless began to experience some
upward pressure. For example, while June's headline Consumer Price Index (CPI)
reported a 12-month rise of 4.3%, core CPI increased 2.6%. 2

Several times during the period the Federal Reserve Board acknowledged the
economy's strength as well as the potential inflationary pressure from high
energy prices. By period-end it had raised the federal funds target rate to
5.25% and indicated its next moves would be highly dependent on forthcoming
economic data. The 10-year Treasury note yield rose from 3.94% at the beginning
of the period to 5.15% on June 30, 2006, as some inflationary concerns began to
affect intermediate- and long-maturity Treasuries.

INVESTMENT STRATEGY

Consistent with our strategy, we invest, through the Portfolio, only in
marketable obligations issued or guaranteed by the U.S. government or with a
guarantee supported by the full faith and credit of the U.S. government,
repurchase agreements collateralized by these securities, and stripped
securities, which are separate income and principal components of a debt
security. 1 A repurchase agreement is an agreement to buy a security and then
sell it back after a short period of time (generally, less than seven days) at a
higher price. We maintain a dollar-weighted average portfolio maturity of 90
days or less. We seek to provide shareholders with a high-quality, conservative
investment vehicle; thus, we do not invest the Fund's cash in derivatives or
other relatively volatile securities that we believe involve undue risk.

2. Source: Bureau of Labor Statistics.

4 | Annual Report

MANAGER'S DISCUSSION

We continued to invest the Portfolio's assets in U.S. Treasury obligations and
repurchase agreements backed by U.S. Treasury securities.

THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF JUNE 30, 2006, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE INVESTMENT MANAGER MAKES NO REPRESENTATION OR
WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.

Annual Report | 5

Your Fund's Expenses

As a Fund shareholder, you can incur two types of costs:

o Transaction costs, including sales charges (loads) on Fund purchases and
redemption fees; and

o 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) of the table below 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 X $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) of 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 Fund's actual expense ratio 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.

6 | Annual Report

Your Fund's Expenses (CONTINUED)

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 OR
REDEMPTION FEES. Therefore, the second line of the table 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.

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BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING
VALUE 1/1/06 VALUE 6/30/06 PERIOD* 1/1/06-6/30/06
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Actual $1,000 $1,018.50 $4.80
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Hypothetical (5% return before expenses) $1,000 $1,020.03 $4.81
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* Expenses are equal to the annualized expense ratio, net of expense
waivers, of 0.96%, which includes the expenses incurred by the Portfolio,
multiplied by the average account value over the period, multiplied by
181/365 to reflect the one-half year period.

Annual Report | 7

Franklin Federal Money Fund

FINANCIAL HIGHLIGHTS

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YEAR ENDED JUNE 30,
2006 2005 2004 2003 2002
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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
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Income from investment operations - net investment income ..... 0.032 0.013 0.002 0.007 0.018
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Less distributions from net investment income ................. (0.032) (0.013) (0.002) (0.007) (0.018)
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Net asset value, end of year .................................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================

Total return a ................................................ 3.28% 1.31% 0.22% 0.70% 1.79%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) ............................... $ 93,898 $ 110,655 $ 117,623 $ 125,130 $ 141,058

Ratios to average net assets:

Expenses before waiver and payments by affiliate b .......... 0.92% 0.83% 0.82% 0.81% 0.78%

Expenses net of waiver and payments by affiliate b .......... 0.90% 0.81% 0.81% 0.80% 0.77%

Net investment income ....................................... 3.20% 1.31% 0.21% 0.70% 1.74%

a Total return does not reflect sales commissions or contingent deferred
sales charges, if applicable.

b The expense ratio includes the Fund's share of the Portfolio's allocated
expenses.

8 | See notes to financial statements. | Annual Report

Franklin Federal Money Fund

STATEMENT OF INVESTMENTS, JUNE 30, 2006

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SHARES VALUE
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MUTUAL FUND (COST $94,019,437) 100.1%
a The U.S. Government Securities Money Market Portfolio, 4.87% (Note 1) ..... 94,019,437 $ 94,019,437
------------
OTHER ASSETS, LESS LIABILITIES (0.1)% ...................................... (121,846)
------------
NET ASSETS 100.0% .......................................................... $ 93,897,591
============

a The rate shown is the annualized seven-day yield at period end.

Annual Report | See notes to financial statements. | 9

Franklin Federal Money Fund

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
June 30, 2006

Assets:
Investments in Portfolio, at value and cost (Note 1) ..................................................... $ 94,019,437
Receivables from capital shares sold ..................................................................... 438,488
------------
Total assets ........................................................................................ 94,457,925
------------
Liabilities:
Payables:
Capital shares redeemed ................................................................................. 446,687
Affiliates .............................................................................................. 45,168
Distributions to shareholders ........................................................................... 1,592
Accrued expenses and other liabilities ................................................................... 66,887
------------
Total liabilities ................................................................................... 560,334
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Net assets, at value ............................................................................... $ 93,897,591
============
Net assets consist of paid-in capital .................................................................... $ 93,897,591
============
Shares outstanding ....................................................................................... 93,920,174
============
Net asset value per share a .............................................................................. $ 1.00
============

a Redemption price is equal to net asset value less contingent deferred
sales charges, if applicable.

10 | See notes to financial statements. | Annual Report

Franklin Federal Money Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENT OF OPERATIONS
for the year ended June 30, 2006

Investment income:
Dividends from Portfolio ................................................................................. $ 3,867,146
------------
Expenses:
Administrative fees (Note 3a) ............................................................................ 444,859
Transfer agent fees (Note 3c) ............................................................................ 160,349
Reports to shareholders .................................................................................. 41,815
Registration and filing fees ............................................................................. 33,897
Professional fees ........................................................................................ 20,351
Directors' fees and expenses ............................................................................. 7,259
Other .................................................................................................... 29,832
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Total expenses ...................................................................................... 738,362
------------
Net investment income .............................................................................. 3,128,784
------------
Net increase (decrease) in net assets resulting from operations ........................................... $ 3,128,784
============

Annual Report | See notes to financial statements. | 11

Franklin Federal Money Fund

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

------------------------------
YEAR ENDED JUNE 30,
2006 2005
------------------------------

Increase (decrease) in net assets:
Net investment income from operations ................................................. $ 3,128,784 $ 1,489,612
Distributions to shareholders from net investment income .............................. (3,151,367) (1,489,612)
Capital share transactions (Note 2) ................................................... (16,734,529) (6,967,885)
------------------------------
Net increase (decrease) in net assets ............................................. (16,757,112) (6,967,885)
Net assets (there is no undistributed net investment income at beginning or end of year):
Beginning of year ...................................................................... 110,654,703 117,622,588
------------------------------
End of year ............................................................................ $ 93,897,591 $ 110,654,703
==============================

12 | See notes to financial statements. | Annual Report

Franklin Federal Money Fund

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Franklin Federal Money Fund (the Fund) is registered under the Investment
Company Act of 1940 (1940 Act) as a diversified, open-end investment company.

The Fund invests substantially all of its assets in The U.S. Government
Securities Money Market Portfolio (the Portfolio), which is registered under the
1940 Act as a diversified, open-end investment company. The accounting policies
of the Portfolio, including the Portfolio's security valuation policies, will
directly affect the recorded value of the Fund's investment in the Portfolio.
The financial statements of the Portfolio, including the Statement of
Investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.

The following summarizes the Fund's significant accounting policies.

A. SECURITY VALUATION

The Fund holds Portfolio shares that are valued at its proportionate interest in
the closing net asset value of the Portfolio. As of June 30, 2006, the Fund owns
100% of the Portfolio.

B. INCOME TAXES

No provision has been made for U.S. income taxes because the Fund intends to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute to shareholders substantially all of its taxable income and net
realized gains.

C. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS

Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Income and estimated expenses are accrued daily. Dividends from net investment
income received from the Portfolio are normally declared daily. Such
distributions are reinvested in additional shares of the Fund. 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 accounting principles generally accepted in the
United States. 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.

D. ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America 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.

Annual Report | 13

Franklin Federal Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

E. GUARANTEES AND INDEMNIFICATIONS

Under the Fund's organizational documents, its officers and directors are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.

2. CAPITAL STOCK

At June 30, 2006, there were five billion shares authorized (no par value).
Transactions in the Fund's shares were as follows:

--------------------------------
YEAR ENDED JUNE 30,
2006 2005
--------------------------------

Shares sold ....................................................... $ 83,105,908 $ 98,860,390
Shares issued in reinvestment of distributions .................... 3,150,775 1,485,088
Shares redeemed ................................................... (102,991,212) (107,313,363)
--------------------------------
Net increase (decrease) ........................................... $ (16,734,529) $ (6,967,885)
================================

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
directors of the Fund are also officers and/or directors of the Portfolio and of
the following subsidiaries:

- --------------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
- --------------------------------------------------------------------------------------

Franklin Advisers, Inc. (Advisers) Administrative manager
Franklin Templeton Distributors, Inc. (Distributors) Principal underwriter
Franklin Templeton Investor Services, LLC (Investor Services) Transfer agent

A. ADMINISTRATIVE FEES

The Fund pays an administrative fee to Advisers based on the average daily net
assets of the Fund as follows:

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ANNUALIZED FEE RATE NET ASSETS
- --------------------------------------------------------------------------------
0.455% Up to and including $100 million
0.330% Over $100 million, up to and including $250 million
0.280% In excess of $250 million

14 | Annual Report

Franklin Federal Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. TRANSACTIONS WITH AFFILIATES (CONTINUED)

B. SALES CHARGES/UNDERWRITING AGREEMENTS

Distributors has advised the Fund of the following commission transactions
related to the sales and redemptions of the Fund's shares for the year:

Contingent deferred sales charges retained ................... $ 73,697

C. TRANSFER AGENT FEES

The Fund paid transfer agent fees of $160,349, of which $107,193 was retained by
Investor Services.

4. INCOME TAXES

The tax character of distributions paid during the years ended June 30, 2006 and
2005, was as follows:

--------------------------
2006 2005
--------------------------
Distributions paid from - ordinary income ...... $ 3,151,367 $ 1,489,612

At June 30, 2006, the cost of investments and undistributed ordinary income for
book and income tax purposes were as follows:

Cost of investments .................................... $ 94,019,437
============

Undistributed ordinary income .......................... $ 1,592
============

Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of merger expenses.

5. UPCOMING ACQUISITIONS/MERGERS

On February 28, 2006, the Board of Directors for the Fund approved a proposal to
merge the Fund into the Franklin Money Fund. On August 15, 2006, shareholders of
the Fund approved the proposal.

6. REGULATORY MATTERS

As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.

Annual Report | 15

Franklin Federal Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. REGULATORY MATTERS (CONTINUED)

Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Fund did not participate in the CAGO Settlement.

On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan will be completed in August, 2006. The Fund did not
participate in the December 13, 2004 SEC Order.

The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."

In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.

The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.

16 | Annual Report

Franklin Federal Money Fund

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. FASB INTERPRETATION NO. 48

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"), which clarifies the accounting for uncertainty in tax positions taken or
expected to be taken in a tax return. FIN 48 provides guidance on the
measurement, recognition, classification and disclosure of tax positions, along
with accounting for the related interest and penalties. FIN 48 is effective for
fiscal years beginning after December 15, 2006, and is to be applied to all open
tax years as of the date of effectiveness. We have not yet completed our
evaluation of the impact, if any, of adopting FIN 48 on the Fund's financial
statements.

Annual Report | 17

Franklin Federal Money Fund

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF FRANKLIN FEDERAL MONEY FUND

In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Federal Money Fund (the
"Fund") at June 30, 2006, 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 provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
August 16, 2006

18 | Annual Report

Franklin Federal Money Fund

TAX DESIGNATION (UNAUDITED)

Under Section 871(k)(1)(C) of the Internal Revenue Code (Code), the Fund
designates the maximum amount allowable but no less than $3,151,367 as interest
related dividends for purposes of the tax imposed under Section 871(a)(1)(A) of
the Code for the fiscal year ended June 30, 2006.

Annual Report | 19

Franklin Federal Money Fund

BOARD MEMBERS AND OFFICERS

The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is elected and qualified.

INDEPENDENT BOARD MEMBERS

- ------------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
NAME, YEAR OF BIRTH LENGTH OF FUND COMPLEX OVERSEEN
AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
- ------------------------------------------------------------------------------------------------------------------------------------

HARRIS J. ASHTON (1932) Director Since 1982 141 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING 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).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Director Since 1998 56 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems
(CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Director Since 1989 142 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Director Since 2005 137 Director, Hess Corporation (formerly,
One Franklin Parkway Amerada Hess Corporation)
San Mateo, CA 94403-1906 (exploration and refining of oil and
gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc. (manufacture
and distribution of titanium), Canadian
National Railway (railroad), and White
Mountains Insurance Group, Ltd.
(holding company).

PRINCIPAL OCCUPATION DURING 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).
- ------------------------------------------------------------------------------------------------------------------------------------

20 | Annual Report

FRANK W.T. LAHAYE (1929) Director Since 1980 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture
capital).
- ------------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (1928) Director Since 1992 141 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding company)
(1987-2004) and Spacehab, Inc.
(aerospace services) (1994-2003).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company)
(2001-2004); Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking)
(1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------
JOHN B. WILSON (1959) Director Since February 39 None
One Franklin Parkway 2006
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

President and Founder, Hyannis Port Capital, Inc. (real estate and private equity investing); 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. (office supplies) (1992-1996); Executive Vice President - Corporate Planning, Northwest
Airlines, Inc. (airlines) (1990-1992); Vice President and Partner, Bain & Company (1986-1990); and served on private and
non-profit boards.
- ------------------------------------------------------------------------------------------------------------------------------------

INTERESTED BOARD MEMBERS AND OFFICERS

**CHARLES B. JOHNSON (1933) Director and Director since 141 None
One Franklin Parkway Chairman of 1980 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Annual Report | 21

**WILLIAM J. LIPPMAN (1925) Director Since 1994 14 None
One Parker Plaza, 9th Floor
Fort Lee, NJ 07024-2920

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

President, Franklin Advisory Services, LLC; Director, Templeton Worldwide, Inc.; and officer and/or director or trustee, as the
case may be, of five of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (1945) Vice President Since 1986 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 45 of the investment companies in Franklin
Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (1952) Chief Chief Compliance Not Applicable Not Applicable
One Franklin Parkway Compliance Officer since
San Mateo, CA 94403-1906 Officer and 2004 and Vice
Vice President President - AML
- AML Compliance since
Compliance February 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director, Global Compliance, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
- ------------------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (1962) Treasurer Since 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments;
and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most
of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 47 of the investment
companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------

22 | Annual Report

DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
RUPERT H. JOHNSON, JR. (1940) President and President since Not Applicable Not Applicable
One Franklin Parkway Chief 1993 and Chief
San Mateo, CA 94403-1906 Executive Executive
Officer Officer
- Investment - Investment
Management Management
since 2002

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin
Templeton Distributors, 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 45 of
the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since March 2006
San Mateo, CA 94403-1906 and Secretary
since April 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Associate General Counsel, Franklin Templeton Investments; Vice President and Secretary, Templeton Funds Annuity Company;
and officer of 31 of the investment companies in Franklin Templeton Investments.
- ------------------------------------------------------------------------------------------------------------------------------------

Annual Report | 23

CRAIG S. TYLE (1960) Vice President Since October Not Applicable Not Applicable
One Franklin Parkway 2005
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

General Counsel and Executive Vice President, Franklin Resources, Inc.; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Partner, Shearman & Sterling, LLP (2004-2005); and General Counsel, Investment Company
Institute (ICI) (1997-2004).
- ------------------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Senior Vice President, Franklin Templeton Services, LLC; officer of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc. (1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and
1991-2004).
- ------------------------------------------------------------------------------------------------------------------------------------

* 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.

** Charles B. Johnson is considered to be interested person of the Fund under
the federal securities laws due to his position as officer and director
and major shareholder of Franklin Resources, Inc. (Resources), which is
the parent company of the Fund's investment manager and distributor.
William J. Lippman is considered to be an interested person of the Fund
under the federal securities laws due to his position as an officer of
some of the subsidiaries of Resources.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

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 OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
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. LAHAYE IS AN INDEPENDENT TRUSTEE
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 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI.

24 | Annual Report

The Money Market Portfolios

FINANCIAL HIGHLIGHTS

THE MONEY MARKET PORTFOLIO

------------------------------------------------------------------------
YEAR ENDED JUNE 30,
2006 2005 2004 2003 2002
------------------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year .................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------------------------------------------------------------------------
Income from investment operations - net investment
income ............................................... 0.041 0.020 0.009 0.014 0.026
------------------------------------------------------------------------
Less distributions from net investment income ......... (0.041) (0.020) (0.009) (0.014) (0.026)
------------------------------------------------------------------------
Net asset value, end of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========================================================================

Total return .......................................... 4.15% 2.06% 0.94% 1.41% 2.63%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) ....................... $4,993,739 $5,676,479 $5,505,394 $5,331,200 $4,734,196

Ratios to average net assets:

Expenses before waiver and payments by affiliate and
expense reduction ................................... 0.16% 0.16% 0.16% 0.15% 0.16%

Expenses net of waiver and payments by affiliate and
expense reduction ................................... 0.16% a 0.16% a 0.15% a 0.15% 0.15%

Net investment income ................................ 4.09% 2.04% 0.93% 1.39% 2.56%

a Benefit of expense reduction is less than 0.01%.

Annual Report | See notes to financial statements. | 25

The Money Market Portfolios

STATEMENT OF INVESTMENTS, JUNE 30, 2006

- -----------------------------------------------------------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------

SHORT TERM INVESTMENTS 99.8%
CERTIFICATES OF DEPOSIT 52.1%
Abbey National Treasury Services PLC, Stamford Branch, 5.26%, 7/24/06 .................... $ 200,000,000 $ 200,000,000
ABN AMRO Bank N.V., Chicago Branch, 5.05%, 7/07/06 ....................................... 200,000,000 200,000,332
Bank of Nova Scotia, Portland Branch, 5.18%, 7/18/06 ..................................... 200,000,000 200,000,000
Banque Nationale de Paris, New York Branch, 5.27%, 7/25/06 ............................... 100,000,000 100,000,664
Barclay's Bank PLC, New York Branch, 4.97%, 2/09/07 ...................................... 99,500,000 99,505,868
Calyon North America Inc., New York Branch, 5.06%, 3/02/07 ............................... 100,000,000 100,000,000
Dexia Credit Local NY, New York Branch, 4.875 - 5.305%, 8/08/06 - 2/01/07 ................ 200,000,000 200,000,787
HBOS Treasury Services, New York Branch, 5.21%, 7/19/06 .................................. 100,000,000 100,000,498
Lloyds Bank PLC, New York Branch, 5.07%, 7/14/06 ......................................... 200,000,000 200,000,718
Royal Bank of Canada, New York Branch, 5.23 - 5.28%, 7/21/06 - 7/28/06 ................... 200,000,000 200,000,746
Societe Generale North America, New York Branch, 5.125%, 7/12/06 ......................... 200,000,000 200,000,000
Svenska Handelsbanken, New York Branch, 5.06%, 7/10/06 ................................... 200,000,000 200,000,497
Toronto Dominion Bank, New York Branch, 5.29%, 7/27/06 ................................... 200,000,000 200,000,000
UBS AG, Stamford Branch, 5.30%, 8/04/06 .................................................. 200,000,000 200,000,000
Wells Fargo Bank NA, San Francisco Branch, 5.16%, 7/13/06 ................................ 200,000,000 200,000,664
---------------
TOTAL CERTIFICATES OF DEPOSIT (COST $2,599,510,774) ...................................... 2,599,510,774
---------------
a COMMERCIAL PAPER 44.6%
Bank of Ireland, 7/26/06 ................................................................. 200,000,000 199,272,222
Bank of Montreal, 7/06/06 ................................................................ 150,000,000 149,895,521
Concentrate Manufacturing Co., 7/10/06 - 7/19/06 ......................................... 85,000,000 84,853,487
Depfa Bank PLC, 7/11/06 .................................................................. 200,000,000 199,717,778
General Electric Capital Corp., 7/17/06 .................................................. 200,000,000 199,551,111
ING (US) Funding LLC, 7/13/06 - 7/25/06 .................................................. 200,000,000 199,479,333
Merrill Lynch & Co. Inc., 7/06/06 - 7/07/06 .............................................. 200,000,000 199,841,417
Morgan Stanley Group Inc., 7/05/06 ....................................................... 200,000,000 199,882,889
National Australia Funding, 7/05/06 ...................................................... 225,000,000 224,868,750
Shell Finance UK PLC, 7/03/06 ............................................................ 148,036,000 147,992,658
Total Capital SA, 7/03/06 ................................................................ 225,000,000 224,934,125
Toyota Motor Credit Corp, 7/20/06 ........................................................ 200,000,000 199,452,167
---------------
TOTAL COMMERCIAL PAPER (COST $2,229,741,458) ............................................. 2,229,741,458
---------------
U.S. GOVERNMENT AND AGENCY SECURITIES (COST $4,519,771) 0.1%
a Federal Home Loan Bank, 7/03/06 .......................................................... 4,521,000 4,519,771
---------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $4,833,772,003) ..................... 4,833,772,003
---------------
b REPURCHASE AGREEMENTS 3.0%
Deutsche Bank Securities Inc., 4.49%, 7/03/06 (Maturity Value $25,009,354)
Collateralized by U.S. Treasury Notes, 0.875%, 4/15/10 ................................. 25,000,000 25,000,000
Morgan Stanley & Co. Inc., 4.50%, 7/03/06 (Maturity Value $125,912,199)
Collateralized by U.S. Treasurty Notes, 3.50%, 1/15/11 ................................. 125,865,000 125,865,000
---------------
TOTAL REPURCHASE AGREEMENTS (COST $150,865,000) .......................................... 150,865,000
---------------
TOTAL SHORT TERM INVESTMENTS (COST $4,984,637,003) 99.8% ................................. 4,984,637,003
OTHER ASSETS, LESS LIABILITIES 0.2% ...................................................... 9,102,017
---------------
NET ASSETS 100.0% ........................................................................ $ 4,993,739,020
===============

a The security is traded on a discount basis with no stated coupon rate.

b See Note 1(b) regarding repurchase agreements.

26 | See notes to financial statements. | Annual Report

The Money Market Portfolios

FINANCIAL HIGHLIGHTS

THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO

----------------------------------------------------------------
YEAR ENDED JUNE 30,
2006 2005 2004 2003 2002
----------------------------------------------------------------

PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)

Net asset value, beginning of year .......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------------------------------------------------------------
Income from investment operations - net investment income ... 0.040 0.020 0.009 0.013 0.024
----------------------------------------------------------------
Less distributions from net investment income ............... (0.040) (0.020) (0.009) (0.013) (0.024)
----------------------------------------------------------------
Net asset value, end of year ................................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
================================================================

Total return ................................................ 4.03% 1.99% 0.87% 1.34% 2.43%

RATIOS/SUPPLEMENTAL DATA

Net assets, end of year (000's) ............................. $ 94,019 $110,761 $117,815 $201,758 $226,676

Ratios to average net assets:

Expenses before waiver and payments by affiliate and
expense reduction ......................................... 0.17% 0.17% 0.16% 0.16% 0.16%

Expenses net of waiver and payments by affiliate and
expense reduction ......................................... 0.15% a 0.15% a 0.15% a 0.15% 0.15%

Net investment income ...................................... 3.95% 1.97% 0.87% 1.34% 2.33%

a Benefit of expense reduction is less than 0.01%.

Annual Report | See notes to financial statements. | 27

The Money Market Portfolios

STATEMENT OF INVESTMENTS, JUNE 30, 2006

- -----------------------------------------------------------------------------------------------------------------------------------
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------

U.S. GOVERNMENT AND AGENCY SECURITIES 7.9%
a U.S. Treasury Bill,
7/20/06 ................................................................................ $ 5,000,000 $ 4,987,848
8/03/06 ................................................................................ 2,500,000 2,489,882
---------------
TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $7,477,730) ............................ 7,477,730
---------------
b REPURCHASE AGREEMENTS 92.1%
ABN AMRO Bank, N.V., New York Branch, 4.50%, 7/03/06 (Maturity Value $5,001,875)
Collateralized by U.S. Treasury Notes, 4.875%, 4/30/08 ................................. 5,000,000 5,000,000
Banc of America Securities LLC, 4.19%, 7/03/06 (Maturity Value $5,001,746)
Collateralized by U.S. Treasury Notes, 5.125%, 6/30/11 ................................. 5,000,000 5,000,000
Barclays Capital Inc., 4.40%, 7/03/06 (Maturity Value $10,003,667)
Collateralized by U.S. Treasury Notes, 3.375%, 10/15/09 ................................ 10,000,000 10,000,000
Bear, Stearns & Co. Inc., 4.35%, 7/03/06 (Maturity Value $5,001,813)
Collateralized by U.S. Treasury Notes, 4.75%, 3/31/11 .................................. 5,000,000 5,000,000
Deutsche Bank Securities Inc., 4.49%, 7/03/06 (Maturity Value $18,281,838)
Collateralized by U.S. Treasury Notes, 0.875%, 4/15/10 ................................. 18,275,000 18,275,000
Dresdner Kleinwort Wasserstein Securites LLC, 4.50%, 7/03/06 (Maturity Value $10,003,750)
Collateralized by U.S. Treasury Notes, 4.25%, 1/15/11 .................................. 10,000,000 10,000,000
Greenwich Capital Markets Inc., 4.50%, 7/03/06 (Maturity Value $5,001,875)
Collateralized by U.S. Treasury Notes, 7.00%, 7/15/06 .................................. 5,000,000 5,000,000
Merrill Lynch Government Securities Inc., 4.45%, 7/03/06 (Maturity Value $5,001,854)
Collateralized by a U.S. Treasury Bills, 12/14/06 ...................................... 5,000,000 5,000,000
Morgan Stanley & Co. Inc., 4.50%, 7/03/06 (Maturity Value $18,281,853)
Collateralized by U.S. Treasury Notes, 3.50%, 1/15/11 .................................. 18,275,000 18,275,000
UBS Securities LLC, 4.25%, 7/03/06 (Maturity Value $5,001,771)
Collateralized by a U.S. Treasury Bills, 12/28/06 ...................................... 5,000,000 5,000,000
---------------
TOTAL REPURCHASE AGREEMENTS (COST $86,550,000) ........................................... 86,550,000
---------------
TOTAL INVESTMENTS (COST $94,027,730) 100.0% .............................................. 94,027,730
OTHER ASSETS, LESS LIABILITIES 0.0% c .................................................... (8,293)
---------------
NET ASSETS 100.0% ........................................................................ $ 94,019,437
===============

a The security is traded on a discount basis with no stated coupon rate.

b See Note 1(b) regarding repurchase agreements.

c Rounds to less than 0.1% of net assets.

28 | See notes to financial statements. | Annual Report

The Money Market Portfolios

FINANCIAL STATEMENTS

STATEMENTS OF ASSETS AND LIABILITIES
June 30, 2006

---------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
---------------------------------

Assets:
Investments in securities, at amortized cost .................... $ 4,833,772,003 $ 7,477,730
Repurchase agreements, at value and cost ........................ 150,865,000 86,550,000
---------------------------------
Total investments .......................................... $ 4,984,637,003 $ 94,027,730
Cash ............................................................ 5,627 4,062
Interest receivable ............................................. 9,837,091 10,680
---------------------------------
Total assets ............................................... 4,994,479,721 94,042,472
---------------------------------
Liabilities:
Payables:
Affiliates ..................................................... 686,436 10,365
Distributions to shareholders .................................. 185 128
Accrued expenses and other liabilities .......................... 54,080 12,542
---------------------------------
Total liabilities .......................................... 740,701 23,035
---------------------------------
Net assets, at value ...................................... $ 4,993,739,020 $ 94,019,437
=================================
Net assets consist of paid-in capital ............................ $ 4,993,739,020 $ 94,019,437
=================================
Shares outstanding ............................................... 4,993,739,020 94,019,437
=================================
Net asset value per share ........................................ $ 1.00 $ 1.00
=================================

Annual Report | See notes to financial statements. | 29

The Money Market Portfolios

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF OPERATIONS
for the year ended June 30, 2006

---------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
---------------------------------

Investment income:
Interest ........................................................ $ 244,427,644 $ 4,014,074
---------------------------------
Expenses:
Management fees (Note 3a) ....................................... 8,645,042 147,003
Custodian fees (Note 4) ......................................... 119,710 1,692
Reports to shareholders ......................................... 7,921 2,626
Professional fees ............................................... 41,776 11,902
Other ........................................................... 175,505 3,583
---------------------------------
Total expenses ............................................. 8,989,954 166,806
Expense reductions (Note 4) ................................ (25,699) (2,032)
Expenses waived/paid by affiliates (Note 3c) ............... -- (17,912)
---------------------------------
Net expenses .............................................. 8,964,255 146,862
---------------------------------
Net investment income .................................... 235,463,389 3,867,212
---------------------------------
Net increase (decrease) in net assets resulting from operations .. $ 235,463,389 $ 3,867,212
=================================

30 | See notes to financial statements. | Annual Report

The Money Market Portfolios

FINANCIAL STATEMENTS (CONTINUED)

STATEMENTS OF CHANGES IN NET ASSETS

----------------------------------------------------------------------
THE U.S. GOVERNMENT SECURITIES
THE MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
----------------------------------------------------------------------
YEAR ENDED JUNE 30, YEAR ENDED JUNE 30,
2006 2005 2006 2005
----------------------------------------------------------------------

Increase (decrease) in net assets:
Operations:
Net investment income ............................ $ 235,463,389 $ 119,375,531 $ 3,867,212 $ 2,239,743
Net realized gain (loss) from
investments ..................................... -- -- -- 190
----------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations ................... 235,463,389 119,375,531 3,867,212 2,239,933
Distributions to shareholders from net
investment income ................................. (235,463,389) (119,375,531) (3,867,212) (2,239,933) a
Capital share transactions (Note 2) ................ (682,740,398) 171,085,254 (16,741,961) (7,053,156)
----------------------------------------------------------------------
Net increase (decrease) in
net assets ................................. (682,740,398) 171,085,254 (16,741,961) (7,053,156)
Net assets (there is no undistributed net investment
income at beginning or end of year):
Beginning of year ................................ 5,676,479,418 5,505,394,164 110,761,398 117,814,554
----------------------------------------------------------------------
End of year ...................................... $ 4,993,739,020 $ 5,676,479,418 $ 94,019,437 $ 110,761,398
======================================================================

a Distributions were increased by a net realized gain from investments of
$190.

Annual Report | See notes to financial statements. | 31

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Money Market Portfolios (the Trust) is registered under the Investment
Company Act of 1940 (1940 Act) as a diversified, open-end investment company,
consisting of two separate portfolios (the Portfolios). The shares of the Trust
are issued in private placements and are exempt from registration under the
Securities Act of 1933.

The following summarizes the Portfolios' significant accounting policies.

A. SECURITY VALUATION

Securities are valued at amortized cost which approximates market value. This
method involves valuing an instrument at its cost and thereafter assuming a
constant amortization to maturity of any discount or premium. All security
valuation procedures are approved by the Trust's Board of Trustees.

B. REPURCHASE AGREEMENTS

The Portfolios may enter into repurchase agreements, which are accounted for as
a loan by the Portfolios to the seller, collateralized by securities which are
delivered to the Portfolios' custodian. The market value, including accrued
interest, of the initial collateralization is required to be at least 102% of
the dollar amount invested by the Portfolios, with the value of the underlying
securities marked to market daily to maintain coverage of at least 100%.
Repurchase agreements are valued at cost. At June 30, 2006, all repurchase
agreements held by the Portfolios had been entered into on that date.

C. INCOME TAXES

No provision has been made for U.S. income taxes because each Portfolio intends
to qualify as a regulated investment company under the Internal Revenue Code and
to distribute to shareholders substantially all of its taxable income and net
realized gains.

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.
Distributions from net realized capital gains are recorded on the ex-dividend
date. Such distributions are reinvested in additional shares of the Portfolios.
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 accounting principles generally accepted in
the United States. 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.

32 | Annual Report

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
(CONTINUED)

Common expenses incurred by the Trust are allocated among the Portfolios based
on the ratio of net assets of each Portfolio to the combined net assets of the
Trust. Portfolio specific expenses are charged directly to the Portfolio that
incurred the expense.

E. ACCOUNTING 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 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. However, based on experience, the
Trust expects the risk of loss to be remote.

2. SHARES OF BENEFICIAL INTEREST

At June 30, 2006, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Portfolios' shares at $1.00 per share were as
follows:

--------------------------------------
THE
THE U.S. GOVERNMENT
MONEY MARKET SECURITIES MONEY
PORTFOLIO MARKET PORTFOLIO
--------------------------------------

Year ended June 30, 2006
Shares sold ............................................. $ 5,987,924,802 $ 34,043,854
Shares issued in reinvestment of distributions .......... 235,470,437 3,867,146
Shares redeemed ......................................... (6,906,135,637) (54,652,961)
--------------------------------------
Net increase (decrease) ................................. $ (682,740,398) $ (16,741,961)
======================================
Year ended June 30, 2005
Shares sold ............................................. $ 5,623,149,272 $ 52,184,664
Shares issued in reinvestment of distributions .......... 119,380,707 2,240,711
Shares redeemed ......................................... (5,571,444,725) (61,478,531)
--------------------------------------
Net increase (decrease) ................................. $ 171,085,254 $ (7,053,156)
======================================

Annual Report | 33

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

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 and/or directors of the Franklin Money
Fund, the Institutional Fiduciary Trust, the Franklin Templeton Money Fund Trust
and the Franklin Federal Money Fund, 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 Portfolios pay an investment management fee to Advisers of 0.15% per year of
the average daily net assets of each Portfolio.

B. TRANSFER AGENT FEES

Investor Services, under terms of an agreement, performs shareholder servicing
for the Portfolios and is not paid by the Portfolios for the services.

C. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS

Advisers agreed in advance to voluntarily waive a portion of management fees for
The U.S. Government Securities Money Market Portfolio, as noted in the Statement
of Operations. Total expenses waived by Advisers are not subject to
reimbursement by the Portfolio subsequent to the Portfolio's fiscal year end.

D. OTHER AFFILIATED TRANSACTIONS

At June 30, 2006, the shares of The Money Market Portfolio were owned by the
following funds:

-----------------------------------
PERCENTAGE OF
SHARES OUTSTANDING SHARES
-----------------------------------

Institutional Fiduciary Trust - Money Market Portfolio ........ 3,009,335,464 60.26%
Franklin Money Fund ........................................... 1,696,238,367 33.97%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund ... 142,719,536 2.86%
Franklin Templeton Money Fund Trust -
Franklin Templeton Money Fund ................................ 145,445,653 2.91%

At June 30, 2006, the shares of The U.S. Government Securities Money Market
Portfolio were owned by the following fund:

-----------------------------------
PERCENTAGE OF
SHARES OUTSTANDING SHARES
-----------------------------------

Franklin Federal Money Fund ................................... 94,019,437 100.00%

34 | Annual Report

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. EXPENSE OFFSET ARRANGEMENT

The Portfolios have entered into an arrangement with their custodian whereby
credits realized as a result of uninvested cash balances are used to reduce a
portion of the Portfolios' custodian expenses. During the year ended June 30,
2006, the custodian fees were reduced as noted in the Statement of Operations.

5. INCOME TAXES

The tax character of distributions paid during the years ended June 30, 2006 and
2005, was as follows:

------------------------------------------------------
THE U.S. GOVERNMENT
THE MONEY MARKET SECURITIES
PORTFOLIO MONEY MARKET PORTFOLIO
------------------------------------------------------
2006 2005 2006 2005
------------------------------------------------------

Distributions paid from ordinary income .......... $235,463,389 $119,375,531 $3,867,212 $2,239,933
======================================================

At June 30, 2006, the cost of investments and undistributed ordinary income for
income tax purposes were as follows:

------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
------------------------------

Cost of investments .................................................... $4,984,637,003 $ 94,027,730
==============================

Undistributed ordinary income .......................................... $ 185 $ 128
==============================

6. UPCOMING ACQUISITIONS/MERGERS

On February 28, 2006, the Board of Directors for the Franklin Federal Money Fund
(the Federal Money Fund) approved a proposal to merge the Federal Money Fund
into the Franklin Money Fund. On August 15, 2006, shareholders of the Federal
Money Fund approved the proposal. Upon completion of the merger, assets in The
U.S. Government Securities Money Market Portfolio will be transferred into The
Money Market Portfolio.

7. REGULATORY MATTERS

Annual Report | 35

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. REGULATORY MATTERS (CONTINUED)

On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order and disbursement of the settlement
monies to the designated funds in accordance with the terms and conditions of
the SEC's order and the plan will be completed in August, 2006. The Trust did
not participate in the December 13, 2004 SEC Order.

The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Trust, it is
committed to making the Trust or its shareholders whole, as appropriate.

36 | Annual Report

The Money Market Portfolios

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

8. FASB INTERPRETATION NO. 48

Annual Report | 37

The Money Market Portfolios

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE MONEY MARKET PORTFOLIOS:

In our opinion, the accompanying statements of assets and liabilities, including
the statements 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 Money Market Portfolio and The
U.S. Government Securities Money Market Portfolio constituting The Money Market
Portfolios, (hereafter referred to as the "Funds") at June 30, 2006, the results
of each of their operations for the year then ended, the changes in each of
their 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 Funds' 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, 2006 by
correspondence with the custodian, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

San Francisco, California
August 16, 2006

38 | Annual Report

The Money Market Portfolios

TAX DESIGNATION (UNAUDITED)

Under Section 871(k)(1)(C) of the Internal Revenue Code (Code), the Portfolios
designate the maximum amount allowable but no less than the following amounts as
interest related dividends for purposes of the tax imposed under Section
871(a)(1)(A) of the Code for the fiscal year ended June 30, 2006.

---------------------------------------
THE U.S. GOVERNMENT
THE MONEY MARKET SECURITIES MONEY
PORTFOLIO MARKET PORTFOLIO
---------------------------------------
$228,010,675 $3,867,212

Annual Report | 39

The Money Market Portfolios

BOARD MEMBERS AND OFFICERS

INDEPENDENT BOARD MEMBERS

HARRIS J. ASHTON (1932) Trustee Since 1992 141 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING 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).
- ------------------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (1928) Trustee Since 1998 56 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, senior member and past President, Board of Administration, California Public Employees Retirement Systems
(CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
- ------------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (1932) Trustee Since 1992 142 None
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- ------------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (1952) Trustee Since 2005 137 Director, Hess Corporation (FORMERLY,
One Franklin Parkway Amerada Hess Corporation) (exploration
San Mateo, CA 94403-1906 and refining of oil and gas),
H.J. Heinz Company (processed foods
and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad), and White Mountains
Insurance Group, Ltd. (holding
company).

PRINCIPAL OCCUPATION DURING 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).
- ------------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (1929) Trustee Since 1992 114 Director, Center for Creative Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

40 | Annual Report

GORDON S. MACKLIN (1928) Trustee Since 1992 141 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as MCI
WorldCom, Inc. and WorldCom, Inc.)
(communications services) (1988-2002),
White Mountains Insurance Group, Ltd.
(holding company) (1987-2004) and
Spacehab, Inc. (aerospace services)
(1994-2003).

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004);
Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992);
and President, National Association of Securities Dealers, Inc. (1970-1987).
- ------------------------------------------------------------------------------------------------------------------------------------

INTERESTED BOARD MEMBERS AND OFFICERS

**CHARLES B. JOHNSON (1933) Trustee and Trustee since 141 None
One Franklin Parkway Chairman of 1992 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; 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.
- ------------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (1940) Trustee, Trustee since 123 None
One Franklin Parkway President and 1992 and
San Mateo, CA 94403-1906 Chief President and
Executive Chief Executive
Officer Officer -
- Investment Investment
Management Management
since 2002

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Annual Report | 41

HARMON E. BURNS (1945) Vice President Since 1992 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Franklin Templeton Services, LLC; officer of 31 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the
investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- ------------------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (1947) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

42 | Annual Report

DAVID P. GOSS (1947) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, LLC,
Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin
Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin
Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 47 of the investment
companies in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant
and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange
Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts)
(until 1979).
- ------------------------------------------------------------------------------------------------------------------------------------
KAREN L. SKIDMORE (1952) Vice President Vice President Not Applicable Not Applicable
One Franklin Parkway and Secretary since March 2006
San Mateo, CA 94403-1906 and Secretary
since April 2006

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

Annual Report | 43

GALEN G. VETTER (1951) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer

PRINCIPAL OCCUPATION DURING PAST 5 YEARS:

** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Fund under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources, Inc., which is the parent company of the Fund's
investment manager and distributor.

Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.

44 | Annual Report

Franklin Federal Money Fund

SHAREHOLDER INFORMATION

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT

At a meeting held February 28, 2006, the Board of Directors ("Board"), including
a majority of non-interested or independent Directors, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information 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 for the Fund, as well as periodic reports on shareholder
services, legal, compliance, pricing, brokerage commissions and execution and
other services provided by the Investment Manager ("Manager") and its
affiliates. Information furnished specifically in connection with the renewal
process included a report for the Fund prepared by Lipper, Inc. ("Lipper"), an
independent organization, as well as a Fund profitability analysis report
prepared by management. The Lipper report 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 from its overall U.S. fund
operations, as well as on an individual fund-by-fund basis. Included with such
profitability analysis report 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 including management's
explanation of differences where relevant and a three-year expense analysis with
an explanation for any increase in expense ratios. Additional information
accompanying such report was a memorandum prepared by management describing
enhancements to the services provided to the Fund by the Franklin Templeton
Investments organization, as well as a memorandum relating to economies of
scale.

In considering such materials, the independent Directors received assistance and
advice from and met separately with independent counsel. In approving
continuance of the investment management agreement for the Fund, the Board,
including a majority of independent Directors, determined that the existing
management fee structure was fair and reasonable and that continuance of the
investment management agreement was in the best interests of the Fund and its
shareholders. While attention was given to all information furnished, the
following discusses some primary factors relevant to the Board's decision.

NATURE, EXTENT AND QUALITY OF SERVICES. The Board was satisfied with the nature
and quality of the overall services provided by the Manager and its affiliates
to the Fund and its shareholders. In addition to investment performance and
expenses discussed later, the Board's opinion was based, in part, upon periodic
reports furnished them showing that the investment policies and restrictions for
the Fund were consistently complied with as well as other reports periodically
furnished the Board 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, the adherence to fair value
pricing procedures established by the Board, and the accuracy of net asset value
calculations. The Board also noted the extent of benefits provided Fund
shareholders from being part of the Franklin Templeton family of funds,
including the right to exchange investments between the same class of funds
without a sales charge, the ability to reinvest Fund

Annual Report | 45

Franklin Federal Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

dividends into other funds and the right to combine holdings in other funds to
obtain a reduced sales charge. Favorable consideration was given to management's
efforts and expenditures in establishing back-up systems and recovery procedures
to function in the event of a natural disaster, it being noted by the Board that
such systems and procedures had functioned smoothly during the hurricanes and
blackout experienced last year in Florida. Consideration was also given to the
experience of the Fund's portfolio management team, the number of accounts
managed and general method of compensation. In this latter respect, the Board
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 so as to be aligned with the interests of Fund
shareholders. The Board also took into account the transfer agent and
shareholder services provided Fund shareholders by an affiliate of the Manager,
noting continuing expenditures by management to increase and improve the scope
of such services, periodic favorable reports on such service conducted by third
parties and the firsthand experience of the individual Directors who deal with
the shareholder services department in their capacities as shareholders in one
or more of the various Franklin Templeton Funds.

INVESTMENT PERFORMANCE. The Board 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 during the year, particular attention in assessing
such performance was given to the Lipper report furnished for the agreement
renewal. The Lipper report prepared for the Fund showed its investment
performance for the year ended December 31, 2005, as well as the previous ten
years ended that date in comparison to a performance universe consisting of the
Fund and all retail U.S. Treasury money market funds as selected by Lipper. The
Lipper report showed that the Fund's total return for the one-year period was in
the middle quintile of the performance universe, and for the previous three-,
five- and ten-year periods on an annualized basis was in the second-lowest
quintile of such universe. In discussing this comparative performance,
management pointed out that the Fund followed a very conservative approach and
unlike some other funds within such universe, did not invest in agency
securities, which yield more than comparable Treasuries. Management further
pointed out that its total return was close to the median of its performance
universe, being only seven basis points below the median for the annualized
ten-year period as shown in the Lipper report. The Board found the Fund's
performance to be acceptable in view of such facts.

COMPARATIVE EXPENSES. Consideration was given to a comparative analysis of the
management fees and total expense ratios of the Fund compared with those of a
group of other funds selected by Lipper as its appropriate Lipper expense group
under the Lipper report. Prior to making such comparison, the Board relied upon
a survey showing that the scope of investment management services covered under
the Fund's investment management agreement was similar to those provided by fund
managers to other mutual fund groups that would be used as a basis of comparison
in the Lipper reports. In reviewing comparative costs, emphasis was given to the
Fund's management fee in comparison with the effective management fee that would
have been charged

46 | Annual Report

Franklin Federal Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

by other funds within its Lipper expense group assuming they were the same size
as the Fund, as well as the actual total expenses of the Fund in comparison with
those of its Lipper expense group. The Lipper effective management fee analysis
includes administrative charges as being part of a management fee. The results
of such comparisons showed both the Fund's effective management fee rate and its
actual total expenses to be in the most expensive quintile within such group. In
discussing such comparative expenses, management pointed out that this Fund is
not actively marketed and largely serves as an alternative investment vehicle
for shareholders of the various Franklin/Templeton/Mutual Series Fund families
and provides a number of courtesy services to shareholders, including check
writing and wiring privileges. The Board found such comparative expenses to be
acceptable, noting that the Fund's effective management fee rate and actual
total expenses were within ten basis points and seven basis points,
respectively, of its expense group's median as shown in the Lipper expense
report.

MANAGEMENT PROFITABILITY. The Board also considered the level of profits
realized by the Manager and its affiliates in connection with the operation of
the Fund. In this respect, the Board 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. Specific attention was given to the methodology
followed in allocating costs to the Fund, it being recognized that allocation
methodologies are inherently subjective and various allocation methodologies may
each be reasonable while producing different results. In this respect, the Board
noted that the cost allocation methodology was consistent with that followed in
profitability report presentations for the Fund made in prior years and that the
Fund's independent registered public accounting firm had been engaged by the
Manager to perform certain procedures on a biennial basis, specified and
approved by the Manager and the Fund's Board solely for their purposes and use
in reference to the profitability analysis. Included in the analysis were the
revenue and related costs involved in providing services to the Fund, as well as
the Fund's relative contribution to the profitability of the Manager's parent.
In reviewing and discussing such analysis, management discussed with the Board
its belief that costs incurred in establishing the infrastructure necessary to
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 Board also took into account management's expenditures in
improving shareholder services provided the Fund, as well as the need to meet
additional regulatory and compliance requirements resulting from the
Sarbanes-Oxley Act and recent SEC requirements. In addition, the Board
considered a third-party study comparing the profitability of the Manager's
parent on an overall basis as compared to other publicly held managers broken
down to show profitability from management operations exclusive of distribution
expenses, as well as profitability including distribution expenses. Based upon
its consideration of all these factors, the Board 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.

Annual Report | 47

Franklin Federal Money Fund

SHAREHOLDER INFORMATION (CONTINUED)

BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT (CONTINUED)

ECONOMIES OF SCALE. The Board also considered whether economies of scale are
realized by the Manager as the Fund grows 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's realizing a larger
profit margin on management services provided such a fund. Fees under the Fund's
investment management agreement consist of a flat 0.15% advisory fee component
and a separate administrative fee of 0.455% on the first $100 million of Fund
net assets; 0.33% on the next $150 million of Fund net assets; and 0.28% on Fund
net assets in excess of $250 million. The Fund's net assets were approximately
$98 million at year-end and the Board believed that to the extent any economies
of scale may be realized by the Manager and its affiliates, the schedule of fees
under the investment management agreement provides a sharing of benefits with
the Fund and its shareholders.

PROXY VOTING POLICIES AND PROCEDURES

The Fund 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 1-954/527-7678 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, 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 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
1-800/SEC-0330.

48 | Annual Report

Literature Request

LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.

FRANKLIN TEMPLETON INVESTMENTS

INTERNATIONAL

Mutual European Fund
Templeton BRIC Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund

GLOBAL

Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund

GROWTH

Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1

VALUE

Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 2
Franklin MidCap Value Fund
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund 3
Mutual Shares Fund

BLEND

Franklin Balanced Fund
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund

SECTOR

Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Global Real Estate Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund

ASSET ALLOCATION

Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund

TARGET FUNDS

Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund

RETIREMENT TARGET FUNDS

Franklin Templeton 2015 Retirement Target Fund
Franklin Templeton 2025 Retirement Target Fund
Franklin Templeton 2035 Retirement Target Fund
Franklin Templeton 2045 Retirement Target Fund

INCOME

Franklin Adjustable U.S. Government
Securities Fund 4
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund 4
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund 4
Templeton Global Bond Fund
Templeton Income Fund

TAX-FREE INCOME 5

NATIONAL FUNDS

Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 6

LIMITED-TERM FUNDS

California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund

INTERMEDIATE-TERM FUNDS

California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund

STATE-SPECIFIC

Alabama Michigan 6
Arizona Minnesota 6
California 7 Missouri
Colorado New Jersey
Connecticut New York 7
Florida 7 North Carolina
Georgia Ohio 6
Kentucky Oregon
Louisiana Pennsylvania
Maryland Tennessee
Massachusetts 6 Virginia

INSURANCE FUNDS

Franklin Templeton Variable Insurance Products
Trust 8

1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.

2. The fund is only open to existing shareholders and select retirement
plans.

3. The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.

4. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.

5. For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.

6. Portfolio of insured municipal securities.

7. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).

8. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.

07/06 Not part of the annual report

[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906

o WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL?

Eligible shareholders can sign up for eDelivery at
franklintempleton.com. See inside for details.

ANNUAL REPORT AND SHAREHOLDER LETTER

FRANKLIN FEDERAL MONEY FUND

INVESTMENT MANAGER

Franklin Advisers, Inc.

DISTRIBUTOR

Franklin Templeton Distributors, Inc.
1-800/DIAL BEN(R)
franklintempleton.com

SHAREHOLDER SERVICES

1-800/632-2301

Authorized for distribution only when accompanied or preceded by a prospectus.
Investors should carefully consider a fund's investment goals, risks, charges
and expenses before investing. The prospectus contains this and other
information; please read it carefully before investing.

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.

113 A2006 08/06

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.

(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 Frank W. T. LaHaye 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 $13,269 for the fiscal year ended June 30, 2006 and $13,053 for the fiscal
year ended June 30, 2005.

(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 $54 for the fiscal year ended June 30, 2006
and $0 for the fiscal year ended June 30, 2005. 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 not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended June 30, 2006
and $4,500 for the fiscal year ended June 30, 2005. The services for which these
fees were paid included the review of the ICI transfer agent survey.

(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 $54 for the fiscal year ended June 30, 2006 and $4,500 for the
fiscal year ended June 30, 2005.

(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 Directors 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 significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls 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 Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

FRANKLIN FEDERAL MONEY FUND

By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date August 28, 2006

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/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date August 28, 2006

By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date August 28, 2006