UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-07038
---------
THE MONEY MARKET PORTFOLIOS
---------------------------
(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, 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
--------------
Date of fiscal year end: 06/30
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Date of reporting period: 12/31/04
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ITEM 1. REPORTS TO STOCKHOLDERS.
| Semiannual Report
THE MONEY MARKET PORTFOLIOS
FINANCIAL HIGHLIGHTS
THE MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 2004 YEAR ENDED JUNE 30,
(UNAUDITED) 2004 2003 2002 2001 2000
--------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
Net asset value, beginning of period ...... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------------------------
Income from investment operations -
net investment income .................... .008 .009 .014 .026 .059 .056
Less distributions from net investment
income ................................... (.008) (.009) (.014) (.026) (.059) (.056)
-------------------------------------------------------------------------------------
Net asset value, end of period ............ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=====================================================================================
Total return(a) ........................... .78% .94% 1.41% 2.63% 6.08% 5.75%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ......... $6,150,502 $5,505,394 $5,331,200 $4,734,196 $4,490,919 $4,144,043
Ratios to average net assets:
Expenses ................................. .16%(b) .16% .15% .16% .16% .16%
Expenses net of waiver and payments
by affiliate ............................ .16%(b) .15% .15% .15% .15% .15%
Net investment income .................... 1.54%(b) .93% 1.39% 2.56% 5.91% 5.65%
(a) Total return is not annualized for periods less than one year.
(b) Annualized.
Semiannual Report | See notes to financial statements. | 19
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 46.3%
Abbey National Treasury Service, Stamford Branch, 2.32%, 2/10/05 - 2/28/05 ...... $150,000,000 $ 150,001,181
ABN AMRO Bank, N.V., New York Branch, 2.29%, 1/12/05 - 1/14/05 .................. 150,000,000 150,000,000
Bank of Montreal, Chicago Branch, 2.160% - 2.285%, 1/18/05 - 2/28/05 ............ 150,000,000 150,000,256
Bank of Nova Scotia, Portland Branch, 2.11% - 2.12%, 1/04/05 - 1/06/05 .......... 150,000,000 150,000,166
Banque Nationale De Paris, New York Branch, 2.255% - 2.330%, 2/09/05 - 8/16/05 .. 150,000,000 149,993,069
Barclay's Bank PLC, New York Branch, 2.28%, 2/22/05 ............................. 75,000,000 75,000,538
Credit Agricole, New York Branch, 2.28%, 2/23/05 - 2/24/05 ...................... 150,000,000 150,000,000
Dexia Bank, New York Branch, 2.04%, 1/21/05 ..................................... 100,000,000 100,000,553
HBOS Treasury Services PLC, New York Branch, 2.26% - 2.37%, 2/17/05 - 2/24/05 ... 150,000,000 150,002,143
Landesbank Hessen Thueringen Girozentrale, New York Branch, 1.273% - 2.320%,
2/14/05 - 3/01/05 ............................................................. 149,000,000 148,962,700
Lloyds Bank PLC, New York Branch, 2.05% - 2.40%, 1/31/05 - 3/11/05 .............. 150,000,000 150,000,726
Royal Bank of Canada, New York Branch, 2.04%, 1/19/05 - 1/20/05 ................. 150,000,000 150,000,000
Royal Bank of Scotland NY, New York Branch, 1.98% - 2.30%, 1/18/05 - 2/01/05 .... 150,000,000 150,000,665
Societe Generale North America, New York Branch, 2.03% - 2.32%, 1/14/05 - 2/04/05 150,000,000 150,000,000
State Street Corp., Boston Branch, 2.05%, 1/10/05 - 1/11/05 ..................... 150,000,000 150,000,000
Svenska Handelsbanken, New York Branch, 2.180% - 2.405%, 1/25/05 - 3/10/05 ...... 150,000,000 150,001,224
Toronto Dominion Bank, New York Branch, 2.39%, 2/25/05 - 2/28/05 ................ 150,000,000 150,000,000
UBS Finance Delaware LLC, Stamford Branch, 2.330% - 2.405%, 2/07/05 - 3/04/05 ... 150,000,000 150,001,882
Wells Fargo Bank NA, San Francisco Branch, 2.10% - 2.33%, 1/04/05 - 1/07/05 ..... 150,000,000 150,000,000
Westdeutsche Landesbank, New York Branch, 2.26% - 2.39%, 2/18/05 - 3/04/05 ...... 125,000,000 125,000,994
--------------
TOTAL CERTIFICATES OF DEPOSIT (COST $2,848,966,097) ............................. 2,848,966,097
--------------
BANK NOTES (COST $150,000,000) 2.4%
Bank of America NA, 2.26%, 2/16/05 - 2/17/05 .................................... 150,000,000 150,000,000
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COMMERCIAL PAPER 45.4%
(a) AIG Funding Inc., 1/12/05 - 2/14/05 ............................................. 150,000,000 149,741,327
(a) ANZ (Delaware) Inc., 1/06/05 - 3/01/05 .......................................... 150,000,000 149,818,389
(a) Barclay's U.S. Funding Corp., 3/02/05 ........................................... 75,000,000 74,702,500
(a) BP Capital Markets PLC, 1/03/05 ................................................. 250,000,000 249,970,833
(a) Citigroup Global Markets Holdings, 1/25/05 - 1/28/05 ............................ 150,000,000 149,782,188
(a) Commonwealth Bank of Australia, 1/10/05 - 1/24/05 ............................... 175,000,000 174,883,264
(a) Danske Corp., 1/12/05 - 3/03/05 ................................................. 150,000,000 149,645,542
(a) General Electric Capital Corp., 2/03/05 ......................................... 75,000,000 74,844,625
(a) Glaxosmithkline Finance PLC, 1/13/05 - 1/27/05 .................................. 50,000,000 49,945,958
(a) Goldman Sachs Group Inc., 1/18/05 - 1/20/05 ..................................... 150,000,000 149,825,250
(a) ING U.S. Funding LLC, 1/31/05 - 2/11/05 ......................................... 150,000,000 149,687,820
(a) Merrill Lynch & Co. Inc., 1/03/05 ............................................... 214,000,000 213,973,844
(a) Morgan Stanley & Co., 1/04/05 - 1/07/05 ......................................... 150,000,000 149,956,181
(a) National Australia Funding Inc., 1/05/05 - 1/07/05 .............................. 150,000,000 149,952,292
(a) Nestle Capital Corp., 1/03/05 ................................................... 30,215,000 30,211,408
(a) Procter & Gamble Co., 1/07/05 - 1/13/05 ......................................... 150,000,000 149,920,708
(a) Rabobank USA Finance Corp., 2/23/05 - 2/24/05 ................................... 100,000,000 99,669,340
(a) Shell Finance UK PLC, 2/07/05 - 2/18/05 ......................................... 150,000,000 149,614,874
(a) Siemens Capital Corp., 2/02/05 - 2/25/05 ........................................ 150,000,000 149,592,083
(a) Westdeutsche Landesbank, 2/16/05 ................................................ 25,000,000 24,925,569
(a) Westpac Capital Corp., 1/24/05 - 1/26/05 ........................................ 150,000,000 149,796,000
--------------
TOTAL COMMERCIAL PAPER (COST $2,790,459,995) .................................... 2,790,459,995
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20 | Semiannual Report
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
THE MONEY MARKET PORTFOLIOS PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES (COST $115,542,253) 1.9%
(a) Federal Home Loan Bank, 1/03/05 ................................................. $115,550,000 $ 115,542,253
--------------
TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $5,904,968,345) ............ 5,904,968,345
--------------
REPURCHASE AGREEMENTS 3.9%
(b) ABN AMRO Bank, N.V., New York Branch, 2.00%, 1/03/05 (Maturity Value $40,006,667) 40,000,000 40,000,000
Collateralized by U.S. Government Agency Securities, 6.625%, 9/15/09
(b) Deutsche Bank Securities Inc., 1.59%, 1/03/05 (Maturity Value $70,009,275) ...... 70,000,000 70,000,000
Collateralized by (a)U.S. Treasury Bills, 3/03/05
(b) Morgan Stanley & Co. Inc., 1.50%, 1/03/05 (Maturity Value $89,221,151) .......... 89,210,000 89,210,000
Collateralized by U.S. Treasury Notes, 3.875%, 1/15/09
(b) UBS Securities LLC, 1.80%, 1/03/05 (Maturity Value $40,006,000) ................. 40,000,000 40,000,000
Collateralized by U.S. Government Agency Securities, 1.50%, 8/15/05
--------------
TOTAL REPURCHASE AGREEMENTS (COST $239,210,000) ................................. 239,210,000
--------------
TOTAL INVESTMENTS (COST $6,144,178,345) 99.9% ................................... 6,144,178,345
OTHER ASSETS, LESS LIABILITIES .1% .............................................. 6,324,001
--------------
NET ASSETS 100.0% ............................................................... $6,150,502,346
==============
(a) Security is traded on a discount basis with no stated coupon rate.
(b) See Note 1(b) regarding repurchase agreement(s).
Semiannual Report | See notes to financial statements. | 21
THE MONEY MARKET PORTFOLIOS
FINANCIAL HIGHLIGHTS
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------
SIX MONTHS ENDED
DECEMBER 31, 2004 YEAR ENDED JUNE 30,
(UNAUDITED) 2004 2003 2002 2001 2000
------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period .......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------------------------------------------------------------------------
Income from investment operations - net
investment income ............................ .007 .009 .013 .024 .056 .054
Less distributions from net investment income (.007) (.009) (.013) (.024) (.056) (.054)
--------------------------------------------------------------------------
Net asset value, end of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================================
Total return(a) ............................... .75% .87% 1.34% 2.43% 5.75% 5.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) ............. $119,147 $117,815 $201,758 $226,676 $186,718 $221,993
Ratios to average net assets:
Expenses ..................................... .16%(b) .16% .16% .16% .16% .16%
Expenses net of waiver and payments
by affiliate ................................ .15%(b) .15% .15% .15% .15% .15%
Net investment income ........................ 1.47%(b) .87% 1.34% 2.33% 5.63% 5.36%
(a) Total return is not annualized for periods less than one year.
(b) Annualized.
22 | See notes to financial statements. | Semiannual Report
THE MONEY MARKET PORTFOLIOS
STATEMENT OF INVESTMENTS, DECEMBER 31, 2004 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------------------
GOVERNMENT SECURITIES 25.1%
(a) U.S. Treasury Bill, 1/06/05 ..................................................... $ 5,000,000 $ 4,998,883
(a) U.S. Treasury Bill, 1/20/05 ..................................................... 10,000,000 9,991,212
(a) U.S. Treasury Bill, 3/03/05 ..................................................... 5,000,000 4,983,776
(a) U.S. Treasury Bill, 3/24/05 ..................................................... 5,000,000 4,977,906
(a) U.S. Treasury Bill, 4/14/05 ..................................................... 5,000,000 4,969,100
--------------
TOTAL GOVERNMENT SECURITIES (COST $29,920,877) .................................. 29,920,877
--------------
REPURCHASE AGREEMENTS 74.9%
(b) ABN AMRO Bank, N.V., New York Branch, 1.45%, 1/03/05 (Maturity Value $5,000,604) 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 2.75%, 6/30/06
(b) Banc of America Securities LLC, 1.55%, 1/03/05 (Maturity Value $5,000,646) ...... 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 6.75%, 5/15/05
(b) Barclays Capital Inc., 1.30%, 1/03/05 (Maturity Value $5,000,542) ............... 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 1.875%, 1/31/06
(b) Bear, Stearns & Co. Inc., 1.40%, 1/03/05 (Maturity Value $5,000,583) ............ 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 1.625%, 4/30/05
(b) Deutsche Bank Securities Inc., 1.59%, 1/03/05 (Maturity Value $24,623,262) ...... 24,620,000 24,620,000
Collateralized by (a)U.S. Treasury Bills, 1/06/05 - 5/05/05
(b) Goldman, Sachs & Co., 1.47%, 1/03/05 (Maturity Value $5,000,612) ................ 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 2.25%, 4/30/06
(b) Greenwich Capital Markets Inc., 1.55%, 1/03/05 (Maturity Value $5,000,646) ...... 5,000,000 5,000,000
Collateralized by U.S. Treasury Notes, 1.125%, 6/30/05
(b) Morgan Stanley & Co. Inc., 1.50%, 1/03/05 (Maturity Value $24,618,077) .......... 24,615,000 24,615,000
Collateralized by U.S. Treasury, Notes, 3.875%, 1/15/09
(b) UBS Securities LLC, 1.55%, 1/03/05 (Maturity Value $10,001,292) ................. 10,000,000 10,000,000
Collateralized by U.S. Treasury Notes, 5.625%, 5/15/08
--------------
TOTAL REPURCHASE AGREEMENTS (COST $89,235,000) .................................. 89,235,000
--------------
TOTAL INVESTMENTS (COST $119,155,877) 100.0% .................................... 119,155,877
OTHER ASSETS, LESS LIABILITIES .................................................. (8,464)
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NET ASSETS 100.0% ............................................................... $ 119,147,413
==============
(a) Security is traded on a discount basis with no stated coupon rate.
(b) See Note 1(b) regarding repurchase agreement(s).
Semiannual Report | See notes to financial statements. | 23
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004 (Unaudited)
----------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
----------------------------------
Assets:
Investments in securities, at amortized cost (Note 1) ........ $5,904,968,345 $ 29,920,877
Repurchase agreements, at value and cost ..................... 239,210,000 89,235,000
Cash ......................................................... 10,201 3,440
Interest receivable .......................................... 7,095,131 3,755
----------------------------------
Total assets .......................................... 6,151,283,677 119,163,072
----------------------------------
Liabilities:
Payables:
Professional fees ........................................... 12,496 5,445
Custodian fees (Note 4) ..................................... 20,585 1,011
Affiliates .................................................. 728,434 9,035
Distributions to shareholders ................................ 19,380 29
Other liabilities ............................................ 436 139
----------------------------------
Total liabilities ..................................... 781,331 15,659
----------------------------------
Net assets, at value .......................................... $6,150,502,346 $ 119,147,413
==================================
Shares outstanding ............................................ 6,150,502,346 119,147,413
==================================
Net asset value per share ..................................... $ 1.00 $ 1.00
==================================
24 | See notes to financial statements. | Semiannual Report
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF OPERATIONS
for the six months ended December 31, 2004 (unaudited)
----------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
----------------------------------
Investment income:
Interest ..................................................... $ 50,379,062 $ 927,932
----------------------------------
Expenses:
Management fees (Note 3) ..................................... 4,479,223 85,862
Custodian fees (Note 4) ...................................... 50,315 1,236
Reports to shareholders ...................................... 5,856 134
Professional fees ............................................ 22,035 5,486
Trustees' fees and expenses .................................. 3,328 543
Other ........................................................ 77,126 1,551
----------------------------------
Total expenses ........................................ 4,637,883 94,812
Expenses reductions (Note 4) .......................... (13,764) (449)
Expenses waived/paid by affiliate (Note 3) ............ -- (8,455)
----------------------------------
Net expenses ......................................... 4,624,119 85,908
----------------------------------
Net investment income ............................... 45,754,943 842,024
----------------------------------
Net realized gain (loss) from investments ..................... (5,944) 190
----------------------------------
Net increase (decrease) in net assets resulting from operations $ 45,748,999 $ 842,214
==================================
Semiannual Report | See notes to financial statements. | 25
THE MONEY MARKET PORTFOLIOS
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended December 31, 2004 (unaudited)
and the year ended June 30, 2004
-------------------------------------------------------------------------------
THE U.S. GOVERNMENT SECURITIES
THE MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO
-----------------------------------------------------------------------------------
SIX MONTHS YEAR SIX MONTHS YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, 2004 JUNE 30, 2004 DECEMBER 31, 2004 JUNE 30, 2004
-----------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ...................... $ 45,754,943 $ 49,426,140 $ 842,024 $ 1,508,957
Net realized gain (loss) from investments .. (5,944) 3,825 190 5,742
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations .......... 45,748,999 49,429,965 842,214 1,514,699
Distributions to shareholders from net
investment income .......................... (45,748,999)(a) (49,429,965)(b) (842,214)(c) (1,514,699)(d)
Capital share transactions (Note 2) ......... 645,108,182 174,194,451 1,332,859 (83,943,475)
-----------------------------------------------------------------------------------
Net increase (decrease) in net assets 645,108,182 174,194,451 1,332,859 (83,943,475)
Net assets (there is no undistributed net
investment income at beginning or end
of period):
Beginning of period ........................ 5,505,394,164 5,331,199,713 117,814,554 201,758,029
-----------------------------------------------------------------------------------
End of period .............................. $ 6,150,502,346 $ 5,505,394,164 $ 119,147,413 $ 117,814,554
===================================================================================
(a) Distributions were decreased by a net realized loss from investments of
$5,944.
(b) Distributions were increased by a net realized gain from investments of
$3,825.
(c) Distributions were increased by a net realized gain from investments of
$190.
(d) Distributions were increased by a net realized gain from investments of
$5,742.
26 | See notes to financial statements. | Semiannual Report
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Money Market Portfolios (the Trust) is registered under the Investment
Company Act of 1940 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 Portfolios seek to provide high current income consistent with
preservation of capital and liquidity.
The following summarizes the Portfolios' significant accounting policies.
A. SECURITY VALUATION
Securities are valued at amortized cost which approximates value. Repurchase
agreements are valued at cost.
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%. At
December 31, 2004, 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's policy
is to qualify as a regulated investment company under Sub Chapter M of the
Internal Revenue Code and to distribute substantially all of its taxable income.
Portfolios distributions to shareholders are determined on an income tax basis
and may differ from net investment income and realized gains for financial
reporting purposes.
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. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividends from net investment income and capital gains or losses are
normally declared daily. Such distributions are reinvested in additional shares
of the Portfolios.
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. Other
expenses are charged to each Portfolio on a specific identification basis.
Semiannual Report | 27
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. 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 expense during the reporting period. Actual results could differ from those
estimates.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Portfolios' organizational documents, its officers and trustees are
indemnified by the Portfolios against certain liability arising out of the
performance of their duties to the Portfolios. Additionally, in the normal
course of business, the Portfolios enter into contracts with service providers
that contain general indemnification clauses. The Portfolios' maximum exposure
under these arrangements is unknown as this would involve future claims that may
be made against the Portfolios that have not yet occurred. However, based on
experience, the Portfolios expect the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At December 31, 2004, there were an unlimited number of shares authorized ($.01
par value). Transactions in the Portfolios' shares at $1.00 per share were as
follows:
----------------------------------
THE U.S.
GOVERNMENT
THE SECURITIES
MONEY MARKET MONEY MARKET
PORTFOLIO PORTFOLIO
----------------------------------
Period ended December 31, 2004
Shares sold .................................................. $ 3,007,981,030 $ 28,414,199
Shares issued in reinvestment of distributions ............... 45,742,029 843,026
Shares redeemed .............................................. (2,408,614,877) (27,924,366)
----------------------------------
Net increase (decrease) ...................................... $ 645,108,182 $ 1,332,859
==================================
Year ended June 30, 2004
Shares sold .................................................. $ 5,413,860,590 $ 145,540,988
Shares issued in reinvestment of distributions ............... 49,424,401 1,513,783
Shares redeemed .............................................. (5,289,090,540) (230,998,246)
----------------------------------
Net increase (decrease) ...................................... $ 174,194,451 $ (83,943,475)
==================================
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or directors of
Franklin Advisers, Inc. (Advisers) and Franklin/Templeton Investor Services, LLC
(Investor Services), the Portfolios' investment manager and transfer agent,
respectively, and of the Franklin Money Fund, the Institutional Fiduciary Trust,
the Franklin Templeton Money Fund Trust, and the Franklin Federal Money Fund.
28 | Semiannual Report
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
3. TRANSACTIONS WITH AFFILIATES (CONTINUED)
A. MANAGEMENT FEE
The Portfolios pay an investment management fee to Advisers of .15% per year of
the average daily net assets of each Portfolio. 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 Statements of Operations.
Total expenses waived by Advisers are not subject to reimbursement by the
Portfolio subsequent to the Portfolio's fiscal year end.
B. OTHER AFFILIATED TRANSACTIONS
At December 31, 2004, the shares of The Money Market Portfolio were owned by
following funds:
------------------------------------
PERCENTAGE OF
SHARES OUTSTANDING SHARES
------------------------------------
Institutional Fiduciary Trust - Money Market Portfolio .......... 4,356,450,684 70.83%
Franklin Money Fund ............................................. 1,499,200,567 24.37%
Institutional Fiduciary Trust - Franklin Cash Reserves Fund ..... 189,917,636 3.09%
Franklin Templeton Money Fund Trust - Franklin Templeton
Money Fund ..................................................... 104,933,459 1.71%
At December 31, 2004, 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 ..................................... 119,147,413 100.00%
4. EXPENSE OFFSET ARRANGEMENT
The Portfolios have entered into an arrangement with its custodian whereby
credits realized as a result of uninvested cash balances are used to reduce a
portion of the Fund's custodian expenses. During the period ended 12/31/04, the
custodian fees were reduced as noted in the Statements of Operations.
5. INCOME TAXES
At December 31, 2004, the cost of investments for book and income tax purposes
was the same.
6. REGULATORY MATTERS
INVESTIGATIONS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc.
Semiannual Report | 29
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. REGULATORY MATTERS (CONTINUED)
INVESTIGATIONS (CONTINUED)
("NASD"), 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
(as used in this section, together, the "Company"), as well as certain current
or former executives and employees of the Company, received subpoenas and/or
requests for documents, information and/or testimony. The Company and its
current employees provided documents and information in response to those
requests and subpoenas.
SETTLEMENTS
Beginning in August 2004, the Company entered into settlements with certain
regulators investigating the mutual fund industry practices noted above. The
Company believes that settlement of each of the matters described in this
section is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
On August 2, 2004, Franklin Resources, Inc. announced that its subsidiary,
Franklin Advisers, Inc., reached an agreement with the SEC that resolved the
issues resulting from the SEC investigation into market timing activity. In
connection with that agreement, the SEC issued an "Order Instituting
Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and
203(k) of the Investment Advisers Act of 1940 and Sections 9(b) and 9(f) of the
Investment Company Act of 1940, Making Findings and Imposing Remedial Sanctions
and a Cease-and-Desist Order" (the "Order"). The SEC's Order concerned the
activities of a limited number of third parties that ended in 2000 and those
that were the subject of the first Massachusetts administrative complaint
described below.
Under the terms of the SEC's Order, pursuant to which Franklin Advisers, Inc.
neither admitted nor denied any of the findings contained therein, Franklin
Advisers, Inc. agreed to pay $50 million, of which $20 million is a civil
penalty, to be distributed to shareholders of certain funds in accordance with a
plan to be developed by an independent distribution consultant. At this time, it
is unclear which funds or which shareholders of any particular fund will receive
distributions. The Order also required Franklin Advisers, Inc. to, among other
things, enhance and periodically review compliance policies and procedures.
On September 20, 2004, Franklin Resources, Inc. announced that two of its
subsidiaries, Franklin Advisers, Inc. and Franklin Templeton Alternative
Strategies, Inc. ("FTAS"), reached an agreement with the Securities Division of
the Office of the Secretary of the Commonwealth of Massachusetts (the "State of
Massachusetts") related to its administrative complaint filed on February 4,
2004, concerning one instance of market timing that was also a subject of the
August 2, 2004 settlement that Franklin Advisers, Inc. reached with the SEC, as
described above.
Under the terms of the settlement consent order issued by the State of
Massachusetts, Franklin Advisers, Inc. and FTAS consented to the entry of a
cease-and-desist order and agreed to pay a $5 million administrative fine to the
State of Massachusetts (the "Massachusetts Consent
30 | Semiannual Report
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. REGULATORY MATTERS (CONTINUED)
SETTLEMENTS (CONTINUED)
Order"). The Massachusetts Consent Order included two different sections:
"Statements of Fact" and "Violations of Massachusetts Securities Laws." Franklin
Advisers, Inc. and FTAS admitted the facts in the Statements of Fact.
On October 25, 2004, the State of Massachusetts filed a second administrative
complaint, alleging that Franklin Resources, Inc.'s Form 8-K filing (in which it
described the Massachusetts Consent Order and stated that "Franklin did not
admit or deny engaging in any wrongdoing") failed to state that Franklin
Advisers, Inc. and FTAS admitted the Statements of Fact portion of the
Massachusetts Consent Order (the "Second Complaint"). Franklin Resources, Inc.
reached a second agreement with the State of Massachusetts on November 19, 2004,
resolving the Second Complaint. As a result of the November 19, 2004 settlement,
Franklin Resources, Inc. filed a new Form 8-K. The terms of the Massachusetts
Consent Order did not change and there was no monetary fine associated with this
second settlement.
On November 17, 2004, Franklin Resources, Inc. announced that Franklin/Templeton
Distributors, Inc. ("FTDI") reached an agreement with the CAGO, resolving the
issues resulting from the CAGO's investigation concerning sales and marketing
support payments. Under the terms of the settlement, FTDI neither admitted nor
denied the allegations in the CAGO's complaint and agreed to pay $2 million to
the State of California as a civil penalty, $14 million to the funds, to be
allocated by an independent distribution consultant to be paid for by FTDI, and
$2 million to the CAGO for its investigative costs.
On December 13, 2004, Franklin Resources, Inc. announced that its subsidiaries
FTDI and Franklin Advisers, Inc. reached an agreement with the SEC, resolving
the issues resulting from the SEC's investigation concerning marketing support
payments to securities dealers who sell fund shares. In connection with that
agreement, the SEC issued an "Order Instituting Administrative and
Cease-and-Desist Proceedings, Making Findings, and Imposing Remedial Sanctions
Pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940,
Sections 9(b) and 9(f) of the Investment Company Act of 1940, and Section 15(b)
of the Securities Exchange Act of 1934" (the "Second Order").
Under the terms of the Second Order, in which FTDI and Franklin Advisers, Inc.
neither admitted nor denied the findings contained therein, they agreed to pay
the funds a penalty of $20 million and disgorgement of $1 (one dollar). FTDI and
Franklin Advisers, Inc. also agreed to implement certain measures and
undertakings relating to marketing support payments to broker-dealers for the
promotion or sale of fund shares, including making additional disclosures in the
funds' Prospectuses and Statements of Additional Information. The Second Order
further requires the appointment of an independent distribution consultant, at
the Company's expense, who shall develop a plan for the distribution of the
penalty and disgorgement to the funds.
Semiannual Report | 31
THE MONEY MARKET PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS
The Company and other funds, and certain current and former officers, employees,
and directors have been named in multiple lawsuits in different federal courts
in Nevada, California, Illinois, New York and Florida, alleging violations of
various federal securities laws and seeking, among other relief, monetary
damages, restitution, removal of fund trustees, directors, advisers,
administrators, and distributors, rescission of management contracts and 12b-1
Plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach
of duty with respect to alleged arrangements to permit market timing and/or late
trading activity, or breach of duty with respect to the valuation of the
portfolio securities of certain Templeton funds managed by Franklin Resources,
Inc. subsidiaries, resulting in alleged market timing activity. The majority of
these lawsuits duplicate, in whole or in part, the allegations asserted in the
February 4, 2004 Massachusetts administrative complaint and the findings in the
SEC's August 2, 2004 Order, as described above. The lawsuits are styled as class
actions, or derivative actions on behalf of either the named funds or Franklin
Resources, Inc.
In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of directed brokerage payments and/or payment of allegedly
excessive advisory, commission, and distribution fees, and seeking, among other
relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of certain funds.
The Company and fund management strongly believes that the claims made in each
of the lawsuits identified above are without merit and intends to vigorously
defend against them. The Company cannot predict with certainty, however, the
eventual outcome of the remaining governmental investigations or private
lawsuits, nor whether they will have a material negative impact on the Company.
Public trust and confidence are critical to the Company's business and any
material loss of investor and/or client confidence could result in a significant
decline in assets under management by the Company, which would have an adverse
effect on the Company's future financial results. If the Company finds that it
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. The Company is committed to taking all appropriate
actions to protect the interests of its funds' shareholders.
32 | Semiannual Report
SHAREHOLDER INFORMATION
QUARTERLY STATEMENT OF INVESTMENTS
The Company files a complete statement of investments with the 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.
Semiannual Report | 33
ITEM 2. CODE OF ETHICS.
(A) THE REGISTRANT HAS ADOPTED A CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL
EXECUTIVE OFFICERS AND PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER.
(C) N/A
(D) N/A
(F) PURSUANT TO ITEM 10(A), THE REGISTRANT IS ATTACHING AS AN EXHIBIT A COPY OF
ITS CODE OF ETHICS THAT APPLIES TO ITS PRINCIPAL EXECUTIVE OFFICERS 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. N/A
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 9. 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 10. EXHIBITS.
(A) CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS.
(B)(1) 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)(2) 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.
THE MONEY MARKET PORTFOLIOS
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date February 18, 2005
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
Chief Executive Officer - Finance and Administration
Date February 18, 2005
By /s/Galen G. Vetter
Chief Financial Officer
Date February 18, 2005