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 811-03052 --------- Franklin Federal Money Fund --------------------------- (Exact name of registrant as specified in charter) One Franklin Parkway, San Mateo, CA 94403-1906 (Address of principal executive offices) (Zip code) Craig S. Tyle, One Franklin Parkway, San Mateo, CA 94403-1906 ------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (650) 312-2000 -------------- Date of fiscal year end: 06/30 ----- Date of reporting period: 12/31/05 -------- Item 1. Reports to Stockholders. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- DECEMBER 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SEMIANNUAL REPORT AND SHAREHOLDER LETTER INCOME - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- [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. - -------------------------------------------------------------------------------- MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] Not part of the semiannual report Contents SHAREHOLDER LETTER ........................................................ 1 SEMIANNUAL REPORT Franklin Federal Money Fund ............................................... 3 Performance Summary ....................................................... 5 Your Fund's Expenses ...................................................... 6 Financial Highlights and Statement of Investments ......................... 8 Financial Statements ...................................................... 10 Notes to Financial Statements ............................................. 13 The Money Market Portfolios ............................................... 17 Shareholder Information ................................................... 30 - -------------------------------------------------------------------------------- Semiannual 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 semiannual report for the period ended December 31, 2005. PERFORMANCE OVERVIEW Rising short-term interest rates during the six months 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 3.15% on December 31, 2005. ECONOMIC AND MARKET OVERVIEW The economy continued to grow at a healthy pace during the six months under review. Over the reporting period, nonfarm payroll data, as well as other indexes, showed growing employment. This along with other factors helped consumer spending increase 6.25% (not adjusted for inflation) in December 2005 compared with the same month a year earlier, which supported U.S. economic growth.(2) Business spending also rose during the reporting period, contributing to economic growth. Historically low interest rates continued to allow many companies easy access to capital, and ample cash also helped some companies to support their spending plans. (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. (2) Source: Bureau of Economic Analysis. 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. Semiannual Report | 3 PORTFOLIO BREAKDOWN 12/31/05 - -------------------------------------------------------------------------------- % OF TOTAL INVESTMENTS - -------------------------------------------------------------------------------- Repurchase Agreements 93.4% - -------------------------------------------------------------------------------- U.S. Government and Agency Securities 6.6% - -------------------------------------------------------------------------------- Oil prices remained high during the period amid concerns about potential long-term supply limitations in the face of expected strong growth in global demand, especially from China and India. Despite high commodity prices, inflation remained relatively contained for the 12 months ended December 31, 2005, as measured by the 2.2% rise for the core Consumer Price Index (CPI), which was the same as the core CPI's 10-year average.(3) The Federal Reserve Board (Fed) noted some economic effects due to the recent hurricanes. However, acknowledging the economy's strength as well as potential inflationary pressure from high energy prices, the Fed raised the federal funds target rate to 4.25% from 3.25% during the six-month period. The 10-year Treasury note fluctuated considerably over the six months, but overall its yield rose from 3.94% at the beginning of the period to 4.39% on December 31, 2005. Although core inflationary pressures appeared relatively well contained, the U.S. economy's resilience caused some concern about future pricing pressures. Some market participants also pointed to the upcoming change in the Fed chairman as another possible catalyst for the 10-year Treasury's rise, as there is some market perception that Ben Bernanke, the next Fed chairman, may tolerate higher inflation risk. However, Mr. Bernanke is reported to share many of retiring chairman Alan Greenspan's economic philosophies. Furthermore, it is likely to take some time before his approach to dealing with inflation is apparent. 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. (3) Source: Bureau of Labor Statistics. Core CPI excludes food and energy costs. 4 | Semiannual 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. We appreciate your support, welcome new shareholders and look forward to serving your investment needs in the years ahead. THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2005, 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 ADVISER 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. PERFORMANCE SUMMARY SYMBOL: FMNXX 12/31/05 - -------------------------------------------------------------------------------- Seven-day effective yield* 3.15% - -------------------------------------------------------------------------------- Seven-day annualized yield 3.10% - -------------------------------------------------------------------------------- * The seven-day effective yield assumes compounding of daily dividends. Annualized and effective yields are for the seven-day period ended 12/31/05. The Fund's average weighted maturity was 12 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. Semiannual 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 | Semiannual 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. - ----------------------------------------------------------------------------------------------------- BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID DURING VALUE 7/1/05 VALUE 12/31/05 PERIOD* 7/1/05-12/31/05 - ----------------------------------------------------------------------------------------------------- Actual $1,000 $1,014.00 $4.31 - ----------------------------------------------------------------------------------------------------- Hypothetical (5% return before expenses) $1,000 $1,020.92 $4.33 - ----------------------------------------------------------------------------------------------------- * Expenses are equal to the annualized expense ratio, net of expense waivers, of 0.85%, which includes the expenses incurred by the Portfolio, multiplied by the average account value over the period, multiplied by 184/365 to reflect the one-half year period. Semiannual Report | 7 Franklin Federal Money Fund FINANCIAL HIGHLIGHTS ----------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED JUNE 30, (UNAUDITED) 2005 2004 2003 2002 2001 ----------------------------------------------------------------------------------- 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 net investment operations - net investment income .......................... 0.014 0.013 0.002 0.007 0.018 0.050 Less distributions from net investment income ..................................... (0.014) (0.013) (0.002) (0.007) (0.018) (0.050) ----------------------------------------------------------------------------------- Net asset value, end of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =================================================================================== Total return(a) ............................... 1.40% 1.31% 0.22% 0.70% 1.79% 5.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ............. $ 98,123 $110,655 $117,623 $125,130 $141,058 $132,916 Ratios to average net assets: Expenses(b) ................................ 0.87%(c) 0.83% 0.82% 0.81% 0.78% 0.80% Expenses net of waiver and payments by affiliate(b) ......................... 0.85%(c) 0.81% 0.81% 0.80% 0.77% 0.79% Net investment income ...................... 2.78%(c) 1.31% 0.21% 0.70% 1.74% 5.01% (a) Total return does not reflect the contingent deferred sales charge, and is not annualized for periods less than one year. (b) The expense ratio includes the Fund's share of the Portfolio's allocated expenses. (c) Annualized. 8 | See notes to financial statements. | Semiannual Report Franklin Federal Money Fund STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (UNAUDITED) - ----------------------------------------------------------------------------------------------------------- SHARES VALUE - ----------------------------------------------------------------------------------------------------------- MUTUAL FUND (COST $97,936,193) 99.8% The U.S. Government Securities Money Market Portfolio (Note 1) ...... 97,936,193 $ 97,936,193 OTHER ASSETS, LESS LIABILITIES 0.2% ................................. 187,182 --------------- NET ASSETS 100.0% ................................................... $ 98,123,375 =============== Semiannual Report | See notes to financial statements. | 9 Franklin Federal Money Fund FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES December 31, 2005 (unaudited) Assets: Investments in Portfolio, at value and cost (Note 1) ... $ 97,936,193 Receivables from capital shares sold ................... 509,341 ------------- Total assets ..................................... 98,445,534 ------------- Liabilities: Payables: Capital shares redeemed ............................. 258,045 Affiliates .......................................... 44,737 Distributions to shareholders ....................... 10,103 Accrued expenses and other liabilities ................. 9,274 ------------- Total liabilities ................................ 322,159 ------------- Net assets, at value .......................... $ 98,123,375 ============= Net assets consist of paid-in capital ..................... $ 98,123,375 ------------- Shares outstanding ........................................ 98,123,375 ============= 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. | Semiannual Report Franklin Federal Money Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended December 31, 2005 (unaudited) Investment income: Dividends from Portfolio ............................... $ 1,733,081 ------------- Expenses: Administrative fees (Note 3a) .......................... 224,807 Transfer agent fees (Note 3c) .......................... 78,997 Reports to shareholders ................................ 14,814 Registration and filing fees ........................... 17,854 Professional fees ...................................... 7,932 Directors' fees and expenses ........................... 3,202 Other .................................................. 1,517 ------------- Total expenses ...................................... 349,123 ------------- Net investment income ............................ 1,383,958 ------------- Net increase (decrease) in net assets resulting from operations ............................................. $ 1,383,958 ============= Semiannual Report | See notes to financial statements. | 11 Franklin Federal Money Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS ---------------------------------- SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 ---------------------------------- Increase (decrease) in net assets: Net investment income from operations ................................................ $ 1,383,958 $ 1,489,612 Distributions to shareholders from net investment income ............................. (1,383,958) (1,489,612) Capital share transactions (Note 2) .................................................. (12,531,328) (6,967,885) ---------------------------------- Net increase (decrease) in net assets ............................................. (12,531,328) (6,967,885) Net assets (there is no undistributed net investment income at beginning or end of period): Beginning of period .................................................................. 110,654,703 117,622,588 ---------------------------------- End of period ........................................................................ $ 98,123,375 $ 110,654,703 ================================== 12 | See notes to financial statements. | Semiannual Report Franklin Federal Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Federal Money Fund (the Fund) is registered under the Investment Company Act of 1940 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 Investment Company Act of 1940 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 December 31, 2005, the Fund owns 100% of the Portfolio. B. INCOME TAXES No provision has been made for U.S. income taxes because the Fund's policy is to continue 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 generally accepted accounting principles. 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. Semiannual Report | 13 Franklin Federal Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 December 31, 2005, there were 5 billion shares authorized (no par value). Transactions in the Fund's shares at $1.00 per share were as follows: ---------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2005 JUNE 30, 2005 ---------------------------------- Shares sold ..................................... $ 43,552,557 $ 98,860,390 Shares issued in reinvestment of distributions .. 1,374,854 1,485,088 Shares redeemed ................................. (57,458,739) (107,313,363) ---------------------------------- Net increase (decrease) ......................... $ (12,531,328) $ (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 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 Fund's average daily net assets as follows: - -------------------------------------------------------------------------------- ANNUALIZED FEE RATE NET ASSETS - -------------------------------------------------------------------------------- 0.455% Up to and including $100 million 0.330% Over $100 million, up to and including $250 million 0.280% In excess of $250 million 14 | Semiannual Report Franklin Federal Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 period: Contingent deferred sales charges retained ........................... $73,682 C. TRANSFER AGENT FEES The Fund paid transfer agent fees of $78,997, of which $53,928 was retained by Investor Services. 4. INCOME TAXES At December 31, 2005, the cost of investments for book and income tax purposes was the same. 5. 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. 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 a plan for distribution of the respective settlement monies. The CAGO approved the distribution plan under the CAGO Settlement and, in accordance with the terms and conditions of that settlement, the monies were disbursed to the relevant funds. The Fund did not participate in the CAGO Settlement. The SEC has not yet approved the distribution plan pertaining to the December 13, 2004 SEC Order. When approved, disbursements of settlement monies will be made promptly to the relevant funds, in accordance with the terms and conditions of that order. The IDC continues to develop the plan of distribution under the August 2, 2004 SEC Order that resolved the SEC's market timing investigation. 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, Semiannual Report | 15 Franklin Federal Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. REGULATORY MATTERS (CONTINUED) 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 | Semiannual Report The Money Market Portfolios FINANCIAL HIGHLIGHTS THE MONEY MARKET PORTFOLIO ------------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED JUNE 30, (UNAUDITED) 2005 2004 2003 2002 2001 ------------------------------------------------------------------------------- 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 ....................... 0.018 0.020 0.009 0.014 0.026 0.059 Less distributions from net investment income ...................................... (0.018) (0.020) (0.009) (0.014) (0.026) (0.059) ------------------------------------------------------------------------------- Net asset value, end of period ................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =============================================================================== Total return(a) ................................ 1.82% 2.06% 0.94% 1.41% 2.63% 6.08% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) .............. $ 5,626,123 $5,676,479 $ 5,505,394 $5,331,200 $4,734,196 $4,490,919 Ratios to average net assets: Expenses .................................... 0.16%(b) 0.16% 0.16% 0.15% 0.16% 0.16% Expenses net of waiver and payments by affiliate ....................... 0.16%(b) 0.16% 0.15% 0.15% 0.15% 0.15% Net investment income .......................... 3.57%(b) 2.04% 0.93% 1.39% 2.56% 5.91% (a) Total return is not annualized for periods less than one year. (b) Annualized. Semiannual Report | See notes to financial statements. | 17 The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (UNAUDITED) - ------------------------------------------------------------------------------------------------------------------------ THE MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------------ BANK NOTES (COST $200,000,801) 3.6% Bank of America NA, 4.29%, 1/30/06 ............................................. $200,000,000 $ 200,000,801 --------------- CERTIFICATES OF DEPOSIT 50.7% Abbey National Treasury Services PLC, Stamford Branch, 4.24% - 4.29%, 1/31/06 - 2/01/06 ........................................................... 200,000,000 200,001,156 ABN AMRO Bank, N.V., Chicago Branch, 4.295%, 2/03/06 ........................... 200,000,000 200,000,858 Bank of Montreal, Chicago Branch, 4.24% - 4.28%, 1/10/06 - 1/20/06 ............. 200,000,000 200,000,761 Bank of Nova Scotia, Portland Branch, 4.24%, 1/11/06 ........................... 100,000,000 100,000,277 Banque Nationale de Paris, San Francisco Branch, 4.39%, 3/03/06 ................ 200,000,000 200,000,000 Barclay's Bank PLC, New York Branch, 4.235% - 4.39%, 1/23/06 - 2/28/06 ......... 200,000,000 200,002,226 Calyon North America Inc., New York Branch, 4.38%, 2/23/06 - 2/24/06 ........... 200,000,000 200,000,000 DEPFA Bank PLC, New York Branch, 4.30%, 1/20/06 ................................ 75,000,000 75,000,197 Dexia Credit Local, New York Branch, 4.385%, 2/21/06 - 2/22/06 ................. 200,000,000 200,000,000 HBOS Treasury Services, New York Branch, 4.24%, 1/31/06 (United Kingdom) ....... 175,000,000 175,001,447 Rabobank Nederland N.V., New York Branch, 4.21%, 1/04/06 - 1/05/06 ............. 200,000,000 200,000,000 Societe Generale North America, New York Branch, 4.28%, 1/24/06 - 1/27/06 ...... 200,000,000 200,000,000 Svenska Handelsbanken, New York Branch, 4.24% - 4.40%, 1/17/06 - 2/27/06 ....... 200,000,000 200,002,014 Toronto Dominion Bank, New York Branch, 4.28%, 1/19/06 - 1/20/06 ............... 200,000,000 200,000,000 UBS AG, Stamford Branch, 4.29%, 1/26/06 ........................................ 100,000,000 100,000,346 Wells Fargo Bank NA, San Francisco Branch, 4.23% - 4.30%, 1/09/06 - 1/18/06 .... 200,000,000 200,000,000 --------------- TOTAL CERTIFICATES OF DEPOSIT (COST $2,850,009,282) ............................ 2,850,009,282 --------------- (a)COMMERCIAL PAPER 39.5% Bank of Ireland, 1/06/06 ....................................................... 200,000,000 199,883,333 Commonwealth Bank of Australia, 1/03/06 - 1/25/06 .............................. 175,000,000 174,767,028 Concentrate Manufacturing Co., 1/05/06 - 2/08/06 ............................... 189,000,000 188,324,428 DEPFA Bank PLC, 1/04/06 - 1/20/06 .............................................. 125,000,000 124,902,629 General Electric Capital Corp., 1/05/06 - 1/06/06 .............................. 200,000,000 199,892,500 Goldman Sachs Group Inc., 1/04/06 - 1/17/06 .................................... 200,000,000 199,744,126 International Nederlanden U.S., 1/23/06 - 1/26/06 .............................. 180,370,000 179,865,304 Merrill Lynch & Co Inc., 1/03/06 ............................................... 200,000,000 199,953,444 Morgan Stanley Group Inc., 1/04/06 ............................................. 59,450,000 59,429,093 National Australia Funding, 1/09/06 - 1/12/06 .................................. 200,000,000 199,775,166 Toyota Motor Credit Corp., 2/06/06 - 2/07/06 ................................... 200,000,000 199,128,056 UBS AG Finance Delaware LLC, 1/13/06 ........................................... 100,000,000 99,860,000 Westpac Banking Corp., 1/23/06 ................................................. 200,000,000 199,475,667 --------------- TOTAL COMMERCIAL PAPER (COST $2,225,000,774) ................................... 2,225,000,774 --------------- (a)U.S. GOVERNMENT AND AGENCY SECURITIES (COST $90,692,073) 1.6% Federal Home Loan Bank, 1/03/06 ................................................ 90,709,000 90,692,073 --------------- TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $5,365,702,930) ........... 5,365,702,930 --------------- 18 | Semiannual Report The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (UNAUDITED) (CONTINUED) - ----------------------------------------------------------------------------------------------------------------------------- THE MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------------------------------- (b)REPURCHASE AGREEMENTS 11.6% ABN AMRO Bank, N.V., New York Branch, 4.00%, 1/03/06 (Maturity Value $295,131,111) Collateralized by U.S. Government Agency Securities, 4.25% - 4.625%, 1/15/08 - 8/15/10 ............................................................. $295,000,000 $ 295,000,000 Deutsche Bank Securities Inc., 3.39%, 1/03/06 (Maturity Value $32,367,187) Collateralized by (a)U.S. Treasury Bills, 6/08/06 ................................ 32,355,000 32,355,000 Morgan Stanley & Co. Inc., 3.40%, 1/03/06 (Maturity Value $32,372,225) Collateralized by U.S. Treasury Notes, 3.50% - 4.00%, 2/15/10 - 4/15/10 .......... 32,360,000 32,360,000 UBS Securities LLC, 4.00%, 1/03/06 (Maturity Value $295,131,111) Collateralized by U.S. Government Agency Securities, 7.25%, 1/15/10 .............. 295,000,000 295,000,000 --------------- TOTAL REPURCHASE AGREEMENTS (COST $654,715,000) ..................................... 654,715,000 --------------- TOTAL INVESTMENTS (COST $6,020,417,930) 107.0% ...................................... 6,020,417,930 OTHER ASSETS, LESS LIABILITIES (7.0)% ............................................... (394,295,419) --------------- NET ASSETS 100.0% ................................................................... $5,626,122,511 =============== (a) A portion or all of the security is traded on a discount basis with no stated coupon rate. (b) See Note 1(b) regarding repurchase agreements. Semiannual Report | See notes to financial statements. | 19 The Money Market Portfolios FINANCIAL HIGHLIGHTS THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO ----------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED JUNE 30, (UNAUDITED) 2005 2004 2003 2002 2001 ----------------------------------------------------------------------------- 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 ............................. 0.018 0.020 0.009 0.013 0.024 0.056 Less distributions from net investment income .... (0.018) (0.020) (0.009) (0.013) (0.024) (0.056) ----------------------------------------------------------------------------- Net asset value, end of period ................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============================================================================= Total return(a) .................................. 1.77% 1.99% 0.87% 1.34% 2.43% 5.75% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ................ $ 97,936 $ 110,761 $ 117,815 $ 201,758 $ 226,676 $ 186,718 Ratios to average net assets: Expenses ...................................... 0.17%(b) 0.17% 0.16% 0.16% 0.16% 0.16% Expenses net of waiver and payments by affiliate ............................... 0.15%(b) 0.15% 0.15% 0.15% 0.15% 0.15% Net investment income ......................... 3.48%(b) 1.97% 0.87% 1.34% 2.33% 5.63% (a) Total return is not annualized for periods less than one year. (b) Annualized. 20 | See notes to financial statements. | Semiannual Report The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2005 (UNAUDITED) - --------------------------------------------------------------------------------------------------------------------------------- THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AND AGENCY SECURITIES 6.6% (a)U.S. Treasury Bill, 4/27/06 ................................................................. $ 2,000,000 $ 1,973,707 (a)U.S. Treasury Bill, 5/04/06 ................................................................. 2,000,000 1,971,881 U.S. Treasury Note, 2.50%, 5/31/06 .......................................................... 2,500,000 2,489,346 ------------ TOTAL U.S. GOVERNMENT AND AGENCY SECURITIES (COST $6,434,934) ............................... 6,434,934 ------------ (b)REPURCHASE AGREEMENTS 93.4% ABN AMRO Bank, N.V., New York Branch, 3.30%, 1/03/06 (Maturity Value $5,001,833) Collateralized by (a)U.S. Treasury Bills, 4/27/06 ........................................ 5,000,000 5,000,000 Banc of America Securities LLC, 3.30%, 1/03/06 (Maturity Value $5,001,833) Collateralized by U.S. Treasury Notes, 2.50%, 9/30/06 .................................... 5,000,000 5,000,000 Barclays Capital Inc., 3.30%, 1/03/06 (Maturity Value $5,001,833) Collateralized by U.S. Treasury Notes, 3.25%, 8/15/07 .................................... 5,000,000 5,000,000 Bear, Stearns & Co. Inc., 3.10%, 1/03/06 (Maturity Value $5,001,722) Collateralized by U.S. Treasury Notes, 4.625%, 5/15/06 ................................... 5,000,000 5,000,000 Deutsche Bank Securities Inc., 3.39%, 1/03/06 (Maturity Value $20,752,814) Collateralized by (a)U.S. Treasury Bills, 4/13/06 ........................................ 20,745,000 20,745,000 Dresdner Kleinwort Wasserstein Securities LLC, 3.50%, 1/03/06 (Maturity Value $10,003,889) Collateralized by U.S. Treasury Notes, 4.00%, 6/15/09 .................................... 10,000,000 10,000,000 Greenwich Capital Markets Inc., 3.35%, 1/03/06 (Maturity Value $10,003,722) Collateralized by U.S. Treasury Notes, 1.625%, 2/28/06 ................................... 10,000,000 10,000,000 Merrill Lynch Government Securities Inc., 3.38%, 1/03/06 (Maturity Value $5,001,878) Collateralized by U.S. Treasury Notes, 2.50%, 9/30/06 .................................... 5,000,000 5,000,000 Morgan Stanley & Co. Inc., 3.40%, 1/03/06 (Maturity Value $20,752,837) Collateralized by U.S. Treasury Notes, 3.875% - 4.00%, 4/15/10 - 7/15/10 ................. 20,745,000 20,745,000 UBS Securities LLC, 3.50%, 1/03/06 (Maturity Value $5,001,944) Collateralized by U.S. Treasury Notes, 3.875%, 5/15/09 ................................... 5,000,000 5,000,000 ------------ TOTAL REPURCHASE AGREEMENTS (COST $91,490,000) .............................................. 91,490,000 ------------ TOTAL INVESTMENTS (COST $97,924,934) 100.0% ................................................. 97,924,934 OTHER ASSETS, LESS LIABILITIES 0.0%(c) ...................................................... 11,259 ------------ NET ASSETS 100.0% ........................................................................... $ 97,936,193 ============ (a) A portion or all of 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 0.05% of net assets. Semiannual Report | See notes to financial statements. | 21 The Money Market Portfolios FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2005 (unaudited) --------------------------------- THE U.S. GOVERNMENT THE SECURITIES MONEY MARKET MONEY MARKET PORTFOLIO PORTFOLIO --------------------------------- Assets: Investments in securities, at amortized cost ....... $ 5,365,702,930 $ 6,434,934 Repurchase agreements, at value and cost ........... 654,715,000 91,490,000 --------------------------------- Total investments ............................ 6,020,417,930 97,924,934 Cash ............................................... 4,780 4,871 Interest receivable ................................ 6,442,459 22,648 --------------------------------- Total assets ................................. 6,026,865,169 97,952,453 --------------------------------- Liabilities: Payables: Investment securities purchased ................. 400,000,858 -- Affiliates ...................................... 716,288 10,676 Distributions to shareholders ................... 8,950 32 Accrued expenses and other liabilities ............. 16,562 5,552 --------------------------------- Total liabilities ............................ 400,742,658 16,260 --------------------------------- Net assets, at value ...................... $ 5,626,122,511 $ 97,936,193 ================================= Net assets consist of paid-in capital ................. $ 5,626,122,511 $ 97,936,193 ================================= Shares outstanding .................................... 5,626,122,511 97,936,193 ================================= Net asset value per share ............................. $ 1.00 $ 1.00 ================================= 22 | See notes to financial statements. | Semiannual Report The Money Market Portfolios FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the six months ended December 31, 2005 (unaudited) ------------------------------- THE U.S. GOVERNMENT THE SECURITIES MONEY MARKET MONEY MARKET PORTFOLIO PORTFOLIO ------------------------------- Investment income: Interest ....................................................... $ 105,684,459 $ 1,807,759 ------------------------------- Expenses: Management fees (Note 3a) ...................................... 4,253,003 74,807 Custodian fees (Note 4) ........................................ 55,374 779 Reports to shareholders ........................................ 4,981 1,317 Professional fees .............................................. 25,268 6,114 Other .......................................................... 84,938 1,474 ------------------------------- Total expenses ........................................... 4,423,564 84,491 Expense reductions (Note 4) .............................. (24,817) (890) Expenses waived/paid by affiliates (Note 3c) ............. -- (8,893) ------------------------------- Net expenses .......................................... 4,398,747 74,708 ------------------------------- Net investment income .............................. 101,285,712 1,733,051 ------------------------------- Net increase (decrease) in net assets resulting from operations ... $ 101,285,712 $ 1,733,051 =============================== Semiannual Report | See notes to financial statements. | 23 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 --------------------------------------------------------------------------- SIX MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, 2005 YEAR ENDED DECEMBER 31, 2005 YEAR ENDED (UNAUDITED) JUNE 30, 2005 (UNAUDITED) JUNE 30, 2005 --------------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ...................... $ 101,285,712 $ 119,375,531 $ 1,733,051 $ 2,239,743 Net realized gain (loss) from investments .. -- -- -- 190 --------------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations ......... 101,285,712 119,375,531 1,733,051 2,239,933 Distributions to shareholders from net investment income .......................... (101,285,712) (119,375,531) (1,733,051) (2,239,933)(a) Capital share transactions (Note 2) ........... (50,356,907) 171,085,254 (12,825,205) (7,053,156) --------------------------------------------------------------------------- Net increase (decrease) in net assets ........................ (50,356,907) 171,085,254 (12,825,205) (7,053,156) Net assets (there is no undistributed net investment income at beginning or end of period): Beginning of period ........................ 5,676,479,418 5,505,394,164 $ 110,761,398 117,814,554 --------------------------------------------------------------------------- End of period .............................. $ 5,626,122,511 $ 5,676,479,418 $ 97,936,193 $ 110,761,398 =========================================================================== (a) Distributions were increased by a net gain from investments of $190. 24 | 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 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 Portfolios' 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 December 31, 2005, all repurchase agreements held by the Portfolios had been entered into on December 30, 2005. C. INCOME TAXES No provision has been made for U.S. income taxes because each Portfolio's policy is to continue 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 and distributed monthly. 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 generally accepted accounting principles. 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. Semiannual Report | 25 The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 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. 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 December 31, 2005, 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 ---------------------------------- Period ended December 31, 2005 Shares sold ..................................... $ 3,139,751,857 $ 18,500,886 Shares issued in reinvestment of distributions .. 101,283,995 1,733,081 Shares redeemed ................................. (3,291,392,759) (33,059,172) ---------------------------------- Net increase (decrease) ......................... $ (50,356,907) $ (12,825,205) ================================== Period 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) ================================== 26 | Semiannual Report The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 Portfolios 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 December 31, 2005, the shares of The Money Market Portfolio were owned by the following funds: ---------------------------------- PERCENTAGE OF SHARES OUTSTANDING SHARES ---------------------------------- Institutional Fiduciary Trust - Money Market Portfolio ....... 3,829,069,311 68.06% Franklin Money Fund .......................................... 1,559,471,151 27.72% Institutional Fiduciary Trust - Franklin Cash Reserves Fund .. 144,730,938 2.57% Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund ................................................ 92,851,111 1.65% At December 31, 2005, 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 .................................. 97,936,193 100.00% Semiannual Report | 27 The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (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 period ended December 31, 2005, the custodian fees were reduced as noted in the Statements of Operations. 5. INCOME TAXES At December 31, 2005, the cost of investments for book and income tax purposes was the same. 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. 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 a plan for distribution of the respective settlement monies. The CAGO approved the distribution plan under the CAGO Settlement and, in accordance with the terms and conditions of that settlement, the monies were disbursed to the relevant funds. The Trust did not participate in the CAGO Settlement. The SEC has not yet approved the distribution plan pertaining to the December 13, 2004 SEC Order. When approved, disbursements of settlement monies will be made promptly to the relevant funds, in accordance with the terms and conditions of that order. The IDC continues to develop the plan of distribution under the August 2, 2004 SEC Order that resolved the SEC's market timing investigation. 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. 28 | Semiannual Report The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 6. REGULATORY MATTERS (CONTINUED) 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. Semiannual Report | 29 Franklin Federal Money Fund SHAREHOLDER INFORMATION 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 1-954/847-2268 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. 30 | Semiannual Report This page intentionally left blank. This page intentionally left blank. 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 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 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 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 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 Arizona California(7) Colorado Connecticut Florida(7) Georgia Kentucky Louisiana Maryland Massachusetts(6) Michigan(6) Minnesota(6) Missouri New Jersey New York(7) North Carolina Ohio(7) Oregon Pennsylvania Tennessee 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. Not part of the semiannual 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. SEMIANNUAL 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 S2005 02/06 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. (c) N/A (d) N/A (f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers and principal financial and accounting officer. Item 3. Audit Committee Financial Expert. (a)(1) The Registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is 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 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 February 21, 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 February 21, 2006 By /S/ GALEN G. VETTER Galen G. Vetter Chief Financial Officer Date February 21, 2006