N-CSRS 1 fmfsemincsr.txt 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 811-2605 -------- FRANKLIN 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) MURRAY L. SIMPSON, 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: 12/31/03 -------- ITEM 1. REPORTS TO STOCKHOLDERS. DECEMBER 31, 2003 [GRAPHIC OMITTED] SEMIANNUAL REPORT AND SHAREHOLDER LETTER INCOME FRANKLIN MONEY FUND [GRAPHIC OMITTED] WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDeliery at franklintempleton.com. See inside for details. [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) INVESTMENTS FRANKLIN o Templeton o Mutual Series Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE 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 leader in tax-free investing and a driving force in fixed income investing around the globe. They also bring 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 research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. TRUE DIVERSIFICATION Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios 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 account services that have 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 Money Fund ................................ 4 Performance Summary ................................ 5 Financial Highlights and Statement of Investments ........................... 6 Financial Statements ............................... 8 Notes to Financial Statements ...................... 11 Proxy Voting Policies and Procedures ............... 26 Regulatory Update AS OF FEBRUARY 12, 2004 On February 4, 2004, the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts filed an administrative complaint against Franklin Resources, Inc. and certain of its subsidiaries (the "Company"), alleging violations of the Massachusetts Uniform Securities Act. The complaint arises from activity that occurred in 2001 during which time an officer of a Company subsidiary was negotiating an agreement with an investor relating to investments in a mutual fund and a hedge fund. The Company, in addition to other entities within Franklin Templeton Investments, including the Fund and other funds, has been named in shareholder class actions related to the matter described above. The Company believes that the claims made in the lawsuit are without merit and it intends to defend vigorously against the allegations. It is anticipated that the Company may be named in additional similar civil actions related to the matter described above. In addition, as part of ongoing investigations by the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of California, the New York Attorney General, the California Attorney General, the U.S. Attorney for the District of Massachusetts, the Florida Department of Financial Services, and the Commissioner of Securities and the Attorney General of the State of West Virginia, relating to certain practices in the mutual fund industry, including late trading, market timing and sales compensation arrangements, the Company and its subsidiaries, as well as certain current or former executives and employees of the Company, have received requests for information and/or subpoenas to testify or produce documents. The Company and its current employees are providing documents and information in response to these requests and subpoenas. In addition, the Company has responded to requests for similar kinds of information from regulatory authorities in some of the foreign countries where the Company conducts its global asset management business. The Staff of the SEC has informed the Company that it intends to recommend that the Commission authorize an action against the Fund's investment adviser and a senior executive officer relating to the frequent trading issues that are the subject of the SEC's investigation. These issues were previously disclosed as being under investigation by government authorities and the subject of an internal inquiry by the Company in its Annual Report on Form 10-K and on its public website. The Company currently is in discussions with the SEC Staff in an effort to resolve the issues raised in their investigation. Such discussions are preliminary and the Company cannot predict the likelihood of whether those discussions will result in a settlement and, if so, the terms of such settlement. The impact, if any, of these matters on the Fund is uncertain at this time. If it is found that the Company bears responsibility for any unlawful or improper conduct, we have committed to making the funds or their shareholders whole, as appropriate. Any further updates on these matters will be disclosed on the Company's website at franklintempleton.com under "Statement on Current Industry Issues." Not part of the semiannual report | 3 Semiannual Report Franklin Money Fund YOUR FUND'S GOAL AND PRIMARY INVESTMENTS: Franklin 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 Money Market Portfolio (the Portfolio), which has the same investment goal. The Portfolio, in turn, invests in various money market instruments such as U.S. government securities and other U.S. dollar-denominated securities. The Fund attempts to maintain a stable $1.00 share price. 1 This semiannual report for Franklin Money Fund covers the period ended December 31, 2003. PERFORMANCE OVERVIEW Relatively steady, low interest rates resulted in minimal changes for the Fund's yields. In this environment, the Fund's seven-day effective yield fell from 0.48% on June 30, 2003, to 0.43% on December 31, 2003. ECONOMIC AND MARKET OVERVIEW During the six months ended December 31, 2003, many factors strongly impacted the U.S. economy and markets. Uncertainty about economic recovery and geopolitical events pushed U.S. interest rates to their lowest level in more than four decades in June 2003. For consumers, historically low mortgage rates enabled many homeowners to refinance their mortgages, and refinancing applications reached their highest levels on record. The U.S. government injected fiscal stimulus into the economy, approving another round of tax cuts and rebates that included dividend and capital gains tax reductions. These tax cuts, increased refinancing activity, rising home values and stabilizing equity markets all improved consumers' net worths and allowed them to continue spending, which helped to keep the economy moving forward. Increases in business spending also helped economic growth. After having been largely absent since the end of 2000, business spending improved in the latter half of 2003. Nonresidential fixed investment increased 12.8% annualized in the third 1. An investment in the Fund is not insured or guaranteed by the U.S. government or any other entity or institution. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 7. 4 | Semiannual Report quarter of 2003, the highest increase since the second quarter of 2000. Lower interest rates during the past year allowed many businesses the opportunity to refinance their old debt at more attractive levels. This helped enhance business operating performance. Additionally, businesses continued to achieve productivity gains by reducing their labor forces and taking advantage of recent technology investments. Higher productivity levels helped dampen inflation. Core inflation (excluding food and energy), as measured by the Consumer Price Index, rose at a modest, seasonally adjusted, annualized rate of 0.6% for the six months under review. Expectations for lower inflation contributed to the historically lower overall interest rate environment during the period. An area of concern, employment, made some gains during the period. The unemployment rate began the period at 6.2% and declined to 5.7% by period-end. With inflation expectations muted, the Federal Reserve Board maintained its accommodative stance and kept the federal funds target rate at 1.00% through period-end. INVESTMENT STRATEGY Consistent with our strategy, we invest, through the Portfolio, mainly in high-quality, short-term U.S. dollar denominated money market securities of domestic and foreign issuers, including bank obligations, commercial paper, repurchase agreements and U.S. government securities. 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. 1 MANAGER'S DISCUSSION We continued to invest the Portfolio's assets in high-quality money market securities. For example, on December 31, 2003, 86.9% of the securities purchased for the Portfolio carried AA or higher long-term credit ratings by independent credit rating agencies Standard & Poor's and Moody's Investors Service, with the balance rated A. 2 We appreciate your support, welcome new shareholders and look forward to serving your investment needs in the years ahead. THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF DECEMBER 31, 2003, 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 ADVISOR 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. 2. These do not indicate ratings of the Fund. [SIDEBAR] PERFORMANCE SUMMARY 12/31/03 ---------------------------------------- Seven-day effective yield* 0.43% ---------------------------------------- Seven-day annualized yield 0.43% ---------------------------------------- *Seven-day effective yield assumes compounding of daily dividends. Annualized and effective yields are for the seven-day period ended 12/31/03. The Fund's average weighted maturity was 54 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 Fund's underlying Portfolio, has 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 Trustees. Past performance does not guarantee future results. Semiannual Report | 5 Franklin Money Fund FINANCIAL HIGHLIGHTS
------------------------------------------------------------------------------------ SIX MONTHS ENDED DECEMBER 31, 2003 YEAR ENDED JUNE 30, (UNAUDITED) 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------ 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 .................... .002 .010 .021 .054 .052 .046 Less distributions from net investment income ................................... (.002) (.010) (.021) (.054) (.052) (.046) ------------------------------------------------------------------------------------ Net asset value, end of period $1.00 ...... $1.00 $1.00 $1.00 $1.00 $1.00 ==================================================================================== Total return a ............................ .23% .93% 2.16% 5.59% 5.29% 4.66% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ......... $1,719,211 $1,956,924 $2,095,945 $2,255,111 $2,437,183 $1,969,264 Ratios to average net assets: Expenses b ............................... .64% c .62% .61% .62% .61% .67% Expenses excluding waiver and payments by affiliate b ................. .64% c .62% .62% .63% .62% .67% Net investment income .................... .45% c .93% 2.16% 5.51% 5.17% 4.54%
aThe total return does not reflect the contingent deferred sales charge, and is not annualized for periods less than one year. bThe expense ratio includes the Fund's share of the Portfolio's allocated expenses. cAnnualized. 6 | See notes to financial statements. | Semiannual Report Franklin Money Fund STATEMENT OF INVESTMENTS, DECEMBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------- SHARES VALUE MUTUAL FUNDS (COST $1,720,139,543) 100.1% The Money Market Portfolio (Note 1) ......................................... 1,720,139,543 $ 1,720,139,543 OTHER ASSETS, LESS LIABILITIES (.1)% ........................................ (928,912) --------------- NET ASSETS 100.0% ........................................................... $ 1,719,210,631 ===============
Semiannual Report | See notes to financial statements. | 7 Franklin Money Fund FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES December 31, 2003 (unaudited) Assets: Investments in securities, at value and cost ................ $1,720,139,543 Receivables from capital shares sold ........................ 12,026,505 -------------- Total assets ........................................... 1,732,166,048 -------------- Liabilities: Payables: Capital shares redeemed .................................... 9,029,676 Affiliates ................................................. 649,919 Shareholders ............................................... 2,948,177 Other liabilities ........................................... 327,645 -------------- Total liabilities ...................................... 12,955,417 -------------- Net assets, at value ......................................... $1,719,210,631 ============== Shares outstanding ........................................... 1,719,210,631 ============== Net asset value per share a .................................. $1.00 ============== aRedemption price is equal to net asset value less any applicable contingent deferred sales charge. 8 | See notes to financial statements. | Semiannual Report Franklin Money Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the six months ended December 31, 2003 (unaudited)
Investment income: Dividends .................................................................. $8,794,124 ---------- Expenses: Administrative fees (Note 3) ............................................... 2,754,756 Transfer agent fees (Note 3) ............................................... 1,597,061 Reports to shareholders .................................................... 88,927 Registration and filing fees ............................................... 56,102 Professional fees .......................................................... 18,499 Directors' fees and expenses ............................................... 41,187 Other ...................................................................... 6,957 ---------- Total expenses ........................................................ 4,563,489 ---------- Net investment income ................................................ 4,230,635 ---------- Net increase (decrease) in net assets resulting from operations ............. $4,230,635 ==========
Semiannual Report | See notes to financial statements. | 9 Franklin Money Fund FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the six months ended December 31, 2003 (unaudited) and the year ended June 30, 2003
---------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2003 JUNE 30, 2003 ---------------------------------------- Increase (decrease) in net assets: Net investment income from operations .......................................... $ 4,230,635 $ 19,611,141 Distributions to shareholders from net investment income ....................... (4,230,635) (19,611,141) Capital share transactions (Note 2) ............................................ (237,713,534) (139,020,642) ---------------------------------------- Net increase (decrease) in net assets ..................................... (237,713,534) (139,020,642) Net assets (there is no undistributed net investment income at beginning or end of period): Beginning of period ............................................................ 1,956,924,165 2,095,944,807 ---------------------------------------- End of period .................................................................. $1,719,210,631 $1,956,924,165 ========================================
10 | See notes to financial statements. | Semiannual Report Franklin Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Money Fund (the Fund) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company. The Fund seeks high current income consistent with the preservation of capital and liquidity. The Fund invests substantially all of its assets in The Money Market Portfolio (the Portfolio), which is registered under the Investment Company Act of 1940 as a diversified, open-end investment company having the same investment objectives as the Fund. 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 net asset value of the Portfolio. As of December 31, 2003, the Fund owns 31.17% of the Portfolio. B. INCOME TAXES No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income. 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 and capital gains or losses are normally declared daily. Such distributions are either reinvested in additional shares of the Fund or distributed monthly. 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. E. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified against certain liability 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. Semiannual Report | 11 Franklin Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 2. CAPITAL STOCK At December 31, 2003, there were an unlimited number of shares authorized ($0.01 par value). Transactions in the Fund's shares at $1.00 per share were as follows:
---------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, 2003 JUNE 30, 2003 ---------------------------------------- Shares sold ................................................ $ 1,032,137,679 $ 2,856,367,616 Shares issued in reinvestment of distributions ............. 4,217,150 19,802,711 Shares redeemed ............................................ (1,274,068,363) (3,015,190,969) ---------------------------------------- Net increase (decrease) .................................... $ (237,713,534) $ (139,020,642) ========================================
3. TRANSACTIONS WITH AFFILIATES Certain officers and directors of the Fund are also officers and/or directors of Franklin Advisers Inc. (Advisers), Franklin/Templeton Distributors Inc. (Distributors), and Franklin/Templeton Investor Services LLC (Investor Services), the Fund's administrative manager, principal underwriter, and transfer agent, respectively, and of the Portfolio. The Fund pays an administrative fee to Advisers based on the net assets of the Fund as follows: -------------------------------------------------------------------------------- ANNUALIZED FEE RATE DAILY NET ASSETS -------------------------------------------------------------------------------- .455% First $100 million .330% Over $100 million, up to and including $250 million .280% In excess of $250 million Distributors received contingent deferred sales charges for the period of $146,905. The Fund paid transfer agent fees of $1,597,061, of which $1,144,195 was paid to Investor Services. 4. INCOME TAXES At December 31, 2003, the cost of investments for book and income tax purposes were the same. 12 | Semiannual Report Franklin Money Fund NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. REGULATORY MATTERS On February 4, 2004, the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts filed an administrative complaint against Franklin Resources, Inc. and certain of its subsidiaries (the "Company"), alleging violations of the Massachusetts Uniform Securities Act. The complaint arises from activity that occurred in 2001 during which time an officer of a Company subsidiary was negotiating an agreement with an investor relating to investments in a mutual fund and a hedge fund. The Fund, in addition to other entities within Franklin Templeton Investments, including the Company and other funds, has been named in shareholder class actions related to the matter described above. The Fund's management believes that the claims made in the lawsuit are without merit and it intends to defend vigorously against the allegations. It is anticipated that the Funds may be named in additional similar civil actions related to the matter described above. In addition, as part of ongoing investigations by the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of California, the New York Attorney General, the California Attorney General, the U.S. Attorney for the District of Massachusetts, the Florida Department of Financial Services, and the Commissioner of Securities and the Attorney General of the State of West Virginia, relating to certain practices in the mutual fund industry, including late trading, market timing and sales compensation arrangements, the Company and its subsidiaries, as well as certain current or former executives and employees of the Company, have received requests for information and/or subpoenas to testify or produce documents. The Company and its current employees are providing documents and information in response to these requests and subpoenas. In addition, the Company has responded to requests for similar kinds of information from regulatory authorities in some of the foreign countries where the Company conducts its global asset management business. The Staff of the SEC has informed the Company that it intends to recommend that the Commission authorize an action against the Fund's investment adviser and a senior executive officer relating to the frequent trading issues that are the subject of the SEC's investigation. These issues were previously disclosed as being under investigation by government authorities and the subject of an internal inquiry by the Company in its Annual Report on Form 10-K and on its public website. The Company currently is in discussions with the SEC Staff in an effort to resolve the issues raised in their investigation. Such discussions are preliminary and the Fund's management has been advised that the Company cannot predict the likelihood of whether those discussions will result in a settlement and, if so, the terms of such settlement. The impact, if any, of these matters on the Fund is uncertain at this time. If the Company finds that it bears responsibility for any unlawful or improper conduct, it has committed | to making the Fund or its shareholders whole, as appropriate. Semiannual Report | 13 The Money Market Portfolios FINANCIAL HIGHLIGHTS THE MONEY MARKET PORTFOLIO
------------------------------------------------------------------------------------ SIX MONTHS ENDED DECEMBER 31, 2003 YEAR ENDED JUNE 30, (UNAUDITED) 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------ 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 ................... .005 .014 .026 .059 .056 .051 Less distributions from net investment income .................................. (.005) (.014) (.026) (.059) (.056) (.051) ------------------------------------------------------------------------------------ Net asset value, end of period ........... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 ==================================================================================== Total return a ........................... .47% 1.41% 2.63% 6.08% 5.75% 5.18% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ........ $5,518,199 $5,331,200 $4,734,196 $4,490,919 $4,144,043 $3,672,404 Ratios to average net assets: Expenses ................................ .15% b .15% .15% .15% .15% .15% Expenses excluding waiver by affiliate .............................. .15% b .15% .16% .16% .16% .15% Net investment income ................... .94% b 1.39% 2.56% 5.91% 5.65% 5.04%
aTotal return is not annualized for periods less than one year. bAnnualized. 14 | See notes to financial statements. | Semiannual Report The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2003 (UNAUDITED)
---------------------------------------------------------------------------------------------------------------------------- THE MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------------------------- CERTIFICATES OF DEPOSIT 39.9% Australia & New Zealand Banking Group, New York Branch, 1.08% - 1.085%, 1/21/04 - 3/04/04 ................................................................. $ 50,000,000 $ 50,000,357 Bank of Montreal, Chicago Branch, 1.08% - 1.133%, 2/18/04 - 4/30/04 ................................................................. 150,000,000 150,001,490 Bank of Nova Scotia, Portland Branch, 1.08%, 1/21/04 - 2/20/04 ..................... 150,000,000 150,000,000 Banque Nationale De Paris, New York Branch, 1.08% - 1.35%, 1/14/04 - 4/13/04 ................................................................. 150,000,000 150,000,560 Barclays Bank PLC, New York Branch, 1.09% - 1.10%, 3/05/04 - 4/09/04 ........................................................................... 100,000,000 100,002,498 Bayerische Landesbank Girozen, New York Branch, 1.06% - 2.10%, 3/12/04 - 4/26/04 ................................................................. 160,000,000 160,120,682 Credit Agricole, New York Branch, 1.06% - 1.43%, 1/05/04 - 10/22/04 .......................................................................... 155,000,000 155,002,135 Dexia Bank, New York Branch, 1.508%, 12/07/04 ...................................... 50,000,000 50,003,495 Landesbank Hessen Thueringen Giro., New York Branch, 1.11%, 3/03/04 ........................................................................... 75,000,000 75,002,576 Lloyds Bank PLC, New York Branch, 1.06% - 1.07%, 2/17/04 - 2/19/04 ................. 150,000,000 150,000,000 Rabobank Nederland NV, New York Branch, 1.06%, 4/05/04 - 4/22/04 ................... 150,000,000 149,998,837 Royal Bank of Canada, New York Branch, 1.06% - 1.42%, 4/27/04 - 10/22/04 ................................................................ 125,000,000 125,005,272 Royal Bank of Scotland NY, New York Branch, 1.08%, 1/08/04 - 1/27/04 ........................................................................... 138,958,000 138,957,995 Svenska Handelsbanken, New York Branch, 1.08% - 1.09%, 1/13/04 - 2/23/04 ................................................................. 100,000,000 100,000,433 Toronto Dominion Bank, New York Branch, 1.075% - 1.085%, 1/16/04 - 2/04/04 ................................................................. 150,000,000 150,000,457 UBS AG, Stamford, CT Branch, 1.075% - 1.305%, 4/14/04 - 4/22/04 .................... 150,000,000 150,001,133 Wells Fargo Bank, San Francisco Branch, 1.05% - 1.07%, 1/07/04 - 2/25/04 ................................................................. 150,000,000 150,000,000 Westdeutsche Landesbank, New York Branch, 1.09% - 1.25%, 4/07/04 - 4/14/04 ................................................................. 50,000,000 50,007,495 ---------------- TOTAL CERTIFICATES OF DEPOSIT (COST $2,204,105,415) ................................ 2,204,105,415 ---------------- COMMERCIAL PAPER 45.5% a Abbott Laboratories, 1.04%, 3/08/04 ................................................ 25,000,000 24,951,611 a American International Group I, 1.07% - 1.085%, 2/20/04 - 2/26/04 .................. 100,000,000 99,841,431 a ANZ (Delaware) Inc., 1.07% - 1.075%, 1/12/04 - 2/26/04 ............................. 108,400,000 108,319,627 a Citigroup Global Markets Holdings, 1.06% - 1.08%, 1/05/04 - 1/15/04 ................................................................. 150,000,000 149,968,035 a Commonwealth Bank of Australia, 1.05% - 1.08%, 2/17/04 - 4/02/04 ................... 150,000,000 149,652,083 a Den Danske Corp. Inc., 1.065% - 1.08%, 1/14/04 - 3/18/04 ........................... 150,000,000 149,743,642 a Dexia Bank, 1.07% - 1.08%, 3/09/04 - 3/17/04 ....................................... 100,000,000 99,790,528 a Dupont De Nemours Inc., 1.05% - 1.07%, 2/10/04 - 2/23/04 ........................... 83,538,000 83,416,619 a General Electric Capital Corp., 1.08% - 1.19%, 3/23/04 - 6/03/04 ................... 150,000,000 149,369,597 a Goldman Sachs Group Inc, 1.07%, 1/09/04 - 1/16/04 .................................. 150,000,000 149,945,756 a HBOS Treasury Services, 1.07% - 1.10%, 2/24/04 - 3/29/04 ........................... 146,600,000 146,256,749 a Internationale Ned. U.S. Funding Corp., 1.08% - 1.10%, 2/03/04 - 5/12/04 ................................................................. 145,000,000 144,740,080 a Merrill Lynch & Co Inc., 1.04%, 1/28/04 - 1/30/04 .................................. 150,000,000 149,878,667 a Nestle Capital Corp., 1.05%, 2/24/04 ............................................... 50,000,000 49,921,250 a Pfizer Inc., 1.05%, 1/06/04 - 1/07/04 .............................................. 72,000,000 71,988,462 a Procter & Gamble Co., 1.05%, 2/09/04 ............................................... 50,000,000 49,943,125 a Province of British Columbia, 1.11%, 4/19/04 ....................................... 12,000,000 11,959,670 a Shell Finance (UK) PLC, 1.06% - 1.07%, 2/09/04 - 3/09/04 ........................... 136,300,000 136,060,161 a Societe Generale NA Inc., 1.075%, 3/15/04 - 3/17/04 ................................ 150,000,000 149,664,063 a Svenska Handelsbanken Inc., 1.07%, 2/11/04 ......................................... 50,000,000 49,939,069 a Toyota Motor Credit Corp., 1.05%, 1/23/04 - 3/11/04 ................................ 134,600,000 134,464,219 a Westdeutsche Landesbank, 1.065% - 1.08%, 1/09/04 - 3/11/04 ......................... 100,000,000 99,929,750 a Westpac Capital Corp., 1.07% - 1.115%, 2/10/04 - 4/20/04 ........................... 150,000,000 149,599,862 ---------------- TOTAL COMMERCIAL PAPER (COST $2,509,344,056) ....................................... 2,509,344,056 ----------------
Semiannual Report | 15 The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2003 (UNAUDITED) (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------- THE MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY SECURITIES (COST $54,253,547) 1.0% FHLB, 1.07%, 12/23/04 .............................................................. $ 54,280,000 $ 54,253,547 ---------------- TOTAL INVESTMENTS BEFORE REPURCHASE AGREEMENTS (COST $4,767,703,018) .............................................................. 4,767,703,018 ---------------- REPURCHASE AGREEMENTS 17.1% b ABN AMRO Bank, NV, New York Branch, .90%, 1/02/04, (Maturity Value $365,018,250) ...................................................... 365,000,000 365,000,000 Collateralized by U.S. Government Agency Securities b Deutsche Bank Securities Inc., .80%, 1/02/04 (Maturity Value $107,954,798) ...................................................................... 107,950,000 107,950,000 Collateralized by U.S. Treasury Notes b Morgan Stanley & Co. Inc., .81%, 1/02/04 (Maturity Value $107,959,858) ...................................................................... 107,955,000 107,955,000 Collateralized by U.S. Treasury Notes b UBS Securities LLC, .85%, 1/02/04 (Maturity Value $365,017,236) .................... 365,000,000 365,000,000 Collateralized by U.S. Government Agency Securities ---------------- TOTAL REPURCHASE AGREEMENTS (COST $945,905,000) .................................... 945,905,000 ---------------- TOTAL INVESTMENTS (COST $5,713,608,018) 103.5% ..................................... 5,713,608,018 OTHER ASSETS, LESS LIABILITIES (3.5)% .............................................. (195,409,004) ---------------- NET ASSETS 100.0% .................................................................. $5,518,199,014 ================
aSecurities are traded on a discount basis; the rates shown are the discount rates at the time of purchase by the portfolio. bSee Note 1(b) regarding repurchase agreements. 16 | See notes to financial statements. | Semiannual Report The Money Market Portfolios FINANCIAL HIGHLIGHTS THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO
--------------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 2003 YEAR ENDED JUNE 30, (UNAUDITED) 2003 2002 2001 2000 1999 --------------------------------------------------------------------------- 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 ................................ .004 .013 .024 .056 .054 .049 Less distributions from net investment income ..... (.004) (.013) (.024) (.056) (.054) (.049) --------------------------------------------------------------------------- Net asset value, end of period .................... $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 =========================================================================== Total return a .................................... .44% 1.34% 2.43% 5.75% 5.48% 4.97% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ................. $184,898 $201,758 $226,676 $186,718 $221,993 $258,458 Ratios to average net assets: Expenses ......................................... .15% b .15% .15% .15% .15% .15% Expenses excluding waiver by affiliate ........... .16% b .16% .16% .16% .16% .15% Net investment income ............................ .87% b 1.34% 2.33% 5.63% 5.36% 4.84%
aTotal return is not annualized for periods less than one year. bAnnualized. Semiannual Report | See notes to financial statements. | 17 The Money Market Portfolios STATEMENT OF INVESTMENTS, DECEMBER 31, 2003 (UNAUDITED)
--------------------------------------------------------------------------------------------------------------------------- THE U.S. GOVERNMENT SECURITIES MONEY MARKET PORTFOLIO PRINCIPAL AMOUNT VALUE --------------------------------------------------------------------------------------------------------------------------- GOVERNMENT SECURITIES 29.3% U.S. Treasury Bill, 1/15/04 ........................................................... $ 5,000,000 $ 4,998,182 U.S. Treasury Bill, 4/22/04 ........................................................... 5,000,000 4,984,211 U.S. Treasury Bill, 5/06/04 ........................................................... 5,000,000 4,982,325 U.S. Treasury Bill, 5/13/04 ........................................................... 5,000,000 4,980,604 U.S. Treasury Bill, 5/27/04 ........................................................... 5,000,000 4,979,134 U.S. Treasury Note, 3.625%, 3/31/04 ................................................... 10,000,000 10,063,689 U.S. Treasury Note, 3.375%, 4/30/04 ................................................... 3,000,000 3,020,585 U.S. Treasury Note, 2.875%, 6/30/04 ................................................... 11,000,000 11,094,281 U.S. Treasury Note, 1.875%, 9/30/04 ................................................... 5,000,000 5,023,801 -------------- TOTAL GOVERNMENT SECURITIES (COST $54,126,812) ........................................ 54,126,812 -------------- REPURCHASE AGREEMENTS 70.6% a ABN AMRO Bank, N.V., New York Branch, .85%, 1/02/04 (Maturity Value $8,000,378) .......................................................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Bonds a Banc of America Securities LLC, .77%, 1/02/04 (Maturity Value $8,000,342) .................................................................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Bonds a Barclays Capital Inc., .83%, 1/02/04 (Maturity Value $8,000,369) ...................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Notes a Bear, Stearns & Co. Inc., .80%, 1/02/04 (Maturity Value $8,000,356) ................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Notes a Deutsche Bank Securities Inc., .80%, 1/02/04 (Maturity Value $33,331,481) ................................................................... 33,330,000 33,330,000 Collateralized by U.S. Treasury Notes a Dresdner Kleinwort Wasserstein Securities LLC, .83%, 1/02/04 (Maturity Value $8,000,369) .......................................................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Bonds a Goldman, Sachs, & Co., .80%, 1/02/04 (Maturity Value $8,000,356) ...................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Notes a Greenwich Capital Markets Inc., .83%, 1/02/04 (Maturity Value $8,000,369) .................................................................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Notes a Morgan Stanley & Co. Inc., .81%, 1/02/04 (Maturity Value $33,336,500) ................................................................... 33,335,000 33,335,000 Collateralized by U.S. Treasury Notes a UBS Securities LLC, .83%, 1/02/04 (Maturity Value $8,000,369) ......................... 8,000,000 8,000,000 Collateralized by U.S. Treasury Notes -------------- TOTAL REPURCHASE AGREEMENTS (COST $130,665,000) ....................................... 130,665,000 -------------- TOTAL INVESTMENTS (COST $184,791,812) 99.9% ........................................... 184,791,812 OTHER ASSETS, LESS LIABILITIES .1% .................................................... 106,245 -------------- NET ASSETS 100.0% ..................................................................... $184,898,057 ==============
aSee Note 1(b) regarding repurchase agreements. 18 | See notes to financial statements. | Semiannual Report The Money Market Portfolios FINANCIAL STATEMENTS STATEMENTS OF ASSETS AND LIABILITIES December 31, 2003 (unaudited)
------------------------------ THE U.S. GOVERNMENT THE SECURITIES MONEY MARKET MONEY MARKET PORTFOLIO PORTFOLIO ------------------------------ Assets: Investments in securities, at value and cost ...... $4,767,703,018 $ 54,126,812 Repurchase agreements, at value and cost .......... 945,905,000 130,665,000 Cash .............................................. 7,568 1,953 Interest receivable ............................... 4,959,814 136,991 ------------------------------ Total assets ................................. 5,718,575,400 184,930,756 ------------------------------ Liabilities: Payables: Investment securities purchased .................. 199,737,643 -- Affiliates ....................................... 604,940 20,339 Professional fees ................................ 28,952 12,194 Other liabilities ................................. 4,851 166 ------------------------------ Total liabilities ............................ 200,376,386 32,699 ------------------------------ Net assets, at value ............................... $5,518,199,014 $184,898,057 ============================== Shares outstanding ................................. 5,518,199,014 184,898,057 ============================== Net asset value per share .......................... $1.00 $1.00 ==============================
Semiannual Report | See notes to financial statements. | 19 The Money Market Portfolios FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF OPERATIONS for the six months ended December 31, 2003 (unaudited)
----------------------------- THE U.S. GOVERNMENT THE SECURITIES MONEY MARKET MONEY MARKET PORTFOLIO PORTFOLIO ----------------------------- Investment income: Interest ................................................................. $28,081,749 $1,001,989 ----------------------------- Expenses: Management fees (Note 3) ................................................. 3,870,224 146,362 Custodian fees ........................................................... 26,180 1,114 Professional fees ........................................................ 25,843 10,414 Other .................................................................... 56,137 1,517 ----------------------------- Total expenses ...................................................... 3,978,384 159,407 Expenses waived by affiliate (Note 3) ............................... (108,026) (10,891) ----------------------------- Net expenses ....................................................... 3,870,358 148,516 ----------------------------- Net investment income ............................................. 24,211,391 853,473 ----------------------------- Net realized gain (loss) from investments ................................. -- 5,742 ----------------------------- Net increase (decrease) in net assets resulting from operations ........... $24,211,391 $ 859,215 =============================
20 | See notes to financial statements. | Semiannual Report The Money Market Portfolios FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the six months ended December 31, 2003 (unaudited) and the year ended June 30, 2003
--------------------------------------------------------------------- THE U.S. GOVERNMENT SECURITIES THE MONEY MARKET PORTFOLIO MONEY MARKET PORTFOLIO --------------------------------------------------------------------- SIX MONTHS YEAR SIX MONTHS YEAR ENDED ENDED ENDED ENDED DECEMBER 31, 2003 JUNE 30, 2003 DECEMBER 31, 2003 JUNE 30, 2003 --------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ................... $ 24,211,391 $ 73,176,506 $ 853,473 $ 2,883,855 Net realized gain (loss) from investments ....................... -- 19,063 5,742 -- --------------------------------------------------------------------- Net increase (decrease) in net assets resulting from operations .......... 24,211,391 73,195,569 859,215 2,883,855 Distributions to shareholders from net investment income ........................ (24,211,391) (73,195,569) a (859,215) b (2,883,855) Capital share transactions (Note 2) ................................ 186,999,301 597,003,871 (16,859,972) (24,918,467) --------------------------------------------------------------------- Net increase (decrease) in net assets ......................... 186,999,301 597,003,871 (16,859,972) (24,918,467) Net assets (there is no undistributed net investment income at beginning or end of period): Beginning of period ..................... 5,331,199,713 4,734,195,842 201,758,029 226,676,496 --------------------------------------------------------------------- End of period ........................... $5,518,199,014 $5,331,199,713 $184,898,057 $201,758,029 =====================================================================
aDistributions were increased by a net realized gain from investments of $19,063. bDistributions were increased by a net realized gain from investmentsof $5,742. Semiannual Report | See notes to financial statements. | 21 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. 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, 2003, all outstanding repurchase agreements held by the Portfolios had been entered into on that date. C. INCOME TAXES No provision has been made for income taxes because each portfolio's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income. 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. 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. 22 | Semiannual Report The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) F. GUARANTEES AND INDEMNIFICATIONS Under the Trust's organizational documents, its officers and trustees are indemnified against certain liability 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, 2003, 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 ------------------------------------- Six months ended December 31, 2003 Shares sold ...................................................... $ 2,857,333,193 $ 80,579,932 Shares issued in reinvestment of distributions ................... 24,213,385 858,973 Shares redeemed .................................................. (2,694,547,277) (98,298,877) ------------------------------------- Net increase (decrease) .......................................... $ 186,999,301 $ (16,859,972) ===================================== Year ended June 30, 2003 Shares sold ...................................................... $ 6,279,565,500 $ 309,427,987 Shares issued in reinvestment of distributions ................... 73,193,516 2,884,175 Shares redeemed .................................................. (5,755,755,145) (337,230,629) ------------------------------------- Net increase (decrease) .......................................... $ 597,003,871 $ (24,918,467) =====================================
Semiannual Report | 23 The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 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. 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 waive management fees as noted in the Statements of Operations. At December 31, 2003, the shares of The Money Market Portfolio were owned by the following funds:
------------------------------------ PERCENTAGE OF SHARES OUTSTANDING SHARES ------------------------------------ Institutional Fiduciary Trust - Money Market Portfolio .............................. 3,464,130,196 62.78% Franklin Money Fund ................................................................. 1,720,139,543 31.17% Institutional Fiduciary Trust - Franklin Cash Reserves Fund ......................... 213,907,784 3.88% Franklin Templeton Money Fund Trust - Franklin Templeton Money Fund ......................................................................... 120,021,491 2.17%
At December 31, 2003, the shares of The U.S. Government Securities Money Market Portfolio were owned by the following funds:
------------------------------------ PERCENTAGE OF SHARES OUTSTANDING SHARES ------------------------------------ Franklin Federal Money Fund ......................................................... 112,150,304 60.66% Institutional Fiduciary Trust - Franklin U.S. Government Securities Money Market Portfolio ............................................................. 72,747,753 39.34%
4. INCOME TAXES At December 31, 2003, the cost of investments for book and income tax purposes were the same. 24 | Semiannual Report The Money Market Portfolios NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) 5. REGULATORY MATTERS On February 4, 2004, the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts filed an administrative complaint against Franklin Resources, Inc. and certain of its subsidiaries (the "Company"), alleging violations of the Massachusetts Uniform Securities Act. The complaint arises from activity that occurred in 2001 during which time an officer of a Company subsidiary was negotiating an agreement with an investor relating to investments in a mutual fund and a hedge fund. The Company, in addition to other entities within Franklin Templeton Investments, has been named in shareholder class actions related to the matter described above. The Company believes that the claims made in the lawsuit are without merit and it intends to defend vigorously against the allegations. The Company and the funds may be named in similar civil actions related to the matter described above. In addition, as part of ongoing investigations by the U.S. Securities and Exchange Commission (the "SEC"), the U.S. Attorney for the Northern District of California, the New York Attorney General, the California Attorney General, the U.S. Attorney for the District of Massachusetts, the Florida Department of Financial Services, and the Commissioner of Securities and the Attorney General of the State of West Virginia, relating to certain practices in the mutual fund industry, including late trading, market timing and sales compensation arrangements, the Company and its subsidiaries, as well as certain current or former executives and employees of the Company, have received requests for information and/or subpoenas to testify or produce documents. The Company and its current employees are providing documents and information in response to these requests and subpoenas. In addition, the Company has responded to requests for similar kinds of information from regulatory authorities in some of the foreign countries where the Company conducts its global asset management business. The Staff of the SEC has informed the Company that it intends to recommend that the Commission authorize an action against the funds' investment adviser and a senior executive officer relating to the frequent trading issues that are the subject of the SEC's investigation. These issues were previously disclosed as being under investigation by government authorities and the subject of an internal inquiry by the Company in its Annual Report on Form 10-K and on its public website. The Company currently is in discussions with the SEC Staff in an effort to resolve the issues raised in their investigation. Such discussions are preliminary and the funds' management has been advised that the Company cannot predict the likelihood of whether those discussions will result in a settlement and, if so, the terms of such settlement. The impact, if any, of these matters on the funds is uncertain at this time. If the Company finds that it bears responsibility for any unlawful or improper conduct, it has committed to making the funds or their shareholders whole, as appropriate. Semiannual Report | 25 Franklin Money Fund 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. 26 | Semiannual Report This page intentionally left blank. This page intentionally left blank. Literature Request For a brochure and prospectus, which contains more complete information, including charges and expenses, call Franklin Templeton Investments at 1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before investing or sending money. 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 Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Mutual Discovery Fund Templeton Capital Accumulator 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 3 Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund 4 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 5 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 Utilities Fund Franklin Technology Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds 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 6 Franklin's AGE High Income Fund Franklin Federal Money Fund 6, 7 Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 4 Franklin Income Fund Franklin Money Fund 6, 7 Franklin Short-Intermediate U.S. Government Securities Fund 6 Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio 6 Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 6 Templeton Global Bond Fund TAX-FREE INCOME 8 NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund 9 Tax-Exempt Money Fund 6, 7 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 8 Alabama Arizona California 10 Colorado Connecticut Florida 10 Georgia Kentucky Louisiana Maryland Massachusetts 9 Michigan 9 Minnesota 9 Missouri New Jersey New York 10 North Carolina Ohio 9 Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 11 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 as well as select retirement plans. 3. Effective June 30, 2003, the fund reopened to all new investors. 4. 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. 5. Upon reaching approximately $350 million in assets, the fund intends to close to all investors. 6. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 7. No assurance exists that the fund's $1.00 per share price will be maintained. It is possible to lose money by investing in the fund. 8. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 9. Portfolio of insured municipal securities. 10. These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and money market portfolios (CA and NY). 11. The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 11/03 Not part of the annual report [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 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 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 This report must be preceded or accompanied by the current Franklin Money Fund prospectus, which contains more complete information, including charges, expenses and risks. 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. 111 S2003 02/04 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 KIMBERLEY H. MONASTERIO, 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 KIMBERLEY H. MONASTERIO, 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 MONEY FUND By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date February 27, 2004 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 ____________________ Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date February 27, 2004 By ____________________ Kimberley H. Monasterio Chief Financial Officer Date February 27, 2004