Annual
Report
(GRAPHIC APPEARS HERE)
JULY 31, 2002
FRANKLIN FLOATING RATE TRUST
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FRANKLIN(R) TEMPLETON(R)
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SHAREHOLDER LETTER
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YOUR FUND'S GOAL: FRANKLIN FLOATING RATE TRUST'S PRIMARY GOAL IS TO PROVIDE AS
HIGH A LEVEL OF CURRENT INCOME AND PRESERVATION OF CAPITAL AS IS CONSISTENT WITH
INVESTMENT PRIMARILY IN SENIOR SECURED CORPORATE LOANS AND CORPORATE DEBT
SECURITIES WITH FLOATING INTEREST RATES.
--------------------------------------------------------------------------------
Dear Shareholder:
This annual report for Franklin Floating Rate Trust covers the fiscal year ended
July 31, 2002.
ECONOMIC OVERVIEW
The U.S. economy was already in a recession at the beginning of the year under
review, weakened by slack industrial demand and rising unemployment, when the
September 11 terrorist attacks exacerbated the downturn. Since early 2001, the
Federal Reserve Board had anticipated the potential slowdown and reduced
borrowing rates to help spur economic activity. The federal funds target rate,
which was 3.75% on July 31, 2001, stood at just 1.75% at period-end.
Short-term interest rates continued their steep descent, with the 3-month London
InterBank Offered Rate (LIBOR), the benchmark underlying many of the Trust's
floating rate loans, falling significantly from 3.67% on July 31, 2001, to
CONTENTS
Shareholder Letter ............. 1
Performance Summary ............ 8
The Fund's
Repurchase Offers .............. 9
Financial Highlights &
Statement of Investments ....... 11
Financial Statements ........... 23
Notes to
Financial Statements ........... 26
Independent
Auditors' Report ............... 31
Board Members
and Officers ................... 32
(GRAPHIC APPEARS HERE)
FUND CATEGORY
Global
Growth
Growth
& Income
Income Tax-Free Income
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 12.
WHAT ARE SYNDICATED BANK LOANS?
SYNDICATED BANK LOANS ARE TYPICALLY SECURED, FLOATING RATE LOANS TO CORPORATE
BORROWERS MADE BY A GROUP, OR SYNDICATE, OF BANKS AND OTHER LENDERS. A GROUP OF
LENDERS PROVIDES CAPITAL TO COMPANIES FOR VARIED PURPOSES, SUCH AS MERGER AND
ACQUISITION ACTIVITY, LEVERAGED BUYOUTS OR REFINANCINGS. BORROWING RATES ARE
GENERALLY PEGGED TO AN INDEX, SUCH AS LIBOR, THE LONDON INTERBANK OFFERED RATE.
1.82% on July 31, 2002. Long-term interest rates also declined during the past
12 months, with the 10-year Treasury note yield dropping slightly from 5.07% to
4.51% at period-end. Equity markets fell sharply, as the Dow Jones Industrial
Average closed the year under review at 8736.59, down from 10522.81 at the
beginning of the reporting period.(1)
SYNDICATED BANK LOAN MARKET
The bank loan asset class experienced a difficult 12-month period, with
challenging conditions in the new-issue market during fourth quarter 2001 and
early 2002. Slowing economic trends, continued credit deterioration and multiple
corporate accounting scandals created a gloomy outlook for the high yield
market. Yield spreads over LIBOR widened considerably, and the loan market was
virtually closed to all but the strongest borrowers. By the spring, however, the
demand for primary and secondary loan assets improved considerably. A somewhat
stronger economy, the apparent stabilization of loan default rates and new
demand from institutional investment vehicles helped drive the increased demand.
Throughout much of the reporting period loan investors continued to favor
issuers with higher credit quality, allowing a number of more stable borrowers
to refinance at lower rates during the first half of 2002. The growing demand
for loans gave borrowers the ability to stipulate many concessions from lenders.
As a result, the second quarter of 2002 recorded the highest volume of issuance
since early 2000, and many issuers
1. The Dow Jones Industrial Average is price-weighted based on the average
market price of 30 blue chip stocks of companies that are generally industry
leaders.
2
were able to refinance their capital structures through a healthy and robust
high yield market. Consequently, loan spreads over LIBOR tightened considerably,
reducing borrowers' interest expense. The combined effect of narrower loan
spreads and LIBOR's significant decline negatively impacted the Fund's returns.
By the end of 2002's second quarter, however, the market began to reverse its
course in favor of lenders. Mixed economic figures, high default rates and
declining institutional demand contributed to cooling the overheated loan
market. The closely linked high yield bond market also weakened significantly,
adding more pressure to the bank loan market.
After declining since February 2002, the 12-month institutional default rate hit
a new high in June. The default rate change was mainly due to the bankruptcy of
Adelphia Communications, a cable television provider that was one of the largest
issuers in the high yield loan and bond market. Still, the loan market continued
to hold up as some investors believed that default rates would trend downward in
the rest of 2002 due to an improving economy and strengthening U.S.
manufacturing sector.
Prospects for a loan market rebound exist, benefiting investors with longer-term
time horizons. The recent interest rate environment is one of the lowest ever,
and, in our opinion, interest rates should eventually rise, benefiting the
Fund's yield. We believe default rates should eventually stabilize and then
decline.
3
TOP 10 HOLDINGS
7/31/02
COMPANY % OF TOTAL
SECTOR/INDUSTRY NET ASSETS
------------------------------------
Wyndham International Inc. 2.9%
HOTEL, RESORTS & CRUISELINES
Washington Group
International Inc. 2.2%
ENGINEERING & CONSTRUCTION
Blockbuster Inc. 2.2%
MOVIES & ENTERTAINMENT
UPC Distribution Holdings BV 2.1%
CABLE & SATELLITE TELEVISION
Loews Cineplex
Entertainment Corp. 1.5%
MOVIES & ENTERTAINMENT
Eurotunnel Finance Ltd. 1.5%
OTHER TRANSPORTATION
AMC Entertainment Inc. 1.5%
MOVIES & ENTERTAINMENT
Vertis 1.4%
COMMERCIAL PRINTING & FORMS
Alabama Pine & Pulp 1.3%
PULP & PAPER
White Mountains
Insurance Group Inc. 1.3%
PROPERTY CASUALTY INSURANCE
PORTFOLIO NOTES
During the year under review, we continued to position Franklin Floating Rate
Trust defensively, selling off riskier credits and investing in loans in
relatively stable industries such as food, media and health care.
We favored the health care industry due to our expectations that hospital
services should continue experiencing strong demand regardless of economic
conditions. In particular, we like IASIS Healthcare, a for-profit hospital
management company, which currently owns or operates 11 hospitals and 5 surgery
centers in growing urban markets such as Phoenix, San Antonio, Salt Lake City
and Tampa-St.Petersburg.
During the reporting period, we invested in the senior secured credit facility
of PanAmSat Corp. PanAmSat is a leading global provider of video, broadcasting
and network services through satellites. The company helps deliver entertainment
and information to cable television systems, television broadcast affiliates,
direct-to-home television operators and telecommunications companies. PanAmSat
boasts one of the world's largest commercial geostationary satellite networks,
and as a result, is one of only a few companies worldwide capable of servicing a
global market through its own satellite fleet. We view this loan as a defensive
investment that could hold up if the economy were to slow. PanAmSat should
benefit from its strong market share with little competition, as well as the
satellite industry's inherently high barriers to entry. In addition, the company
seems
4
well-positioned with stable revenues and cash flows, high profit margins, and a
substantial revenue backlog.
The Fund also recently participated in a refinancing for Corrections Corp. of
America, the largest owner and operator of U.S. privatized correctional and
detention facilities. The company provides management services for inmates
through contracts with approximately 60 federal, state and local agencies.
Demographics illustrate this business's defensive nature. The U.S. prison
population and incarceration rate have risen steadily since 1925, independent of
economic cycles, according to the Bureau of Justice Statistics. Furthermore,
recently proposed initiatives related to homeland security may increase demand
for prison beds. The President's fiscal year 2003 budget included a proposal for
an additional $2 billion to address national defense, including more than $1
billion for the U.S. Marshals Service and Immigration and Naturalization
Service. We believe Corrections Corp. is well-positioned to benefit from the
needs discussed above, given the shortfall in federal- and state-owned prison
capacity.
Looking forward, we will maintain our strategy of holding loans from companies
that we believe possess defensive market positions and strong asset coverage in
industries that we feel will do well even during periods of economic decline.
With its potential for high, current income, we believe the Fund is an
attractive investment for investors seeking to diversify portfolios heavily
weighted in equities.
DIVIDEND DISTRIBUTIONS*
8/1/01-7/31/02
DIVIDEND
MONTH PER SHARE
--------------------------------------------
August 6.0170 cents
September 5.5148 cents
October 6.3636 cents
November 4.7512 cents
December 5.0032 cents
January 4.6816 cents
February 4.5979 cents
March 4.0554 cents
April 4.9375 cents
May 4.6037 cents
June 3.5885 cents
July 3.9425 cents
--------------------------------------------
TOTAL 58.0569 CENTS
*Assumes shares were purchased and held for the entire accrual period. Since
dividends accrue daily, your actual distributions will vary depending on the
date you purchased your shares and any account activity during the month. Income
distributions include all accrued income earned by the Fund during the reporting
period.
5
A NOTE ABOUT
DUPLICATE MAILINGS
YOU WILL RECEIVE THE FUND'S SHAREHOLDER REPORT EVERY SIX MONTHS. TO REDUCE FUND
EXPENSES, WE TRY TO IDENTIFY RELATED SHAREHOLDERS IN A HOUSEHOLD AND SEND ONLY
ONE COPY OF THE REPORT. THIS PROCESS, CALLED "HOUSEHOLDING," WILL CONTINUE
INDEFINITELY UNLESS YOU INSTRUCT US OTHERWISE. IF YOU PREFER NOT TO HAVE THESE
DOCUMENTS HOUSEHOLDED, PLEASE CALL US AT 1-800/632-2301. AT ANY TIME YOU MAY
VIEW CURRENT SHAREHOLDER REPORTS ON OUR WEBSITE.
We appreciate your investment in Franklin Floating Rate Trust and welcome any
comments or suggestions you might have.
Sincerely,
/s/ Charles B. Johnson
------------------------
Charles B. Johnson
Chairman
/s/ Chauncey Lufkin
------------------------
Chauncey Lufkin
Chief Investment Officer
/s/ Richard D'Addario
------------------------
Richard D'Addario
Portfolio Manager
Franklin Floating Rate Trust
This discussion reflects our views, opinions and portfolio holdings as of July
31, 2002, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Fund. Our strategies and the Fund's portfolio composition will change depending
on market and economic conditions. Although historical performance is no
guarantee of future results, these insights may help you understand our
investment and management philosophy.
6
Effective March 2002, CHAUNCEY LUFKIN became Chief Investment Officer (CIO) of
Franklin Templeton Investments' Floating Rate Debt Group. Mr. Lufkin will focus
on asset growth of the institutional product line and setting strategic
investment direction for all the floating rate products, including Franklin
Floating Rate Trust.
Also in March 2002, RICHARD D'ADDARIO assumed primary investment responsibility
for the Floating Rate Debt Group, including day-to-day portfolio management and
all trading activities of Franklin Floating Rate Trust. He joined Franklin
Templeton Investments in 1996. Mr. D'Addario brings over 15 years of experience
in the senior secured loan industry, having worked at Citibank in senior secured
lending, working with both corporations and financial institutions, and at Soros
Fund Management in New York as the director of banking and finance. From 1996 to
mid-2000, he was a research analyst for Templeton and also worked on joint
ventures and structured products until joining the senior secured loan area in
mid-2000.
7
PERFORMANCE SUMMARY AS OF 7/31/02
DISTRIBUTIONS AND RETURNS WILL VARY BASED ON EARNINGS OF THE FUND'S PORTFOLIO
AND ANY PROFITS REALIZED FROM THE SALE OF THE PORTFOLIO'S SECURITIES, AS WELL AS
THE LEVEL OF THE FUND'S OPERATING EXPENSES. THE PERFORMANCE TABLE DOES NOT
REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
Shares repurchased within 12 months of investment are subject to 1% early
withdrawal charge. The Fund's manager agreed in advance to waive a portion of
its management fees. If the manager had not taken this action, the Fund's total
return would have been lower. The fee waiver may be discontinued at any time,
upon notice to the Fund's Board of Trustees.
PRICE AND DISTRIBUTION INFORMATION
CHANGE 7/31/02 7/31/01
--------------------------------------------------------------------------
Net Asset Value (NAV) -$0.93 $8.31 $9.24
DISTRIBUTIONS (8/1/01-7/31/02)
Dividend Income $0.580569
PERFORMANCE
INCEPTION
1-YEAR 3-YEAR (10/10/97)
--------------------------------------------------------------------------
Cumulative Total Return(1) -3.95% +6.03% +19.07%
Average Annual Total Return(2) -4.85% +1.97% +3.70%
Avg. Ann. Total Return (6/30/02)(3) -2.70% +3.17% +4.37%
Distribution Rate(4) 5.21%
30-Day Standardized Yield(5) 7.34%
1. Cumulative total return represents the change in value of an investment over
the periods indicated and does not include the early withdrawal charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the 1% early withdrawal
charge, assuming shares were redeemed within 12 months of purchase.
3. In accordance with SEC rules, we provide standardized average annual total
return information through the latest calendar quarter.
4. The distribution rate is based on the annualization of daily distributions
totaling 3.6114 cents per share during the last 30 days of July and the $8.31
NAV on 7/31/02.
5. Yield, calculated as required by the SEC, is based on the earnings of the
Fund's portfolio for the 30 days ended 7/31/02.
For updated performance figures, see "Prices and Performance" at
franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236.
Past performance does not guarantee future results.
8
THE FUND'S REPURCHASE OFFERS
The Fund will make quarterly repurchase offers for a portion of its shares. With
any repurchase offer, shareholders may elect to tender (have the Fund
repurchase) all, a portion or none of their shares. With each repurchase offer,
shareholders will be notified in writing about the offer, how to request that
the Fund repurchase their shares and the deadline for submitting repurchase
requests.
Each quarter the Board of Trustees will set the amount of the repurchase offer,
as a percentage of outstanding shares. This amount is known as the repurchase
offer amount and will generally be between 5% and 25% of the Fund's outstanding
shares. If repurchase requests exceed the repurchase offer amount, the Fund will
prorate requests. The Fund may, however, first accept any requests to repurchase
ALL of a shareholder's shares if the shareholder owns less than 100 shares. The
Board will also determine the date by which the Fund must receive shareholders'
repurchase requests, which is known as the repurchase request deadline. The
Board will base these decisions on investment management considerations, market
conditions, liquidity
9
of the Fund's assets, shareholder servicing and administrative considerations
and other factors it deems appropriate. Each repurchase request deadline will
occur within the period that begins 21 days before, and ends 21 days after, the
end of the quarterly interval. The repurchase price of the shares will be the
net asset value as of the close of the NYSE on the date the Board sets as the
repurchase pricing date. The maximum number of days between the repurchase
request deadline and the repurchase pricing date is 14 days.
SUMMARY OF REPURCHASE OFFERS - 8/1/01 THROUGH 7/31/02
REPURCHASE REPURCHASE % OF SHARES NUMBER OF
REQUEST DEADLINE OFFER AMOUNT TENDERED* SHARES TENDERED*
------------------------------------------------------------------------
1. 10/3/01 25% 16.950% 53,829,577.810
2. 1/14/02 25% 10.582% 28,910,145.487
3. 4/1/02 25% 9.043% 22,877,164.747
4. 7/1/02 25% 10.720% 25,539,306.103
*In connection with the repurchase offers, due to the limited number of shares
tendered, the Fund did not have to consider whether to repurchase an additional
amount of shares, not in excess of 2% of the shares outstanding, and did not
need to repurchase any shares on a pro rata basis as described in the Prospectus
and Repurchase Offer/Request Form.
10
FRANKLIN FLOATING RATE TRUST
Financial Highlights
YEAR ENDED JULY 31,
-------------------------------------------------------------
2002 2001 2000 1999 1998(a)
-------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ..................... $9.24 $9.85 $9.98 $10.04 $10.00
-------------------------------------------------------------
Income from investment operations:
Net investment income ................................. .568(d) .875 .839 .700 .482
Net realized and unrealized gains (losses) ............ (.927)(d) (.606) (.130) (.060) .040
-------------------------------------------------------------
Total from investment operations ....................... (.359) .269 .709 .640 .522
-------------------------------------------------------------
Less distributions from net investment income .......... (.581) (.879) (.839) (.700) (.482)
-------------------------------------------------------------
Net asset value, end of year ........................... $8.30 $9.24 $9.85 $ 9.98 $10.04
=============================================================
Total return(b) ........................................ (3.95)% 2.80% 7.39% 6.62% 5.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ........................ $1,779,930 $2,832,188 $2,541,497 $1,106,363 $168,537
Ratios to average net assets:
Expenses .............................................. 1.32% 1.36% 1.35% 1.39% 1.32%(c)
Expenses excluding waiver and payments by affiliate ... 1.32% 1.36% 1.35% 1.41% 1.76%(c)
Net investment income ................................. 6.58%(d) 9.07% 8.51% 6.93% 6.06%(c)
Portfolio turnover rate ................................ 62.21% 84.15% 66.27% 63.29% 45.32%
(a)For period October 10, 1997 (effective date) to July 31, 1998.
(b)Total return does not reflect the contingent deferred sales charge and is not
annualized for periods less than one year.
(c)Annualized
(d)The AICPA Audit and Accounting Guide of Investment Companies, was implemented
as described in Note 1(g) resulting in a change of $(.008) and $.008 to the net
investment income and net realized and unrealized losses per share,
respectively, and a decrease of .07% to the ratio of net investment income to
average net assets for the year ended July 31, 2002.
See notes to financial statements.
11
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS 83.8%
ADVERTISING/MARKETING SERVICES .5%
Adams Outdoor Advertising Inc., Term Loan B, 5.36%, 12/26/07 .............................. $ 2,985,000 $ 3,000,546
Lamar Media Corp., Term Loan A, 3.938%, 3/01/06 ........................................... 6,898,967 6,778,235
---------------
9,778,781
---------------
AEROSPACE & DEFENSE .9%
Alliant Techsystems Inc., Term Loan C, 4.125%, 4/20/09 .................................... 3,990,000 4,031,895
Hexcel Corp., Term Loan B, 6.125 - 6.188%, 9/14/05 ........................................ 966,274 955,000
Titan Corp., Term Loan B, 4.83 - 4.89%, 2/23/06 ........................................... 5,500,000 5,508,250
United Defense Industries, Term Loan B, 6.50%, 8/13/09 .................................... 1,000,000 1,003,375
Veridian Corp., Term Loan, 5.09%, 6/05/08 ................................................. 2,000,000 2,013,334
Vought Aircraft Industries, Term Loan X, 5.07%, 12/01/06 .................................. 2,580,000 2,588,063
---------------
16,099,917
---------------
AGRICULTURAL COMMODITIES/MILLING .1%
Hines Nurseries Inc., Term Loan B, 5.625%, 2/28/05 ........................................ 1,534,063 1,534,063
---------------
APPAREL/FOOTWEAR
St. John Knits Inc., Term Loan B, 4.813%, 7/31/07 ......................................... 762,079 762,079
---------------
AUTO PARTS: O.E.M. 2.0%
Dayco Products LLC, Term Loan B1, 5.088 - 5.45%, 5/31/07 .................................. 3,817,309 3,822,558
Metaldyne Inc., Term Loan D, 4.625%, 12/31/09 ............................................. 10,000,000 10,004,170
Tenneco Automotive Inc.,
Term Loan B, 5.92%, 11/04/07 .......................................................... 11,800,560 11,043,354
Term Loan C, 6.17%, 5/04/08 ........................................................... 11,800,560 11,043,354
---------------
35,913,436
---------------
BEVERAGES: ALCOHOLIC .3%
Southern Wine & Spirits of America Inc., Term Loan B, 4.34%, 6/21/08 ...................... 5,000,000 5,026,565
---------------
BROADCASTING 3.0%
Benedek Broadcasting Corp., Term Loan B, 7.00%, 11/20/07 .................................. 17,685,159 17,592,312
Comcorp Broadcasting, Term Loan, 5.375%, 3/31/03 .......................................... 3,335,584 2,735,179
Comcorp Holdings, Term Loan, 11.375 - 13.25%, 9/30/03 ..................................... 4,714,710 3,866,062
Cumulus Media Inc., Term Loan B, 4.813%, 3/28/10 .......................................... 500,000 503,625
Emmis Communications Corp.,
Term Loan A, 5.188%, 2/28/09 .......................................................... 2,569,763 2,563,981
Term Loan B, 4.375%, 8/31/09 .......................................................... 4,081,088 4,099,579
Quorum Broadcasting, Term Loan B, 6.36%, 9/30/07 .......................................... 8,186,221 7,326,668
Radio One Inc., Term Loan A, 3.15%, 6/30/07 ............................................... 8,000,000 7,870,000
Sinclair Broadcast Group Inc., Term Loan B, 4.125%, 12/31/09 .............................. 4,000,000 4,000,000
White Knight Broadcasting, Term Loan B, 5.375%, 3/31/03 ................................... 3,516,334 2,883,394
---------------
53,440,800
---------------
BUILDING PRODUCTS 1.3%
Magnatrax, Term Loan B, 6.40%, 11/15/05 ................................................... 4,154,893 3,607,831
Masonite International Corp., Term Loan C, 6.625 - 6.875%, 8/31/08 ........................ 6,000,000 6,007,500
Tapco International,
Term Loan B, 4.86 - 4.87%, 7/23/07 .................................................... 7,440,341 7,458,942
Term Loan C, 5.11 - 5.12%, 7/23/08 .................................................... 6,227,841 6,243,411
---------------
23,317,684
---------------
12
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
CABLE/SATELLITE TELEVISION 11.3%
Century Cable (Adelphia),
Discretionary Term Loan, 6.75%, 12/31/09 .............................................. $ 3,000,000 $ 2,067,273
Term Loan, 6.75%, 6/30/09 ............................................................. 1,000,000 691,250
Charter Communications CCVI,
gRevolver, .50 - 3.17%, 5/12/08 ........................................................ 875,000 691,250
Term Loan A, 3.11%, 5/12/08 ........................................................... 1,125,000 946,406
Term Loan B, 4.36%, 11/12/08 .......................................................... 20,000,000 17,370,000
Charter Communications CCVIII, Term Loan B, 4.61%, 2/02/08 ................................ 10,927,544 9,561,601
Charter Communications Operating LLC, Term Loan B, 4.61%, 9/18/08 ......................... 18,204,375 15,810,500
Hughes Electronics, Term Loan B, 5.38%, 12/05/02 .......................................... 22,500,000 22,489,448
Insight Midwest Holdings, Term Loan B, 5.063%, 12/31/09 ................................... 15,500,000 14,862,780
MCC Iowa (broadband), Term Loan B1, 4.34%, 9/12/10 ........................................ 3,000,000 2,907,000
Mediacom Illinois, Term Loan B, 4.34%, 12/31/08 ........................................... 5,000,000 4,845,000
Olympus Cable Holdings, Term Loan B, 6.75%, 9/30/10 ....................................... 2,000,000 1,637,142
PanAmSat Corp., Term Loan B, 5.32%, 12/31/08 .............................................. 22,500,000 22,496,490
Pegasus Media & Communications, Term Loan B, 5.375%, 4/30/05 .............................. 17,237,500 15,772,313
Satellites Mexicanos, Term Loan C, 144A, 6.34%, 6/30/04 ................................... 5,528,000 4,864,640
UCA-HHC (Adelphia), Term Loan B, 6.00%, 3/31/08 ........................................... 25,935,000 18,258,240
UPC Distribution Holdings BV, Term Loan B, 5.839%, 3/31/09 ................................ 48,500,000 36,950,938
Videotron Itee, Term Loan B, 4.64 - 4.648%, 12/01/09 ...................................... 9,831,772 9,782,613
---------------
202,004,884
---------------
CASINOS/GAMING 1.3%
Ameristar Casinos Inc., Term Loan B, 4.875%, 12/20/06 ..................................... 3,387,094 3,409,534
Greektown Casinos LLC, Term Loan B, 5.813 - 5.938%, 11/16/04 .............................. 3,660,584 3,688,038
Hollywood Casino Corp., 8.378%, 5/01/06 ................................................... 5,000,000 5,125,000
Isle of Capri, Term Loan B, 4.325 - 4.396%, 3/26/08 ....................................... 997,500 1,003,289
Marina District Finance Co. Inc., Term Loan B, 5.86%, 12/31/07 ............................ 3,000,000 2,977,500
Scientific Games Corp., Term Loan B, 6.063 - 6.188%, 9/30/07 .............................. 6,042,834 6,074,939
Venetian Casino Resorts LLC/Las Vegas Sands Inn, Term Loan B, 4.84%, 6/15/08 .............. 1,000,000 1,011,667
---------------
23,289,967
---------------
CHEMICALS: SPECIALTY .9%
Arteva B.V. (Kosa), Term Loan B, 5.355%, 12/31/06 ......................................... 3,737,935 3,700,556
Ineos Group Ltd., Term Loan C, 5.879%, 6/30/09 ............................................ 2,376,684 2,369,751
Noveon Inc., Term Loam B, 5.375 - 5.438%, 9/30/08 ......................................... 4,950,000 4,971,216
OM Group Inc., Term Loan C, 4.355%, 4/01/07 ............................................... 2,000,000 2,005,000
RK Polymers LLC, Term Loan B, 6.375%, 3/07/09 ............................................. 2,114,469 2,127,684
---------------
15,174,207
---------------
COAL .7%
Arch Western Resources LLC, Term Loan B, 4.82 - 4.86%, 4/18/08 ............................ 12,000,000 12,071,256
---------------
COMMERCIAL PRINTING/FORMS 2.9%
American Reprographics, Term Loan B, 5.65%, 4/10/08 ....................................... 16,129,090 16,048,445
cDIMAC Holdings,
Term Loan A, 7.75%, 12/31/05 .......................................................... 2,092,640 230,190
Term Loan B, 7.75%, 9/30/02 ........................................................... 669,883 572,750
13
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
COMMERCIAL PRINTING/FORMS (CONT.)
cDIMAC Marketing Partners,
Revolver, .50 - 7.75%, 7/01/03 ........................................................ $ 233,270 $ 25,660
Term Loan B, 7.75%, 1/01/05 ........................................................... 1,656,437 182,208
Moore North America Inc., Term Loan B, 6.75%, 8/02/08 ..................................... 6,000,000 6,000,000
Vertis,
Bridge Term Loan, 13.50%, 12/09/09 .................................................... 19,027,778 17,886,111
Term Loan B, 6.125 - 6.375%, 12/31/09 ................................................. 7,140,076 6,997,275
Yellow Book USA,
Term Loan C, 5.318%, 3/31/10 .......................................................... 2,000,000 2,008,250
Term Loan D, 4.818%, 3/31/09 .......................................................... 2,000,000 2,003,750
---------------
51,954,639
---------------
CONSUMER SUNDRIES .3%
Church & Dwight Co., Term Loan B, 4.35%, 5/27/09 .......................................... 1,000,000 1,008,482
Playtex Products Inc.,
gRevolver, .50 - 2.75%, 5/31/07 ........................................................ 2,777,778 2,722,222
Term Loan C, 4.089 - 4.11%, 5/31/09 ................................................... 2,500,000 2,506,250
---------------
6,236,954
---------------
CONTAINERS/PACKAGING 2.9%
Berry Plastics, Term Loan, 6.75%, 7/22/10 ................................................. 2,000,000 2,012,916
Crown Cork & Seal Co. Inc., Term Loan, 6.31%, 8/05/02 ..................................... 3,931,200 3,921,372
Graham Packaging Co.,
Term Loan B, 4.375%, 1/31/06 .......................................................... 2,651,095 2,641,360
Term Loan C, 4.625%, 1/31/07 .......................................................... 2,196,621 2,188,555
Term Loan D, 4.625 - 4.875%, 1/31/07 .................................................. 9,048,119 9,018,224
Impress Metal, Term Loan G, 5.166%, 12/31/06 .............................................. 3,449,532 3,432,285
Owens-Illinois Group Inc., Term Loan, 3.84%, 3/31/04 ...................................... 9,492,063 9,444,603
Printpack Inc., Term Loan B, 4.625%, 4/01/08 .............................................. 1,995,000 2,012,456
Silgan Holdings Inc., Term Loan A, 3.87%, 7/01/08 ......................................... 5,000,000 4,975,000
Stone Container Corp.,
Term Loan B, 4.375%, 7/25/09 .......................................................... 5,833,333 5,832,727
Term Loan C, 4.375%, 7/25/09 .......................................................... 2,166,667 2,166,441
Tekni-Plex Inc., Term Loan B, 5.375%, 6/21/08 ............................................. 4,900,000 4,916,332
---------------
52,562,271
---------------
DISCOUNT STORES .3%
Kmart Corp., DIP, 1.839%, 7/07/04 ......................................................... 5,750,000 5,788,094
---------------
DRUG STORE CHAINS .4%
Rite Aid Corp., Term Loan, 5.563 - 5.625%, 3/15/05 ........................................ 7,421,167 7,322,221
---------------
ELECTRIC UTILITIES 5.0%
AES EDC Funding II LLC, Term Loan, 4.695%, 10/06/03 ....................................... 22,000,000 16,142,500
AES New York Funding LLC, Term Loan, 6.875%, 2/28/05 ...................................... 19,000,000 15,912,500
Calpine Corp., Term Loan B, 5.688%, 3/08/04 17,000,000 16,022,500
Mission Energy Holding,
Term Loan A, 9.36%, 6/30/06 ........................................................... 6,233,766 3,553,247
Term Loan B, 9.36%, 6/30/06 ........................................................... 17,766,234 10,126,753
14
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
ELECTRIC UTILITIES (CONT.)
Southern California Edison Co.,
Term Loan A, 4.563%, 3/03/03 .......................................................... $ 5,000,000 $ 4,989,375
Term Loan B, 5.063%, 3/01/05 .......................................................... 15,000,000 15,053,130
Western Resources Inc., Term Loan, 4.844%, 6/05/05 ........................................ 8,000,000 7,925,000
---------------
89,725,005
---------------
ELECTRONIC COMPONENTS .2%
Seagate Technology HDD Holdings, Term Loan, 5.75%, 5/13/07 ................................ 2,142,900 2,139,150
Seagate Technology (US) Holdings, Term Loan, 3.938%, 5/13/07 .............................. 857,100 855,600
---------------
2,994,750
---------------
ELECTRONIC EQUIPMENT/INSTRUMENTS .2%
Neptune Technology Group Inc., Term loan B, 5.42%, 11/01/08 ............................... 3,956,987 3,996,557
---------------
ELECTRONICS/APPLIANCES .3%
Alliance Laundry Systems LLC, Term Loan, 7.25%, 7/31/09 ................................... 5,000,000 5,000,000
---------------
ENGINEERING & CONSTRUCTION .9%
URS Corp.,
Term Loan B, 4.875%, 6/09/06 .......................................................... 836,926 833,265
Term Loan C, 5.125%. 6/09/07 .......................................................... 836,926 833,265
Washington Group International (Morrison Knudsen), Synthetic Term Loan, 1.71%, 7/23/04 .... 15,500,000 14,725,000
---------------
16,391,530
---------------
ENVIRONMENTAL SERVICES 1.3%
Allied Waste Industries Inc.,
Term Loan B, 4.625 - 4.688%, 7/30/06 .................................................. 9,957,060 9,420,912
Term Loan C, 4.875 - 4.938%, 7/30/07 .................................................. 11,948,475 11,305,097
Mactec Inc., Term Loan, 6.129%, 2/22/08 ................................................... 1,982,407 1,903,111
---------------
22,629,120
---------------
FINANCIAL CONGLOMERATES .7%
Ares IV, Term Loan D, 144A, 7.87%, 12/22/12 .............................................. 1,400,000 958,125
Centurion II, Tranche D, 144A, 7.91%, 11/12/12 ............................................ 2,500,000 1,352,345
Clydesdale CLO, Tranche D, 144A, 8.36%, 3/22/13 ........................................... 2,000,000 1,676,250
Finova Group Inc., 7.50%, 11/15/09 ........................................................ 17,086,000 5,211,230
First Dominion Funding II, sub. floating rate deb., Series A-D, 144A, 7.50%, 4/25/14 ...... 3,000,000 1,650,000
Highland CLO I, Term Loan D, 144A, 8.073%, 6/01/11 ........................................ 2,000,000 800,000
---------------
11,647,950
---------------
FOOD CHAINS .2%
Roundys Inc., Term Loan, 4.39 - 4.55%, 6/06/09 ............................................ 2,000,000 2,000,626
Winn-Dixie Stores, Term Loan B, 4.625%, 3/31/07 ........................................... 901,707 907,202
---------------
2,907,828
---------------
FOOD DISTRIBUTORS .1%
Fleming Companies Inc., Term Loan, 4.125%, 6/18/08 ........................................ 1,000,000 1,000,417
---------------
FOOD RETAIL .1%
Dominos Inc., Term Loan B, 6.25%, 7/26/08 ................................................. 2,000,000 2,007,500
---------------
15
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
FOOD: MAJOR DIVERSIFIED 1.2%
Agrilink Foods Inc.,
Term Loan B, 5.82%, 9/30/04 ........................................................... $ 4,215,881 $ 4,212,719
Term Loan C, 6.07%, 9/30/05 ........................................................... 4,322,004 4,318,762
gAurora Food Holdings, Revolver, .50 - 5.821%, 6/30/05 ..................................... 5,798,166 5,238,643
International Multifoods, Term Loan B, 4.84 - 4.91%, 2/28/08 .............................. 1,990,000 1,998,350
Merisant Corp., Term Loan B, 5.11%, 3/17/07 ............................................... 1,055,007 1,063,744
Nutrasweet,
Second Lien Term Loan, 7.00%, 5/24/09 ................................................. 3,000,000 3,003,750
Term Loan B, 5.125%, 5/24/07 .......................................................... 1,364,124 1,369,239
---------------
21,205,207
---------------
FOOD: MEAT/FISH/DAIRY .7%
American Seafoods, Term Loan B, 5.11 - 7.00%, 4/15/09 ..................................... 2,981,250 3,006,093
Suiza Foods Corp., Term Loan B, 4.11%, 12/21/08 ........................................... 9,975,000 10,027,648
---------------
13,033,741
---------------
HOSPITAL/NURSING MANAGEMENT 2.2%
Genesis Health Ventures Inc.,
Delayed Draw Term Loan B, 5.36 - 5.40%, 3/30/07 ....................................... 2,170,780 2,174,850
Floating Rate Note, 6.86%, 4/02/07 .................................................... 5,380,442 5,353,540
Term Loan, 5.36%, 3/30/07 ............................................................. 7,708,171 7,746,712
IASIS Healthcare Corp.,
Term Loan A, 7.25%, 9/30/04 ........................................................... 8,794,872 8,794,872
Term Loan B, 8.00%, 9/30/06 ........................................................... 9,752,983 9,772,138
Mariner Health Care Inc., Second Priority Secured Note, 7.40%, 5/09/09 .................... 4,658,406 4,664,229
Triad Hospitals Inc., Term Loan B, 4.82%, 9/30/08 ......................................... 991,818 1,001,116
---------------
39,507,457
---------------
HOTEL/RESORTS/CRUISELINES 4.2%
Extended Stay America Inc., Term Loan B, 4.82%, 7/01/07 ................................... 8,591,216 8,636,862
Sunburst Hospitality Corp., Term Loan, 6.09%, 12/21/05 .................................... 15,098,375 15,079,502
Wyndham International Inc.,
Increasing Rate Note, 6.625%, 6/05/03 ................................................. 31,101,811 26,168,721
gRevolver, 2.00 - 5.625%, 6/30/05 ...................................................... 9,933,131 8,418,328
Term Loan B, 6.625%, 6/30/04 .......................................................... 20,571,783 17,308,872
---------------
75,612,285
---------------
INDUSTRIAL MACHINERY .5%
Blount International Inc., Term Loan B, 6.31%, 6/30/06 .................................... 2,279,975 2,246,489
Flowserve Corp., Term Loan C, 4.75 - 4.875%, 6/30/09 ...................................... 3,000,000 2,989,875
Gleason Corp., Term Loan B, 5.438%, 2/18/08 ............................................... 4,468,311 4,468,311
---------------
9,704,675
---------------
INDUSTRIAL SPECIALTIES .4%
SC Johnson Commercial Markets, Term Loan B, 5.396%, 11/03/09 .............................. 7,500,000 7,562,280
---------------
16
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
MAJOR TELECOMMUNICATIONS 1.0%
Alec Holdings Inc.,
Term Loan B, 4.875%, 11/04/07 ......................................................... $ 2,605,263 $ 2,558,858
Term Loan C, 5.125%, 5/14/08 .......................................................... 2,344,737 2,302,972
cE.Spire Communications, Term Loan C, 8.75%, 8/01/06 ....................................... 16,877,867 0
ICG Communications Inc., Term Loan B, 9.00%, 3/31/06 ...................................... 2,399,045 2,291,088
McLeod USA Inc., Term Loan B, 6.13%, 5/30/08 .............................................. 8,941,176 4,448,235
cNorthpoint Communications Group Inc.,
gRevolver, 5/03/12 ..................................................................... 238,900 145,729
Term Loan, 9.50%, 3/31/04 ............................................................. 7,545,010 4,602,456
cWCI Capital Corp., Term Loan B, 10.25%, 3/31/07 ........................................... 30,500,000 635,407
cWinstar Communications Inc., DIP, 7.75%, 12/31/02 ......................................... 5,398,775 674,847
---------------
17,659,592
---------------
MANAGED HEALTH CARE .1%
Pacificare Health Systems Inc.,Term Loan, 6.82%, 1/03/05 .................................. 2,361,453 2,356,657
---------------
MARINE SHIPPING .7%
American Commerical Lines,
Term Loan B, 6.00%, 6/30/06 ........................................................... 1,137,980 1,077,017
Term Loan C, 6.25%, 6/30/07 ........................................................... 1,338,990 1,267,259
Great Lakes Transportation LLC, Term Loan, 5.839 - 5.875%, 3/23/08 ........................ 7,352,710 7,315,946
Ingram Industries Inc., Term Loan B, 4.319 - 4.323%, 7/02/08 .............................. 2,000,000 2,001,250
---------------
11,661,472
---------------
MEDIA CONGLOMERATES 1.2%
cBridge Information Systems Inc.,
Multi Draw Term Loan, 7.50%, 5/29/03 .................................................. 502,228 86,634
Revolver, .50 - 7.25%, 5/29/03 ........................................................ 8,966 1,547
Term Loan A, 7.50%, 5/29/03 ........................................................... 498,090 85,920
Term Loan B, 6.75%, 7/07/05 ........................................................... 15,124,071 2,608,902
Canwest Media Inc.,
Term Loan B, 5.37%, 5/15/08 ........................................................... 7,758,584 7,787,679
Term Loan C, 5.62%, 5/15/09 ........................................................... 4,847,926 4,866,106
PEI Holdings, Term Loan B, 6.15 - 6.158%, 3/15/06 ......................................... 6,681,711 6,614,894
---------------
22,051,682
---------------
MEDICAL/NURSING SERVICES 1.1%
Alliance Imaging Inc., Term Loan C, 4.313 - 4.688%, 11/30/08 .............................. 1,476,569 1,479,645
Davita Inc., Term Loan B, 4.821 - 5.16%, 3/31/09 .......................................... 9,456,132 9,491,593
Maxxim Medical,
Term Loan B, 6.188%, 5/12/06 .......................................................... 2,092,978 1,517,409
Term Loan C, 6.438%, 5/12/07 .......................................................... 2,092,978 1,517,409
Team Health Inc., Term Loan B, 5.344%, 10/31/08 ........................................... 5,000,000 5,028,125
---------------
19,034,181
---------------
MILITARY/GOVERNMENT/TECHNICAL .1%
DRS Technologies Inc., Term Loan, 4.85 - 5.16%, 9/28/08 ................................... 2,481,250 2,499,859
---------------
17
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
MISCELLANEOUS COMMERCIAL SERVICES 1.3%
Burhmann U.S. Inc., Term Loan B, 5.67%, 10/26/07 .......................................... $ 19,779,443 $ 19,734,108
Iron Mountain Inc., Term Loan B, 4.156 - 4.594%, 2/15/08 .................................. 500,000 503,625
Outsourcing Solutions Inc., Term Loan B, 6.36%, 6/01/06 ................................... 2,817,500 2,750,584
---------------
22,988,317
---------------
MISCELLANEOUS MANUFACTURING 1.2%
General Cable Corp., Term Loan B, 5.938%, 6/30/07 ......................................... 3,195,804 2,895,398
Mediapak Holdings,
Term Loan B, 7.695%, 3/31/04 .......................................................... 3,221,255 2,802,492
Term Loan C, 7.945%, 3/31/04 .......................................................... 3,221,255 2,802,492
Mueller Group, Term Loan E, 4.56 - 4.61%, 5/31/08 ......................................... 10,500,000 10,534,125
Trimas Corp., Term Loan B, 4.625%, 12/06/09 ............................................... 2,000,000 2,005,626
---------------
21,040,133
---------------
MOVIES/ENTERTAINMENT 9.1%
gAMC Entertainment Inc., Revolver, .50 - 1.50%, 4/10/04 .................................... 27,000,000 25,987,500
gBlockbuster Inc., Revolver, 7/01/04 ....................................................... 39,827,472 38,513,166
Carmike Cinemas Inc., Term Loan, 7.75%, 1/31/07 ........................................... 2,000,000 1,995,000
CH Operating LLC, Term Loan B, 6.313 - 6.375%, 6/21/07 .................................... 5,155,172 5,129,397
Charlotte Hornets NBA LP, Term Loan A, 5.125%, 6/30/04 .................................... 1,000,000 1,005,000
Dreamworks Film Trust II, Term Loan B, 4.56%, 1/15/09 ..................................... 2,700,000 2,707,595
Fitness Holdings Worldwide,
Term Loan B, 6.563%, 11/02/06 ......................................................... 4,900,000 4,630,500
Term Loan C, 6.813%, 11/02/07 ......................................................... 10,115,170 9,558,836
Hollywood Entertainment Corp., Term Loan B, 5.84%, 6/30/06 ................................ 6,250,000 6,278,644
Hoops LP (Memphis Grizzlies), Term Loan A, 5.25%, 6/12/06 ................................. 5,000,000 5,012,500
Loews Cineplex Entertainment Corp., Term Loan A, 5.75%, 2/28/08 ........................... 27,642,155 27,227,523
Metro-Goldwyn-Mayer Inc.,
Term Loan A, 4.60%, 6/30/07 ........................................................... 8,000,000 8,009,000
Term Loan B, 4.85%, 6/30/08 ........................................................... 4,000,000 4,004,500
Phoenix Suns, Term Loan B, 4.625 - 4.688%, 3/31/05 ........................................ 15,000,000 15,000,000
WFI Corp. Holdings,
Term Loan, 4.773%, 10/22/04 ........................................................... 6,400,000 6,418,003
Term Loan A, 3.398%, 10/22/04 ......................................................... 400,000 401,125
---------------
161,878,289
---------------
OFFICE EQUIPMENT/SUPPLIES .5%
Imagistics International Inc., Term Loan B, 5.344 - 5.406%, 11/09/07 ...................... 8,666,974 8,645,306
---------------
OIL REFINING/MARKETING .4%
Pacific Energy Group LLC, Term Loan B, 4.07%, 7/26/09 ..................................... 3,000,000 3,005,625
Tesoro Petroleum Corp., Term Loan B, 6.50%, 9/30/07 ....................................... 4,982,006 4,904,680
---------------
7,910,305
---------------
OTHER CONSUMER SERVICES .6%
Sotheby's Holdings Inc., Term Loan B, 4.84 - 4.87%, 8/11/02 ............................... 10,000,000 9,937,500
---------------
OTHER CONSUMER SPECIALTIES .6%
Herbalife International Inc., Term Loan, 5.81%, 7/31/08 ................................... 10,000,000 9,987,500
---------------
18
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
OTHER METALS/MINERALS .3%
Better Minerals & Aggregates, Term Loan B, 5.625 - 8.50%, 9/30/07 ......................... $ 4,763,158 $ 4,688,734
---------------
OTHER TRANSPORTATION 1.5%
Eurotunnel Finance Ltd., Tier 1 Jr Debt, 7.03%, 7/01/25 (United Kingdom) .................. 6,167,225 GBP 8,983,875
Eurotunnel Finance Ltd., Tier 2 Jr Debt, 7.03%, 7/01/25 (United Kingdom) .................. 14,000,000 GBP 17,824,226
---------------
26,808,101
---------------
PHARMACEUTICALS: GENERIC .2%
Alpharma Operating Corp., Term Loan, 5.11 - 5.37%, 10/05/08 ............................... 2,901,574 2,861,678
---------------
PROPERTY-CASUALTY INSURANCE 1.3%
White Mountains Insurance Group Inc., Term Loan B, 4.73%, 3/31/07 ......................... 22,662,626 22,738,161
---------------
PUBLISHING: BOOKS/MAGAZINES 1.6%
Advanstar Communications,
Term Loan A, 5.06%, 4/11/07 ........................................................... 3,237,108 3,169,128
Term Loan B, 5.81%, 11/02/08 .......................................................... 2,000,000 1,958,000
American Media Inc., Term Loan C, 4.61 - 4.88%, 4/01/07 ................................... 983,917 993,141
Primedia Inc., Term Loan B, 4.625%, 6/30/09 ............................................... 10,890,000 8,648,479
Readers Digest Association Inc., Term Loan B, 4.16 - 4.38%, 5/20/08 ....................... 8,500,000 8,505,313
Weekly Reader, Term Loan B, 5.86 - 6.16%, 11/08/06 ........................................ 4,763,265 4,763,265
---------------
28,037,326
---------------
PUBLISHING: NEWSPAPERS .4%
Trader.com, (Netherlands)
Term Loan B, 5.55%, 12/31/06 .......................................................... 4,178,945 4,178,945
Term Loan C, 6.05%, 12/31/07 .......................................................... 3,019,719 3,019,719
---------------
7,198,664
---------------
PULP & PAPER 1.3%
Alabama Pine & Pulp,
PIK Term Loan B, 5.81%, 6/30/05 ....................................................... 4,015,720 220,865
PIK Term Loan C, 10.75%, 6/30/05 ...................................................... 5,918,479 325,516
Revolver, 10.81%, 6/30/03 ............................................................. 5,000,000 4,395,000
Term Loan A, 5.81%, 6/30/03 ........................................................... 37,105,162 18,552,581
---------------
23,493,962
---------------
RAILROADS .9%
DM&E Railroad, Term Loan, 8.75%, 6/30/08 .................................................. 3,000,000 3,007,500
Helm Holding Corp., Term Loan B, 5.788 - 6.694%, 10/18/06 ................................. 5,097,837 4,626,287
RailAmerica Transportation Corp., Term Loan B, 4.625%, 5/21/09 ............................ 5,000,000 5,023,750
Trinity Industries Inc., Term Loan, 4.875 - 4.969%, 6/07/07 ............................... 3,000,000 3,022,968
---------------
15,680,505
---------------
REAL ESTATE INVESTMENT TRUSTS 1.6%
Aimco, Term Loan, 4.39%, 2/06/04 .......................................................... 3,478,329 3,460,938
Corrections Corp. of America, Term Loan B, 5.34 - 5.41%, 10/31/08 ......................... 16,957,500 17,101,639
19
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
REAL ESTATE INVESTMENT TRUSTS (CONT.)
Macerich Partnership LP, Term Loan B, 4.818%, 7/09/09 ..................................... $ 3,000,000 $ 3,000,000
Newkirk Master LP, Term Loan, 8.50%, 1/30/05 .............................................. 4,713,781 4,760,919
---------------
28,323,496
---------------
RENTAL/LEASING COMPANIES 1.4%
Ashtead Group, Term Loan B, 4.853 - 4.915%, 6/30/07 ....................................... 17,443,861 16,876,935
gRent-A-Center Inc., Revolver, .25 - 1.25%, 7/31/04 ........................................ 1,984,654 1,925,115
Rent-Way Inc., Term Loan B, 7.86%, 9/30/06 ................................................ 4,973,013 4,848,688
United Rentals Inc., Term Loan B, 4.82 - 5.10%, 9/30/07 ................................... 1,000,000 1,004,063
---------------
24,654,801
---------------
SEMICONDUCTORS .4%
ON Semiconductor Corp.,
gRevolver, .50 - 5.875%, 8/04/05 ....................................................... 1,071,429 975,000
Term Loan A, 5.875%, 8/04/05 .......................................................... 53,479 49,825
Term Loan B, 5.875%, 8/04/06 .......................................................... 2,547,488 2,386,148
Term Loan C, 5.875%, 8/04/07 .......................................................... 2,872,893 2,690,944
Term Loan D, 5.875%, 8/04/07 .......................................................... 1,874,190 1,752,367
---------------
7,854,284
---------------
SERVICES TO THE HEALTH INDUSTRY .1%
Accredo Health Inc., Term Loan B, 4.60%, 4/15/09 .......................................... 997,500 1,002,488
---------------
SPECIALTY STORES .1%
Petco Animal Supplies Inc., Term Loan B, 5.34%, 10/02/08 .................................. 1,984,615 1,992,885
---------------
SPECIALTY TELECOMMUNICATIONS 1.0%
c360networks Inc., 8.25%, 12/15/07 ......................................................... 19,000,000 3,961,500
cGlobal Crossing Holdings Ltd., Term Loan B, 8.75%, 8/15/06 ................................ 2,477,298 399,464
cPacific Crossing Ltd., Term Loan B, 6.00%, 7/28/06 ........................................ 23,025,712 2,475,264
RCN Corp., Term Loan B, 6.063%, 6/03/07 ................................................... 15,750,000 10,473,750
---------------
17,309,978
---------------
STEEL .7%
Ispat Sidbec Inc.,
Term Loan B, 6.105 - 6.164%, 7/16/04 .................................................. 3,038,109 2,308,963
Term Loan C, 6.605 - 6.664%, 1/16/05 .................................................. 3,038,109 2,308,963
LTV Corp., 6.464%, 10/31/04 ............................................................... 9,376,333 7,501,067
---------------
12,118,993
---------------
TEXTILES .5%
Foamex International Inc.,
Term Loan B, 6.50%, 6/30/05 ........................................................... 784,129 784,717
Term Loan C, 6.75%, 6/30/06 ........................................................... 712,847 713,382
Term Loan D, 6.625%, 12/31/06 ......................................................... 3,661,380 3,664,126
Pillowtex Corp., Term Loan, 10.00%, 5/24/07 ............................................... 4,657,733 4,343,336
---------------
9,505,561
---------------
20
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
PRINCIPAL
AMOUNT* VALUE
----------------------------------------------------------------------------------------------------------------------------------
aSENIOR FLOATING RATE INTERESTS (CONT.)
UTILITIES .3%
Michigan Electric Transmission Co. LLC, Term Loan, 4.355 - 4.414%, 5/01/07 ................ $ 3,000,000 $ 3,011,250
Pike Electric, Inc., Term Loan, 5.375%, 4/17/10 ........................................... 2,735,294 2,758,659
---------------
5,769,909
---------------
WHOLESALE DISTRIBUTORS .4%
Wilmar Industries Inc., Term Loan B, 5.90%, 9/27/07 ....................................... 7,368,750 7,258,219
---------------
WIRELESS COMMUNICATIONS 4.6%
Alamosa Holdings, Term Loan, 5.938%, 2/15/08 .............................................. 13,513,514 12,162,162
American Cellular Inc., Term Loan C, 5.11%, 2/25/09 ....................................... 2,734,326 1,847,190
Arch Wireless Inc.,
Senior secured note, 10.00%, 5/15/07 .................................................. 21,042,000 14,203,350
Senior sub. note, PIK, 12.00%, 5/15/09 ................................................ 11,115,000 1,722,825
Cricket Communications Inc., Term Loan, 6.375%, 6/30/07 ................................... 24,000,000 5,940,000
Nextel Communications Inc., Term Loan D, 4.938%, 3/31/09 .................................. 10,000,000 7,993,330
Nextel Operations Inc.,
Leveraged Lease I, 6.50%, 3/15/05 ..................................................... 2,895,879 2,475,976
Leveraged Lease II, 5.15%, 2/08/07 .................................................... 11,859,707 10,140,049
Nextel Partners Inc., Term Loan C, 6.14%, 7/29/08 ......................................... 13,000,000 10,876,667
Rural Cellular Corp.,
Term Loan B, 5.15%, 10/03/08 .......................................................... 5,893,356 4,724,509
Term Loan C, 5.40%, 4/03/09 ........................................................... 5,893,356 4,719,594
Sygnet Wireless Inc., Term Loan C, 5.61%, 12/23/07 ........................................ 1,656,481 1,474,268
cTeligent Inc.,
Conversion Term Loan, 9.50%, 6/30/06 .................................................. 17,343,750 462,506
Multi-Draw Term Loan, 9.50 - 9.865%, 6/30/06 .......................................... 25,781,250 687,509
---------------
79,429,935
---------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $1,776,966,800) ................................ 1,491,582,593
---------------
SHARES
------------------
fCOMMON STOCKS AND WARRANTS 2.6%
AUTO PARTS: O.E.M.
Exide Technologies., wts., 3/18/06 ........................................................ 74,278 0
---------------
COMMERICAL PRINTING/FORMS
DIMAC Holdings Inc., wts., 2/20/49 ........................................................ 4,109 0
Vertis Holdings Inc., wts., 6/30/11 ....................................................... 39,812 0
---------------
0
---------------
ENGINEERING & CONSTRUCTION 1.4%
Washington Group International Inc. ....................................................... 1,377,318 24,791,721
---------------
ENVIRONMENTAL SERVICES
Environmental Systems Products Holdings Inc. .............................................. 49,939 0
---------------
HOSPITAL/NURSING MANAGMENT .7%
Genesis Health Ventures Inc. .............................................................. 799,926 12,886,808
---------------
21
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 2002 (CONT.)
SHARES VALUE
----------------------------------------------------------------------------------------------------------------------------------
fCOMMON STOCKS AND WARRANTS (CONT.)
MEDICAL/NURSING SERVICES .4%
Mariner Health Care Inc. .................................................................. 486,333 $ 6,322,329
Rotech Medical Corp. ...................................................................... 26,267 0
---------------
6,322,329
---------------
MOVIES/ENTERTAINMENT .1%
AMF Bowling Worldwide Inc. ................................................................ 12,334 323,891
United Artist Theaters .................................................................... 220,857 1,325,142
---------------
1,649,033
---------------
PACKAGED SOFTWARE
dRivus Internet Group Inc. ................................................................. 72,960 0
---------------
WIRELESS COMMUNICATIONS
eArch Wireless Inc. ........................................................................ 1,618,619 857,868
---------------
TOTAL COMMON STOCKS AND WARRANTS (COST $88,449,247) ....................................... 46,507,759
---------------
fPREFERRED STOCKS .1%
ADVERTISING/MARKETING SERVICES
DIMAC Holdings, 20% PIK pfd. .............................................................. 1,265,651 0
---------------
ENVIRONMENTAL SERVICES .1%
Environmental Systems Products Holdings Inc., pfd. ........................................ 8,032 1,004,003
---------------
TOTAL PREFERRED STOCKS (COST $356,100) .................................................... 1,004,003
---------------
CONVERTIBLE PREFERRED STOCKS .1%
HOSPITAL/NURSING MANAGMENT
Genesis Health Ventures Inc., 6.00%, cvt. pfd. ............................................ 12,576 1,251,312
---------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,232,448) ...................................... 1,251,312
---------------
TOTAL LONG TERM INVESTMENTS (COST $1,867,004,595) ......................................... 1,540,345,667
---------------
SHORT TERM INVESTMENTS 13.7%
bFranklin Institutional Fiduciary Trust Money Market Portfolio (COST $245,141,701) ......... 245,141,701 245,141,701
---------------
TOTAL INVESTMENTS (COST $2,112,146,296) 100.3% ............................................ 1,785,487,368
OTHER ASSETS, LESS LIABILITIES (.3)% ...................................................... (5,556,939)
---------------
NET ASSETS 100.0% ......................................................................... $1,779,930,429
===============
CURRENCY ABBREVIATION:
GBP - British Pounds
*The principal amount is stated in U.S. dollars unless otherwise indicated.
aSenior secured corporate loans pay interest at rates which are periodically
reset by reference to a base lending rate plus a spread. These base lending
rates are generally the prime rate offered by a designated U.S. bank or the
London InterBank Offered Rate (LIBOR).
bThe Franklin Institutional Fiduciary Trust Money Market Portfolio is managed by
Franklin Advisers Inc.
cSee Note 8 regarding defaulted securities.
dSee Note 9 regarding restricted securities.
eThe Investment Company Act of 1940 defines "affiliated companies" to include
investments in portfolio companies in which the Fund owns 5% or more of the
outstanding voting securities. Investments in non-controlled "affiliated
companies" at July 31, 2002 were $857,868.
fNon-income producing
gSee Note 1 regarding unfunded commitments.
See notes to financial statements.
22
FRANKLIN FLOATING RATE TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2002
Assets:
Investments in securities:
Cost ......................................................................................................... $2,112,146,296
==============
Value ........................................................................................................ 1,785,487,368
Cash .......................................................................................................... 2,284,866
Receivables:
Investment securities sold ................................................................................... 101,854,250
Capital shares sold .......................................................................................... 578,074
Interest ..................................................................................................... 12,012,569
Organization costs ............................................................................................ 4,672
Other assets .................................................................................................. 60,889
---------------
Total assets ............................................................................................. 1,902,282,688
---------------
Liabilities:
Payables:
Investment securities purchased .............................................................................. 36,836,544
Affiliates ................................................................................................... 2,042,538
Shareholders ................................................................................................. 664,448
Distributions to shareholders ................................................................................. 2,803,547
Unfunded loan commitments (Note 1) ............................................................................ 79,775,171
Other liabilities ............................................................................................. 230,011
---------------
Total liabilities ........................................................................................ 122,352,259
---------------
Net assets, at value .................................................................................... $1,779,930,429
===============
Net assets consist of:
Undistributed net investment income ........................................................................... (3,736,760)
Net unrealized depreciation ................................................................................... (326,560,538)
Accumulated net realized loss ................................................................................. (128,938,132)
Capital shares ................................................................................................ 2,239,165,859
---------------
Net assets, at value .................................................................................... $1,779,930,429
===============
Net asset value and maximum offering price per share ($1,779,930,429 / 214,547,270 shares outstanding)(a) ..... $8.30
===============
aRedemption price is equal to net asset value less any applicable contingent
deferred sales charge.
See notes to financial statements.
23
FRANKLIN FLOATING RATE TRUST
Financial Statements (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2002
Investment income:
Dividends ............................................................................................... $ 3,015,465
Interest ................................................................................................ 177,901,413
--------------
Total investment income ............................................................................ 180,916,878
--------------
Expenses:
Management fees (Note 5) ................................................................................ 17,761,855
Administrative fees (Note 5) ............................................................................ 2,293,349
Transfer agent fees (Note 5) ............................................................................ 9,594,046
Custodian fees .......................................................................................... 19,152
Reports to shareholders ................................................................................. 112,084
Professional fees ....................................................................................... 421,225
Trustees' fees and expenses ............................................................................. 3,749
Amortization of organization costs ...................................................................... 24,804
Other ................................................................................................... 50,002
--------------
Total expenses ..................................................................................... 30,280,266
--------------
Net investment income ............................................................................. 150,636,612
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................................................ (116,227,009)
Foreign currency transactions .......................................................................... 90,204
--------------
Net realized loss ................................................................................. (116,136,805)
Net unrealized appreciation (depreciation) on:
Investments ............................................................................................ (126,976,642)
Translation of assets and liabilities denominated in foreign currencies ................................ 96,981
--------------
Net unrealized depreciation ....................................................................... (126,879,661)
--------------
Net realized and unrealized loss ......................................................................... (243,016,466)
--------------
Net decrease in net assets resulting from operations ..................................................... $ (92,379,854)
==============
See notes to financial statements.
24
FRANKLIN FLOATING RATE TRUST
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED JULY 31, 2002 AND 2001
2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ................................................................... $ 150,636,612 $ 266,212,179
Net realized loss from investments and foreign currency transactions .................... (116,136,805) (11,003,395)
Net unrealized depreciation on investments and translation of assets and liabilities
denominated in foreign currencies ...................................................... (126,879,661) (176,046,520)
----------------------------------
Net increase (decrease) in net assets resulting from operations ..................... (92,379,854) 79,162,264
Distributions to shareholders from net investment income ................................. (153,197,524) (268,509,479)
Capital share transactions (Note 2) ...................................................... (806,679,853) 480,038,146
----------------------------------
Net increase (decrease) in net assets ............................................... (1,052,257,231) 290,690,931
Net assets:
Beginning of year ........................................................................ 2,832,187,660 2,541,496,729
----------------------------------
End of year .............................................................................. $ 1,779,930,429 $2,832,187,660
==================================
Undistributed net investment income included in net assets:
End of year .............................................................................. $ (3,736,760) $ (1,298,001)
==================================
See notes to financial statements.
25
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Franklin Floating Rate Trust (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end, continuously offered
investment company. The Fund seeks current income and preservation of capital.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION:
The Fund invests primarily in senior secured corporate loans and senior secured
debt that meet credit standards established by Franklin Advisers, Inc. The Fund
values its securities based on quotations provided by banks, broker/dealers or
pricing services experienced in such matters. Restricted securities and
securities for which market quotations are not readily available are valued at
fair value as determined by management in accordance with procedures established
by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION:
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. 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.
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. Discount from
securities is amortized on a yield to maturity basis. Facility fees are
recognized as income over the expected term of the loan. Dividend income and
distributions to shareholders are recorded on the ex-dividend date.
E. ORGANIZATION COSTS:
Organization costs are amortized on a straight-line basis over five years.
26
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
F. 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.
G. AUDIT GUIDE:
In November 2000, a revised AICPA Audit and Accounting Guide, Audits of
Investment Companies, was issued, and is effective for fiscal years beginning
after December 15, 2000. The revised Guide requires the Fund to amortize all
premium and discount on fixed-income securities. Such amortization is included
in net investment income but did not impact the net assets or the distributions
of the Fund. Prior to August 1, 2001, premiums on fixed income securities were
included in realized gains and losses. The cumulative effect of this accounting
change resulted in a reduction of $58,234 in the recorded cost of investments
and a corresponding increase in net unrealized appreciation.
The effect of this change for the year ended July 31, 2002 was to decrease net
investment income by $1,633,047, decrease unrealized losses by $1,519,562, and
decrease realized losses by $113,485. The statement of changes in net assets and
the financial highlights for prior periods have not been restated to reflect
this change in accounting policy.
H. UNFUNDED LOAN COMMITMENTS:
The Fund may enter into certain credit agreements, all or a portion of which may
be unfunded. The Fund is obligated to fund these loan commitments at the
borrowers' discretion. These commitments are disclosed in the accompanying
Statement of Investments and Statement of Assets and Liabilities.
2. SHARES OF BENEFICIAL INTEREST
At July 31, 2002, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
YEAR ENDED JULY 31,
---------------------------------------------------------------------
2002 2001
---------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------------------
Shares sold ........................................... 28,062,186 $ 250,305,588 135,483,175 $ 1,307,595,804
Shares issued in reinvestment of distributions ........ 11,096,664 97,874,769 19,247,577 184,070,432
Shares redeemed ....................................... (131,170,493) (1,154,860,210) (106,217,953) (1,011,628,090)
---------------------------------------------------------------------
Net increase (decrease) ............................... (92,011,643) $ (806,679,853) 48,512,799 $ 480,038,146
=====================================================================
27
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (CONTINUED)
3. TENDER OF SHARES
On a quarterly basis, the Fund may make tender offers, the amount of which is
determined by the Board of Trustees, for the repurchase of at least 5% but not
more than 25% of the shares outstanding. The repurchase price is the net asset
value on the tender offer expiration date.
4. REVOLVING CREDIT FACILITY
The Fund participates in a $200 million senior unsecured revolving credit
facility to fund shareholder redemptions or meet unfunded loan commitments. The
facility agreement ends on December 20, 2002. Interest is charged at the Federal
Funds Rate plus .50%. Facility fees paid are amortized on a straight line basis
over the term of the commitment. Annual commitment fees of .09% are charged on
the unused portion of the facility and allocated among the participating funds
based on net assets.
During the year ended July 31, 2002, the Fund did not utilize the facility.
5. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or directors of
the following entities:
ENTITY AFFILIATION
--------------------------------------------------------------------------------------
Franklin Templeton Services LLC (FT Services) Administrative manager
Franklin Advisers Inc. (Advisers) Investment manager
Franklin/Templeton Distributors Inc. (Distributors) Principal underwriter
Franklin/Templeton Investor Services LLC (Investor Services) Transfer agent
The Fund pays an investment management fee to Advisers of .80% per year of the
average daily net assets of the Fund.
Management fees were reduced on assets invested in the Franklin Institutional
Fiduciary Trust Money Market Portfolio (the Sweep Money Fund) in an amount not
to exceed the management fees paid by the Sweep Money Fund.
The Fund pays an administrative fee to FT Services based on the average net
assets of the Fund as follows:
ANNUALIZED
FEE RATE AVERAGE DAILY NET ASSETS
-----------------------------------------------------------------
.150% First $200 million
.135% Over $200 million, up to and including $700 million
.100% Over $700 million, up to and including $1.2 billion
.075% In excess of $1.2 billion
Distributors received contingent deferred sales charges for the year of
$1,010,664.
The Fund pays a transfer agent fee to Investor Services of .40% per year of the
average daily net assets of the Fund.
28
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (CONTINUED)
6. INCOME TAXES
At July 31, 2002, the cost of investments, net unrealized depreciation,
undistributed ordinary income and undistributed long term capital gains for
income tax purposes were as follows:
Cost of investments .................... $2,114,730,693
===============
Unrealized appreciation ................ $ 10,015,424
Unrealized depreciation ................ (339,258,749)
---------------
Net unrealized depreciation ............ $ (329,243,325)
===============
Undistributed ordinary income .......... $ 1,856,670
Undistributed long term capital gains .. $ --
---------------
Distributable earnings ................. $ 1,856,670
===============
At July 31, 2002, the Fund had tax basis capital losses of $2,115,134 which may
be carried over to offset future capital gains. Such losses expire in 2009.
At July 31, 2002, the Fund has deferred capital losses occurring subsequent to
October 31, 2001 of $125,816,398. For tax purposes, such losses will be
reflected in the year ending July 31, 2003.
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, and bond premiums.
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatment of wash sales, foreign currency
transactions, and bond premiums.
The tax character of distributions paid during the year ended July 31, 2002, was
substantially the same for financial statement and tax purposes.
7. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended July 31, 2002 aggregated $1,348,120,572 and $2,262,523,614, respectively.
29
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (CONTINUED)
8. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 92.90% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions rather than higher rated securities. At July
31, 2002, the Fund held defaulted securities with a value aggregating
$17,838,493 representing 1.00% of the Fund's net assets. For information as to
specific securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Fund discontinues accruing income on
defaulted bonds and provides an estimate for losses on interest receivable.
9. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering that generally
cannot be resold to the public without prior registration under the Securities
Act of 1933. The costs of registering such securities are paid by the issuer. At
July 31, 2002, the Fund held one restricted security as follows:
ACQUISITION
SHARES ISSUER DATE COST VALUE
------------------------------------------------------------------------------------------------------------------------------
72,960 Rivus Internet Group Inc. ....................................................... 5/10/00 $18,240 $0
30
FRANKLIN FLOATING RATE TRUST
Independent Auditors' Report
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF FRANKLIN FLOATING RATE TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Franklin Floating Rate Trust
(hereafter referred to as "the Fund") at July 31, 2002, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the periods presented, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America which require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at July 31, 2002 by correspondence with the custodian and brokers,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
September 4, 2002
31
BOARD MEMBERS AND OFFICERS
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton fund
complex are shown below. Each board member will serve until that person's
successor is elected and qualified.
INDEPENDENT BOARD MEMBERS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
FRANK H. ABBOTT, III (81) Trustee Since 1997 105 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President and Director, Abbott Corporation (an investment company); and
FORMERLY, Director, MotherLode Gold Mines Consolidated (gold mining) (until
1996) and Vacu-Dry Co. (food processing) (until 1996).
----------------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (70) Trustee Since 1997 133 Director, RBC Holdings, Inc. (bank holding
One Franklin Parkway company) and Bar-S Foods (meat packing
San Mateo, CA 94403-1906 company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, President, Chief Executive Officer
and Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
----------------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (70) Trustee Since 1997 134 None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Member of the law firm of Pitney, Hardin, Kipp & Szuch.
----------------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (50) Trustee Since 1998 82 Director, Amerada Hess Corporation (explo-
One Franklin Parkway ration and refining of oil and gas); Hercules
San Mateo, CA 94403-1906 Incorporated (chemicals, fibers and resins);
Beverly Enterprises, Inc. (health care); H.J.
Heinz Company (processed foods and allied
products); RTI International Metals, Inc.
(manufacture and distribution of titanium);
Digex Incorporated (web hosting provider);
and Canadian National Railway (railroad).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Assistant to the President of the
United States and Secretary of the Cabinet (1990-1993); General Counsel to the
United States Treasury Department (1989-1990); and Counselor to the Secretary
and Assistant Secretary for Public Affairs and Public Liaison-United States
Treasury Department (1988-1989).
----------------------------------------------------------------------------------------------------------------------------------
32
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (73) Trustee Since 1997 105 Director, The California Center for Land
One Franklin Parkway Recycling (redevelopment).
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman,
Peregrine Venture Management Company (venture capital).
----------------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (74) Trustee Since 1997 133 Director, White Mountains Insurance Group,
One Franklin Parkway Ltd. (holding company); Martek Biosciences
San Mateo, CA 94403-1906 Corporation; WorldCom, Inc. (communications
services); MedImmune, Inc. (biotechnology);
Overstock.com (Internet services); and
Spacehab, Inc. (aerospace services).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and
FORMERLY, Chairman, White River Corporation (financial services) (until 1998)
and Hambrecht & Quist Group (investment banking) (until 1992); and President,
National Association of Securities Dealers, Inc. (until 1987).
----------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (69) Trustee Since 1997 133 None
One Franklin Parkway and Chairman
San Mateo, CA 94403-1906 of the Board
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman
and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton
Distributors, Inc.; Director, Fiduciary Trust Company International; officer
and/or director or trustee, as the case may be, of some of the other
subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment
companies in Franklin Templeton Investments.
----------------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (61) Trustee Since 1997 117 None
One Franklin Parkway and President
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services,
Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or
director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc.; and officer of 51 of the investment companies in
Franklin Templeton Investments.
----------------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (57) Vice President Since 1997 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources,
Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.;
Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment
Advisory Services, Inc.; and officer and/or director or trustee, as the case may
be, of some of the other subsidiaries of Franklin Resources, Inc. and of 51 of
the investment companies in Franklin Templeton Investments.
----------------------------------------------------------------------------------------------------------------------------------
33
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
RICHARD D'ADDARIO (53) Vice President Since Not Applicable None
One Franklin Parkway March 2002
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President and Director of Research, Franklin Advisers, Inc.; and
officer of three of the investment companies in Franklin Templeton Investments.
----------------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (42) Vice President Since 1997 Not Applicable None
One Franklin Parkway and Chief
San Mateo, CA 94403-1906 Financial Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Member - Office of the President, Chief Financial Officer and Chief
Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief
Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President,
Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice
President and Chief Operating Officer, Templeton Investment Counsel, LLC;
Executive Vice President and Director, Franklin Advisers, Inc.; Executive Vice
President, Franklin Investment Advisory Services, Inc. and Franklin Templeton
Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services,
LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of
some of the other subsidiaries of Franklin Resources, Inc. and of 52 of the
investment companies in Franklin Templeton Investments.
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DAVID P. GOSS (55) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive
Officer and Director, Property Resources, Inc. and Franklin Properties, Inc.;
officer and/or director of some of the other subsidiaries of Franklin Resources,
Inc.; officer of 53 of the investment companies in Franklin Templeton
Investments; and FORMERLY, President, Chief Executive Officer and Director,
Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust
(until 2000).
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BARBARA J. GREEN (54) Vice President Since 2000 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior
Vice President, Templeton Worldwide, Inc. and officer of one of the other
subsidiaries of Franklin Resources, Inc., and of 53 of the investment companies
in Franklin Templeton Investments; and FORMERLY, Deputy Director, Division of
Investment Management, Executive Assistant and Senior Advisor to the Chairman,
Counselor to the Chairman, Special Counsel and Attorney Fellow, Securities and
Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and
Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979).
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CHAUNCEY F. LUFKIN (44) Vice President Since 1997 Not Applicable None
One Franklin Parkway
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; and
officer of two of the investment companies in Franklin Templeton Investments.
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34
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------------
EDWARD V. MCVEY (65) Vice President Since 1997 Not Applicable None
26335 Carmel Rancho Blvd.
Carmel, CA 93923
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Distributors, Inc.; Executive Vice
President, Templeton/Franklin Investment Services, Inc.; and officer of 29 of
the investment companies in Franklin Templeton Investments.
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KIMBERLEY MONASTERIO (38) Treasurer Since 2000 Not Applicable None
One Franklin Parkway and Principal
San Mateo, CA 94403-1906 Accounting
Officer
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Franklin Templeton Services, LLC; and officer of 34 of
the investment companies in Franklin Templeton Investments.
----------------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (65) Vice President Since 2000 Not Applicable None
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer
and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer
of 53 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin
Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset
Management Ltd. (until 1999).
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*We base the number of portfolios on each separate series of the registered
investment companies comprising the Franklin Templeton Investments fund complex.
These portfolios have a common investment adviser or affiliated investment
advisers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered interested
persons of the Trust under the federal securities laws due to their positions as
officers and directors and major shareholders of Franklin Resources, Inc., which
is the parent company of the Trust's adviser and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
The Statement of Additional Information (SAI) includes additional information
about the board members and is available, without charge, upon request.
Shareholders may call 1-800/DIAL-BEN (1-800/342-5236) to request the SAI.
35
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LITERATURE REQUEST
For a brochure and prospectus, which contain 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, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be determined by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON INVESTMENTS
GLOBAL GROWTH
Franklin Global Aggressive
Growth Fund
Franklin Global Growth Fund
Franklin Global Health Care Fund
Mutual Discovery Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller
Companies Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller
Companies Fund
Templeton Growth Fund
Templeton International
(Ex EM) Fund
Templeton Latin America Fund
Templeton Pacific Growth Fund
Templeton World Fund
GLOBAL GROWTH & INCOME
Franklin Global
Communications Fund
Mutual European Fund
Templeton Global Bond Fund
GLOBAL INCOME
Franklin Templeton Hard
Currency Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Biotechnology
Discovery Fund
Franklin Blue Chip Fund
Franklin California Growth Fund(1)
Franklin Capital Growth Fund(2)
Franklin DynaTech Fund
Franklin Gold and Precious
Metals Fund
Franklin Growth Fund
Franklin Large Cap Growth Fund
Franklin Small-Mid Cap
Growth Fund
Franklin Small Cap Growth Fund II(3)
Franklin Technology Fund
GROWTH & INCOME
Franklin Balance Sheet
Investment Fund(4)
Franklin Convertible Securities Fund
Franklin Equity Income Fund
Franklin Income Fund
Franklin Large Cap Value Fund
Franklin Natural Resources Fund
Franklin Real Estate
Securities Fund
Franklin Rising Dividends Fund
Franklin Small Cap Value Fund(5)
Franklin Utilities Fund
Mutual Beacon Fund
Mutual Financial Services Fund
Mutual Qualified Fund
Mutual Shares Fund
FUND ALLOCATOR SERIES
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 Floating Rate Daily
Access Fund
Franklin Floating Rate Trust(7)
Franklin Short-Intermediate
U.S. Government Securities Fund(6)
Franklin Strategic Income Fund
Franklin Total Return Fund
Franklin U.S. Government
Securities Fund(6)
Franklin Federal Money Fund(6,8)
Franklin Money Fund(6,8)
TAX-FREE INCOME(9)
Double Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free
Income Fund
Insured Tax-Free Income Fund(10)
Tax-Exempt Money Fund(6,8)
STATE-SPECIFIC
TAX-FREE INCOME(9)
Alabama Minnesota(10)
Arizona Missouri
California(11) New Jersey
Colorado New York(11)
Connecticut North Carolina
Florida(11) Ohio(10)
Georgia Oregon
Kentucky Pennsylvania
Louisiana Tennessee
Maryland Texas
Massachusetts(10) Virginia
Michigan(10)
INSURANCE FUNDS
Franklin Templeton Variable
Insurance Products Trust(12)
1. Effective 9/1/02, the fund's name will change to Franklin Flex Cap Growth
Fund and its investment criteria will be modified to invest a majority of its
net assets in California companies, as opposed to at least 80% of net assets.
2. Formerly Franklin Growth and Income Fund. Effective 5/1/02, the fund's name
changed; investment goal and strategy remained the same.
3. The fund is closed to all new investors. Existing shareholders can continue
adding to their account through exchanges and purchases.
4. Effective 5/1/02, the fund is closed to all new investors. Existing
shareholders, however, will be able to continue adding to their accounts through
exchanges and purchases. In addition, retirement plans with an existing account
in the fund will be allowed to open new participant accounts.
5. Effective 4/1/02, the fund expanded its investment universe to include
companies with market capitalizations up to $2.5 billion.
6. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
7. 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.
8. 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.
9. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable.
10. Portfolio of insured municipal securities.
11. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
intermediate-term and money market portfolios (CA and NY).
12. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally only available as investment options in variable annuity or variable
life insurance contracts.
08/02
(LOGO APPEARS HERE)
FRANKLIN(R) TEMPLETON(R) One Franklin Parkway
INVESTMENTS 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.
ANNUAL REPORT
FRANKLIN FLOATING RATE TRUST
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 Floating
Rate Trust prospectus, which contains more complete information including
charges and expenses.
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.
020 A2002 09/02 (LOGO APPEARS HERE) Printed on recycled paper