o020 STKP2
SUPPLEMENT DATED AUGUST 12, 1998
TO THE PROSPECTUS OF
FRANKLIN FLOATING RATE TRUST
DATED APRIL 1, 1998 AS AMENDED JULY 10, 1998
The prospectus is amended as follows:
I. Each reference in the prospectus to Corporate Loans and Corporate Debt
Securities of U.S. subsidiaries of non-U.S. Borrowers is amended to include
Corporate Loan and Corporate Debt Securities of foreign Borrowers, as described
in this supplement.
II. The section "U.S. SUBSIDIARIES OF NON-U.S. BORROWERS," found under "What
Kinds of Securities Does the Fund Purchase?", is replaced with the following:
FOREIGN BORROWERS The fund may invest in Corporate Loans and Corporate Debt
Securities which are made to, or issued by, foreign Borrowers. For purposes of
this prospectus, Corporate Loans and Corporate Debt Securities of foreign
Borrowers include such loans or debt securities that have one or more of the
following characteristics: (1) the principal trading market of the loan or
security is in a foreign country; (2) at least 50% of the revenue of the
Borrower is generated from goods produced or sold, investments made, or services
performed in a foreign country; (3) the Borrower is organized under the laws of
a foreign country; or (4) at least 50% of the assets of the Borrower are
situated in a foreign country. The fund normally invests primarily in U.S.
Borrowers, but may invest up to 65% of its assets in foreign Borrowers in
developed foreign countries. The fund may from time to time invest in foreign
Borrowers in emerging market countries, but currently does not intend to invest
more than 35% of its assets in foreign Borrowers in emerging market countries.
The fund considers a country to be an emerging market country if it is defined
as a country with an emerging or developing economy by any one of the following:
the International Bank for Reconstruction and Development (commonly known as the
World Bank), the International Finance Corporation, or the United Nations or its
agencies or authorities.
Advisers will evaluate the creditworthiness of foreign Borrowers by using the
same analysis as it uses for U.S. Borrowers.
The fund will invest in Corporate Loans and Corporate Debt Securities of foreign
Borrowers, provided that the loans and securities are U.S. dollar-denominated,
or the fund uses a foreign currency swap for payments in U.S. dollars. U.S.
dollar-denominated loans and securities are loans and securities for which the
fund pays in U.S. dollars and the Borrower pays principal, interest, dividends
or distributions in U.S. dollars. The fund may invest in a Corporate Loan or
Corporate Debt Security that is not denominated in U.S. dollars if the fund
arranges for payments in U.S. dollars by entering into a foreign currency swap.
See "Foreign Currency Swaps."
Loans to, and securities issued by, foreign Borrowers may involve risks not
typically involved in domestic investments and loans to, and securities issued
by, foreign Borrowers in emerging market countries involve additional risks. See
"What Are the Risks of Investing in the Fund? - Foreign Investments."
III. The section "FOREIGN INVESTMENTS," found under "What Are the Risks of
Investing in the Fund?", is replaced with the following:
FOREIGN INVESTMENTS As noted above, the fund may invest in Corporate Loans and
Corporate Debt Securities that are made to, or issued by, foreign Borrowers,
provided that any such Borrower passes the same creditworthiness analysis that
Advisers uses for U.S. Borrowers and the loans and securities are U.S.
dollar-denominated, or the fund uses a foreign currency swap for payments in
U.S. dollars. These obligations may involve risks not typically involved in
domestic investments and the risks can be significantly magnified for
investments in foreign countries that are emerging market countries.
CURRENCY FLUCTUATIONS. To the extent the fund uses foreign currency swaps for
Corporate Loans or Corporate Debt Securities, transactions in foreign securities
may be conducted in local currencies, so U.S. dollars must often be exchanged
for another currency when an obligation is bought or sold or a dividend is paid.
Likewise, security price quotations and total return information reflect
conversion into U.S. dollars. Fluctuations in foreign exchange rates can
significantly increase or decrease the U.S. dollar value of a foreign
investment, boosting or offsetting its local market return. Currency risk cannot
be eliminated entirely.
INCREASED COSTS. It is more expensive for the fund to purchase and sell
Corporate Loans and Corporate Debt Securities in foreign markets than in the
U.S. markets. Investment companies, such as the fund, offer an efficient way for
individuals to invest abroad, but the overall expense ratios of international
investment companies are usually higher than the overall expense ratios of
investment companies that invest in U.S. obligations.
POLITICAL AND ECONOMIC FACTORS. The economies, markets, and political structures
of a number of the countries in which the fund can invest do not compare
favorably with the U.S. and other mature economies in terms of wealth and
stability. Therefore, investments in these countries will entail greater risk
and may be subject to erratic and abrupt price movements. This is especially
true for emerging market countries.
LEGAL, REGULATORY, AND OPERATIONAL. Certain foreign countries may impose
restrictions on foreign investors, such as the fund. These restrictions may take
the form of prior governmental approval, limits on the amount and type of
obligations held by foreigners, and limits on the types of companies in which
foreigners may invest. Diplomatic developments could affect the fund's
investments in these countries. In certain foreign countries, there is the
possibility that the government or a government agency may take over the assets
of the fund for political or economic reasons or impose taxation that is so
heavy that it amounts to confiscation of the assets taxed.
Certain foreign countries lack uniform accounting, auditing, and financial
reporting standards, have less governmental supervision of financial markets
than in the United States, do not honor legal rights enjoyed in the United
States, and have settlement practices, such as delays, which could subject the
fund to risks not customary in the United States. Information about foreign
Borrowers may differ from that available for U.S. Borrowers, since foreign
companies are not generally subject to uniform accounting, auditing and
financial reporting standards, practices and requirements comparable to those
applicable to U.S. Borrowers. In addition, the markets for Corporate Loans and
Corporate Debt Securities in foreign countries have substantially lower trading
volumes than U.S. markets, resulting in less liquidity and more volatility than
in the United States.
PRICING. Corporate Loans and Corporate Debt Securities may be purchased or sold
on days (such as Saturdays) when the fund does not account for their prices in
calculating its Net Asset Value. As a result, the fund's Net Asset Value may
change significantly on days when shareholders cannot purchase Common Shares, or
for repurchases of Common Shares, between the date on which a shareholder
tenders Common Shares for repurchase by the fund and the date on which the
repurchase price of the Common Shares is determined. See "Periodic Offers By the
Fund to Repurchase Common Shares From Shareholders."
Please keep this supplement for future reference.
