o 020 *P3
SUPPLEMENT DATED OCTOBER 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. All references in the prospectus to the number of Common Shares of the
Franklin Floating Rate Trust (the "fund") registered with the SEC are amended
to reflect the registration of an additional 35,000,000 Common Shares
bringing the total number of registered Common Shares of the fund to
70,000,000.
II. The second paragraph on the inside front cover and the five bullet points
following the paragraph are replaced with the following:
The fund began offering its Common Shares and began investment operations
on October 10, 1997. The fund engages in a continuous offering of Common
Shares. The fund has registered 70,000,000 Common Shares and is authorized
as a business trust to issue an unlimited number of Common Shares. Common
Shares are offered at a price equal to the next determined Net Asset Value
per share which, as of September 29, 1998, was $9.98 per share. There is no
initial front-end sales charge on purchases of Common Shares. An Early
Withdrawal Charge of 1% will be imposed on Common Shares purchased after
March 31, 1998, that are held less than twelve months and that are accepted
by the fund for repurchase in a Tender Offer. Certain waivers of this
charge may apply. See "Early Withdrawal Charge." The price of Common Shares
will fluctuate depending upon the fund's Net Asset Value per share.
o Proceeds of all offerings estimated at $700,254,609.75 to be invested by
the fund over the course of the continuous offering.
o Offering expenses of $61,603 deducted from net proceeds to fund upon
completion of the initial offering of 10,000,000 Common Shares commenced on
October 10, 1997; offering expenses of $40,197.50 deducted from net
proceeds to fund upon completion of a subsequent offering of an additional
10,000,000 Common Shares commenced on or after May 15, 1998; offering
expenses of $60,046.25 deducted from net proceeds to fund upon completion
of a subsequent offering of an additional 15,000,000 Common Shares
commenced on or after July 10, 1998; offering expenses of $133,543.50
deducted from net proceeds to fund upon completion of a subsequent offering
of an additional 35,000,000 Common Shares commencing on or after October
12, 1998.
o Because Distributors will pay all sales commissions to selected
Securities Dealers from its own or affiliates' assets, net proceeds of the
offering will be available to the fund for investment.
o Expenses payable by fund incurred to organize fund estimated at $124,000
o Organizational expenses to remain liability of the fund and be gradually
reduced in equal installments over period not to exceed 60 months from the
date fund commenced investment operations on October 10, 1997.
III. The section entitled "Financial Highlights" is replaced in its entirety
with the following:
This table summarizes the fund's financial history. The information has
been audited by PricewaterhouseCoopers LLP, the fund's independent auditor.
The audit report covering the period shown below appears in the fund's
Annual Report to Shareholders for the fiscal year ended July 31, 1998. The
Annual Report to Shareholders also includes more information about the
fund's performance. For a free copy, please call Fund Information.
Period Ended
July 31, 1998*
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Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period....................... $10.00
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Income from investment operations:
Net investment income..................................... 0.48
Net realized and unrealized gains......................... 0.04
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Total from investment operations........................... 10.52
--------------
Less distributions from net investment income.............. (0.48)
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Net asset value, end of period............................. $10.04
==============
Total return**............................................. 5.33%
Ratios/supplemental data
Net assets, end of period (000's).......................... $168,537
Ratios to average net assets:
Expenses.................................................. 1.32%***
Expenses excluding waiver and payments by affiliate....... 1.76%***
Net investment income..................................... 6.06%***
Portfolio turnover rate.................................... 45.32%
*For the period October 10, 1997 (commencement of operations) to July,
1998.
**Total return does not reflect the Early Withdrawal Charge and is not
annualized.
***Annualized
IV. 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.
V. 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."
VI. 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, limits on moving monies or other assets
out of the country 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.
