SHAREHOLDER LETTER
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:
It's a pleasure to bring you Franklin Floating Rate Trust's annual report for
the period ended July 31, 1999.
ECONOMIC OVERVIEW
Although financial markets were buffeted in 1998 by turmoil overseas, the U.S.
economy grew strongly during the 12-month period under review. In the first
quarter of 1999, the economy expanded at a 4.3% annualized rate, but slowed to
2.3% in the second quarter. After cutting interest rates in the fall to provide
much-needed liquidity to the world financial system, the Federal Reserve Board
(the Fed) left rates unchanged during the winter and spring of 1999, as the
remarkable U.S. economy brushed off problems abroad and continued its
record-breaking expansion.
However, concerned that such growth might ignite inflation, the Fed reversed
course in early summer and increased the federal funds target rate 0.25%, to
5.00%, in its late-June meeting. Moreover, in his address to Congress in July,
Fed Chairman Alan Greenspan stated that the Fed was poised to raise rates again
unless the economy continued to slow. Interest rates rose slightly during the
year under review, with the 30-year Treasury bond yield ending the period at
6.11%, up from 5.72% on July 31, 1998. On July 31, 1999, the Dow Jones
Industrial Average stood at 10655, compared with 8883 one year earlier.
CONTENTS
Shareholder Letter ................... 1
Performance Summary .................. 5
The Fund's
Repurchase Offers .................... 6
Financial Highlights &
Statement of Investments ............. 8
Financial Statements ................. 16
Notes to
Financial Statements ................. 20
Independent
Auditors' Report ..................... 24
FUND CATEGORY
[GRAPHIC OMITTED]
You will find a complete listing of the fund's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 9 of
this report.
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 M&A activity,
leveraged buyouts or refinancings. Borrowing rates are generally pegged to an
index, such as LIBOR, the London Interbank Offering Rate.
SYNDICATED BANK LOAN MARKET
During the reporting period, both the primary and secondary syndicated loan
markets were extremely active. The syndicated loan primary market, where
investors purchase loans from issuers, was fueled by the large number of
companies and sponsor firms looking to the bank loan market to meet their
capital needs. For the three and six months ended June 30, 1999, senior secured
high yield loan issuance totaled $87.8 billion and $147.2 billion respectively,
both record highs. The volume of loan trading in the secondary market, where
loans are bought and sold between investors, was also robust. The secondary
market has grown at a compounded annual growth rate of 19% since 1994, and there
are now more than 120 institutional investors in the market. Leveraged lending,
which in 1998 represented 30% of all loan syndication volume, was the fastest
growing segment of the syndicated loan market, growing at a compounded annual
rate of 21% since 1991, with growth driven mainly by mergers and acquisitions
(M&A) activity.
Continued institutional activity in the market helped maintain liquidity, even
in the difficult environment of fall 1998. Loan funds, insurance companies and
other institutions bought almost 40% of leveraged loan syndications, increasing
their share of what was traditionally an arena dominated by banks.
PORTFOLIO NOTES
During the period, Franklin Floating Rate Trust surpassed the $1 billion
milestone in assets. In the bank loan market, size can be a significant
advantage, helping to gain access to additional loan syndications and to
negotiate better terms for the fund's shareholders. This year, the fund looked
at 212 new deals representing $115 billion in total loans.
Consistent with the fund's focus of lending to strong companies, we invested in
the bank debt of Starwood Hotels & Resorts Worldwide Inc., a leading lodging
provider represented in markets around the world by such brand names as
Sheraton, Westin, W Hotels and Caesars. Starwood secured the financing to raise
money for acquisitions as the company pursued its goal of becoming the premier
luxury hotel and resort operator.
In March, the fund participated in a global refinancing by Charter
Communications, allowing the company to merge with Marcus Cable L.P. and
integrate several other of its acquisitions. Since then, Charter has grown to
become the fourth-largest cable television provider in the U.S. and will have
more than six million subscribers, after pending acquisitions. With its large
size, Charter appears to be well-positioned to benefit from future growth in the
cable television industry, as it launches new services such as high-speed
Internet access, telephony and interactive television.
We also added Scotts Co. to the portfolio. Scotts, the market share leader in
branded consumer lawn, garden care and herbicide products, acquired Monsanto
Co.'s domestic lawn and garden care business, including the highly recognized
Ortho brand. The company also gained a major foothold in the European markets
with its purchase of Rhone-Poulenc SA's Jardin division.
TOP 10 HOLDINGS 7/31/99
COMPANY % OF TOTAL
INDUSTRY NET ASSETS
Starwood Hotels
& Resorts Worldwide Inc. 5.12%
Hotels/Resorts
Wyndham International Inc. 5.04%
Hotels/Resorts
Adelphia Communications 4.52%
Cable Television
Lyondell Petrochemical Co. 4.12%
Major Chemicals
Omnipoint Communications 2.80%
Cellular Telephone
Charter Communications
Operating LLC 2.27%
Cable Television
Global Crossings
Holdings Ltd. 2.26%
Telecommunications
Regal Cinemas Inc. 2.11%
Movies/Entertainment
Allied Waste Industries Inc. 1.99%
Environmental Services
Agrilink Foods, Inc. 1.72%
Packaged Foods
DIVIDEND DISTRIBUTIONS*
8/1/98 - 7/31/99
DIVIDEND
MONTH PER SHARE
August 5.6983 cents
September 5.2831 cents
October 5.6951 cents
November 5.7948 cents
December 5.9976 cents
January 5.7744 cents
February 5.4723 cents
March 6.6143 cents
April 5.9637 cents
May 5.6212 cents
June 6.2988 cents
July 5.7350 cents
- ---------------------------------------
TOTAL 69.9486 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.
As the fund continues to grow, we will maintain our strategy of holding loans
from companies with defensive market positions and strong asset coverage in
industries that we feel will perform well even in economic downturns. With its
relatively stable share price and high current income potential, we believe the
fund is an attractive investment for investors seeking to diversify portfolios
heavily weighted in equities, particularly in a rising interest rate
environment.
Please remember that this discussion reflects our views, opinions and portfolio
holdings as of July 31, 1999. However, market and economic conditions are
changing constantly, which can be expected to affect our strategies and the
fund's portfolio composition. Although historical performance is no guarantee of
future results, these insights may help you understand our investment and
management philosophy.
We appreciate your investment in Franklin Floating Rate Trust, and welcome any
comments or suggestions you may have.
Sincerely,
/s/ C B Johnson
Charles B. Johnson
Chairman
Franklin Floating Rate Trust
/s/ Chauncey Lufkin
Chauncey Lufkin
Portfolio Manager
Franklin Floating Rate Trust
PERFORMANCE SUMMARY AS OF 7/31/99
Distributions will vary based on earnings of the fund's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions at net asset value.
PRICE AND DISTRIBUTION INFORMATION
CHANGE 7/31/99 7/31/98
Net Asset Value -$0.06 $9.98 $10.04
DISTRIBUTIONS (8/1/98 - 7/31/99)
Dividend Income $0.699486
PERFORMANCE
INCEPTION
1-YEAR (10/10/97)
Cumulative Total Return(1) +6.62% +12.29%
Average Annual Total Return(2) +5.62% +6.63%
Distribution Rate(3) 6.99%
30-Day Standardized Yield(4) 7.10%
Shares repurchased within 12 months of investment are subject to a 1% early
withdrawal charge. The fund's manager agreed in advance to waive a portion of
its management fees, which reduces operating expenses and increases distribution
rate, yield and total return to shareholders. Without this waiver, the fund's
distribution rate and total return would have been lower, and yield for the
period would have been 7.00%. The fee waiver may be discontinued at any time
upon notice to the fund's Board of Trustees.
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 repurchased within 12 months of purchase.
3. Distribution rate is based on an annualization of July's 5.735 cent per share
monthly dividend and the net asset value of $9.98 on July 31, 1999.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended July 31, 1999.
Past performance is not predictive of future results.
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 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 - 8/1/98 THROUGH 7/31/99
REPURCHASE REPURCHASE % OF SHARES NUMBER OF
REQUEST DEADLINE OFFER AMOUNT TENDERED* SHARES TENDERED*
1. 12/29/98 25% 7.43% 2,818,859.914
2. 3/25/99 25% 2.32% 1,426,682.780
3. 7/1/99 25% 2.52% 2,560,009.242
*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.
FRANKLIN FLOATING RATE TRUST
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
1999 1998*
---- -----
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................. $ 10.04 $ 10.00
--------------------------------
Income from investment operations:
Net investment income ............................. 0.70 0.48
Net realized and unrealized gains (losses) ........ (0.06) 0.04
--------------------------------
Total from investment operations ................... 0.64 0.52
--------------------------------
Less distributions from net investment income ...... (0.70) (0.48)
--------------------------------
Net asset value, end of year ....................... $ 9.98 $ 10.04
--------------------------------
Total return** ..................................... 6.62% 5.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................... $1,106,363 $168,537
Ratios to average net assets:
Expenses .......................................... 1.39% 1.32%***
Expenses excluding waiver and payments by affiliate 1.41% 1.76%***
Net investment income ............................. 6.93% 6.06%***
Portfolio turnover rate ............................ 63.29% 45.32%
</TABLE>
*For period ended October 10, 1997 (effective date) to July 31, 1998.
**Total return does not reflect the contingent deferred sales charge and is not
annualized.
***Annualized
See notes to financial statements.
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS 94.6%
APPAREL .6%
St. John Knits Inc., Term Loan B, 8.69%, 7/31/07 ........................ $ 7,000,000 $ 6,965,000
-----------
AUTO PARTS: O.E.M. 1.4%
Dura Operating Corp., Term Loan B, 8.00%, 3/31/06 ....................... 5,000,000 5,006,250
JL French Automotive, Term Loan B, 8.04%, 8/31/06 ....................... 5,526,316 5,547,039
SPX Corp., Term Loan B, 8.437 - 8.687%, 9/30/06 ......................... 4,975,000 5,021,641
-----------
15,574,930
-----------
BOOKS/MAGAZINES 3.0%
Advanstar Communications, Term Loan C, 8.19%, 6/30/07 ................... 17,500,000 17,500,000
American Media Operations, Term Loan B, 8.50 - 8.625%, 4/01/07 .......... 4,000,000 4,012,500
Primedia Inc., Term Loan B, 7.70%, 7/31/04 .............................. 5,000,000 5,012,500
Reiman Publications Co., Term Loan B, 8.937%, 11/30/05 .................. 7,000,000 7,026,250
-----------
33,551,250
-----------
BROADCASTING 3.7%
AMFM Inc.,
(c)Revolver, 7.125 - 9.125%, 6/30/05 .................................. 4,420,000 4,353,700
Term Loan, 7.063%, 6/30/05 ......................................... 3,600,000 3,597,750
Capstar Broadcasting,
(c)Revolver, 7.125 - 9.125%, 11/30/04 ................................. 3,347,369 3,330,631
Term Loan A, 7.813%, 11/30/04 ...................................... 5,000,000 4,987,500
Comcorp Broadcasting, Term Loan B, 8.25%, 6/30/07 ....................... 2,500,000 2,496,875
Emmis Communications, Term Loan D, 7.44%, 2/06/07 ....................... 5,000,000 5,015,625
Newco/Comcorp Holdings, Term Loan, 11.19%, 8/28/01 ...................... 5,000,000 4,993,750
Quorum Broadcasting, Term Loan B, 8.54%, 9/30/07 ........................ 10,000,000 10,000,000
White Knight Broadcasting, Term Loan B, 8.562%, 6/30/07 ................. 2,500,000 2,496,875
-----------
41,272,706
-----------
BUILDING PRODUCTS .4%
Tapco International,
Term Loan B, 8.57%, 6/23/06 ........................................... 3,125,000 3,138,672
Term Loan C, 8.82%, 6/23/07 ........................................... 1,875,000 1,883,203
-----------
5,021,875
-----------
CABLE TELEVISION 7.9%
Adelphia Communications, Term Loan B, 7.25%, 3/31/08 .................... 50,000,000 50,000,000
Bresnan Telecommunications, Term Loan B, 7.75 - 7.85%, 1/29/08 .......... 2,000,000 2,003,750
Charter Communications Operating LLC, Term Loan B, 7.47%, 3/21/08 ....... 25,000,000 25,062,500
Classic Cable, Term Loan B, 7.81%, 1/31/08 .............................. 4,000,000 4,012,500
Intermedia Partners Group VI, Term Loan A, 7.75 - 7.88%, 4/30/08 ........ 2,500,000 2,503,125
TW Fanch - One Co., Term Loan B, 8.00%, 12/31/07 ........................ 4,000,000 4,010,000
-----------
87,591,875
-----------
CASINOS/LEISURE .6%
Hollywood Casino Corp., Term Loan, 144A, 11.36%, 5/01/06 ................ 7,000,000 6,833,750
-----------
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS (cont.)
CELLULAR TELEPHONE 6.9%
Centennial Cellular Operating Co. LLC,
Term Loan B, 8.50 - 8.68%, 5/31/07 .................................... $ 2,487,500 $ 2,509,266
Term Loan C, 8.75 - 8.93%, 11/30/07 ................................... 2,487,500 2,512,376
Microcell Connexions Inc.,
Term Loan B, 8.327%, 3/01/06 .......................................... 5,601,575 5,601,575
Term Loan C, 8.577%, 3/01/06 .......................................... 5,000,000 5,012,500
Nextel Communications Inc., Term Loan C, 8.562%, 3/31/07 ................ 8,000,000 8,035,000
Omnipoint Communications,
Term Loan A, 8.25%, 1/16/06 ........................................... 2,994,063 2,986,578
Term Loan B, 8.25%, 1/16/06 ........................................... 2,993,991 2,986,506
Term Loan C, 8.58%, 1/16/06 ........................................... 24,973,341 24,973,341
Sygnet Wireless Inc., Term Loan C, 8.67%, 12/23/07 ...................... 2,000,000 2,007,500
Telecorp PCS Inc., Term Loan B, 8.18%, 1/17/08 .......................... 5,000,000 4,937,500
Tritel Holding Corp., Term Loan B, 9.75%, 12/31/07 ...................... 5,000,000 5,018,750
Wireless One Network LP, Term Loan B, 7.88%, 6/30/07 .................... 10,000,000 9,800,000
-----------
76,380,892
-----------
COAL MINING .9%
AEI Resources, Term Loan B, 8.83%, 9/30/05 .............................. 10,000,000 9,937,500
-----------
CONSUMER SPECIALTIES .6%
Boyds Collection Ltd., Term Loan B, 7.00 - 7.312%, 4/30/06 .............. 1,638,889 1,636,042
Holmes Products Corp., Term Loan B, 8.562%, 2/05/07 ..................... 5,000,000 5,018,750
-----------
6,654,792
-----------
CONSUMER SUNDRIES 1.4%
Scotts Co.,
Term Loan B, 8.25 - 8.65%, 6/09/06 .................................... 5,082,931 5,127,407
Term Loan C, 8.607 - 8.812%, 6/09/07 .................................. 4,897,751 4,940,606
United Industries Corp., Term Loan B, 8.43%, 1/20/06 .................... 4,987,500 4,984,383
-----------
15,052,396
-----------
CONTAINERS/PACKAGING .6%
Graham Packaging Co., Term Loan D, 8.00 - 8.25%, 1/31/07 ................ 6,716,249 6,737,238
-----------
DIVERSIFIED COMMERCIAL SERVICES 2.3%
Outsourcing Solution Inc.,
Term Loan B, 8.312%, 10/15/03 ......................................... 7,445,455 7,296,545
Term Loan C, 8.656 - 8.688%, 10/15/04 ................................. 6,953,332 6,788,191
U.S. Office Products Co., Term Loan B, 7.67%, 6/09/06 ................... 13,291,440 11,829,381
-----------
25,914,117
-----------
DIVERSIFIED FINANCIAL SERVICES .3%
First Dominion Funding II, Series 1A-D2, 10.65%, 4/25/14 ................ 3,000,000 2,992,500
-----------
DIVERSIFIED MANUFACTURING 2.5%
Fisher Scientific International,
Term Loan B, 7.812%, 1/21/05 .......................................... 2,546,921 2,562,839
Term Loan C, 8.062%, 10/21/05 ......................................... 1,760,503 1,771,506
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS (cont.)
DIVERSIFIED MANUFACTURING (cont.)
General Cable Corp., Term Loan B, 7.812%, 6/30/02 ....................... $15,000,000 $ 15,046,875
Superior Telecom. Inc., Term Loan B, 8.875 - 8.937%, 11/27/05 ........... 7,853,101 7,892,367
------------
27,273,587
------------
ELECTRIC UTILITIES: EAST 1.3%
AES New York Funding LLC, Term Loan, 7.938%, 5/04/02 .................... 15,000,000 14,953,125
------------
ELECTRONIC COMPONENTS .6%
Knowles Electronics Inc., Term Loan B, 8.60%, 7/21/07 ................... 7,000,000 7,008,750
------------
ENGINEERING & CONSTRUCTION 1.4%
URS Corp.,
Term Loan B, 8.625%, 6/09/06 .......................................... 7,500,000 7,537,500
Term Loan C, 8.875%, 6/09/07 .......................................... 7,500,000 7,537,500
------------
15,075,000
------------
ENVIRONMENTAL SERVICES 2.9%
Allied Waste Industries, Inc.,
Term Loan B, 7.937%, 7/30/06 .......................................... 10,000,000 10,000,000
Term Loan C, 8.187%, 7/30/07 .......................................... 12,000,000 12,000,000
Environmental Systems Products Holdings Inc., Term Loan B,
9.21%, 9/30/05 ........................................................ 4,975,000 5,006,094
Safety Kleen Corp.,
Term Loan B, 7.75 - 7.812%, 9/30/05 ................................... 2,481,203 2,495,160
Term Loan C, 8.00 - 8.062%, 9/30/06 ................................... 2,481,203 2,495,160
------------
31,996,414
------------
FOREST PRODUCTS .3%
Grant Forest Products Inc., Term Loan B, 9.13%, 9/30/06 ................. 3,043,478 3,047,283
------------
HOME FURNISHINGS .2%
Sealy Mattress Co.,
Term Loan B, 7.44%, 12/15/04 .......................................... 752,121 754,942
Term Loan C, 7.69%, 12/15/05 .......................................... 541,819 543,850
Term Loan D, 7.94%, 12/15/06 .......................................... 692,425 695,021
------------
1,993,813
------------
HOSPITAL/NURSING MANAGEMENT 1.4%
Columbia-HealthOne, Term Loan B, 8.71%, 6/30/05 ......................... 6,975,862 6,984,582
Community Health Systems, Term Loan D, 9.04%, 12/31/05 .................. 4,948,452 4,954,638
Paracelsus Healthcare Corp., Term Loan B, 8.077%, 3/31/04 ............... 3,971,429 3,906,893
------------
15,846,113
------------
HOTELS/RESORTS 10.2%
Starwood Hotels & Resorts Worldwide Inc., Term Loan, 8.913%, 2/23/03 .... 56,500,000 56,605,938
Wyndham International Inc.,
Increasing Rate Loan, 9.062%, 6/05/03 ................................. 30,000,000 29,925,000
(c)Revolver, 8.188%, 6/30/05 ............................................. 1,000,000 985,000
Term Loan, 8.187%, 6/30/06 ............................................ 25,000,000 24,875,000
------------
112,390,938
------------
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS (CONT.)
INDUSTRIAL MACHINERY/COMPONENTS .4%
Thermadyne Holdings Corp.,
Term Loan B, 7.56 - 7.97%, 5/23/05 .................................... $ 2,475,000 $ 2,468,813
Term Loan C, 7.97 - 8.22%, 5/22/06 .................................... 2,475,000 2,468,813
-----------
4,937,626
-----------
INSURANCE BROKERS/SERVICES .4%
Willis Corroon Group,
Term Loan C, 7.78%, 2/19/08 ........................................... 2,425,000 2,440,156
Term Loan D, 8.028%, 8/19/08 .......................................... 2,425,000 2,440,156
-----------
4,880,312
-----------
MAJOR CHEMICALS 5.3%
Huntsman ICI Chemicals LLC,
Term Loan B, 8.313%, 6/30/07 .......................................... 6,250,000 6,285,156
Term Loan C, 8.563%, 6/30/08 .......................................... 6,250,000 6,285,156
Lyondell Chemical Co.,
Term Loan A, 8.3025 - 8.413%, 6/30/03 ................................. 916,373 912,937
Term Loan B, 8.75 - 8.93%, 6/30/05 .................................... 24,482,230 24,512,833
Term Loan E, 9.062%, 6/30/06 .......................................... 20,000,000 20,200,000
-----------
58,196,082
-----------
MARINE TRANSPORTATION .4%
American Commercial Lines,
Term Loan B, 7.562%, 6/30/06 .......................................... 2,105,981 2,112,562
Term Loan C, 7.812%, 6/30/07 .......................................... 2,871,166 2,880,138
-----------
4,992,700
-----------
MEDIA CONGLOMERATES 2.4%
Bridge Information Systems Inc., Term Loan B, 8.00 - 8.062%, 5/29/05 .... 12,000,000 12,015,000
Dimac Corp.,
Term Loan B, 8.96%, 6/30/06 ........................................... 4,857,143 4,614,286
Term Loan C, 9.21%, 12/31/06 .......................................... 3,642,857 3,460,714
PEI Holdings, Term Loan B, 8.77 - 8.787%, 3/15/06 ....................... 6,000,000 6,030,000
-----------
26,120,000
-----------
MEDICAL SPECIALTIES 1.3%
Dade Behring Inc.,
Term Loan B, 9.625%, 6/29/06 .......................................... 5,000,000 5,021,875
Term Loan C, 9.875%, 6/29/07 .......................................... 5,000,000 5,021,875
Hanger Orthopedic Group Inc., Term Loan B, 8.72%, 12/31/06 .............. 4,000,000 4,015,000
-----------
14,058,750
-----------
MILITARY/GOVERNMENT/TECHNICAL .5%
Titan Corp., Term Loan B, 8.187%, 6/09/05 ............................... 5,000,000 4,981,250
-----------
MOVIES/ENTERTAINMENT 3.0%
Carmike Cinemas Inc., Term Loan B, 7.93%, 3/30/05 ....................... 5,000,000 5,009,375
Regal Cinemas Inc.,
(c)Revolver, 7.16 - 8.38%, 5/26/05 .................................... 7,929,735 7,880,173
Term Loan A, 7.321%, 5/26/05 ....................................... 8,806,486 8,795,478
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
(a)SENIOR FLOATING RATE INTERESTS (CONT.)
MOVIES/ENTERTAINMENT (CONT.)
Regal Cinemas Inc., (cont.)
Term Loan B, 7.44%, 5/26/06 ............................. $ 3,471,755 $ 3,476,095
Term Loan C, 7.53%, 5/24/07 ............................. 3,144,706 3,148,637
Six Flags Theme Parks, 7.75%, 11/02/04 ..................... 4,989,919 4,999,275
-----------
33,309,033
-----------
OIL REFINING/MARKETING .3%
Clark Refining & Marketing Inc., Term Loan, 7.812%, 11/15/04 3,500,000 3,395,000
-----------
OTHER CONSUMER SERVICES 1.8%
Extended Stay America Inc., Term Loan C, 8.68%, 12/31/04 ... 10,000,000 10,025,000
Felcor Lodging Trust Inc., Term Loan, 7.71%, 3/31/04 ....... 10,000,000 10,031,250
-----------
20,056,250
-----------
OTHER PHARMACEUTICALS .2%
King Pharmaceuticals, Term Loan B, 8.93%, 12/22/06 .......... 1,977,531 1,986,183
-----------
OTHER SPECIALTY STORES .9%
General Nutrition Inc., Term Loan, 9.187%, 7/01/02 .......... 10,000,000 9,968,750
-----------
OTHER TELECOMMUNICATIONS 5.5%
Alec Holdings Inc.,
Term Loan B, 8.062%, 11/04/07 ........................... 2,631,579 2,644,737
Term Loan C, 8.312%, 5/14/08 ............................ 2,368,421 2,380,263
Global Crossing Holdings Ltd., Term Loan B, 8.00%, 6/30/06 . 25,000,000 25,000,000
Iridium Operating LLC, Term Loan, 9.18 - 9.187%, 12/31/00 .. 10,000,000 6,500,000
Northpoint Communications, Term Loan, 9.635%, 3/30/04 ...... 1,339,286 1,335,938
RCN Corp., Term Loan B, 8.687%, 6/03/07 .................... 18,000,000 18,078,750
Satelites Mexicanos, Term Loan C, 8.75%, 6/30/04 ........... 5,268,000 5,004,600
-----------
60,944,288
-----------
OTHER TRANSPORTATION 1.4%
Avis Rent A Car Inc.,
Term Loan B, 8.562%, 6/30/06 ............................ 7,500,000 7,462,500
Term Loan C, 8.812%, 6/30/07 ............................ 7,500,000 7,481,250
-----------
14,943,750
-----------
PACKAGED FOODS 4.3%
Agrilink Foods Inc.,
Term Loan B, 7.00 - 8.75%, 9/30/04 ...................... 9,425,390 9,401,827
Term Loan C, 9.00%, 9/30/05 ............................. 9,661,263 9,637,110
Aurora Foods Inc., Term Loan B, 7.327 - 9.00%, 9/30/06 ..... 1,997,500 1,997,500
B&G Foods, Term Loan B, 8.405%, 3/31/06 .................... 7,250,000 7,286,250
Burns Philp, Revolver, 6.403 - 6.687%, 8/17/01 ............. 17,479,897 16,605,903
New World Pasta, Term Loan B, 8.25%, 1/28/06 ............... 2,793,000 2,810,456
-----------
47,739,046
-----------
PAPER 4.3%
Jefferson Smurfit Corp.,
(c)Revolver, 7.687 - 9.50%, 3/31/05 ...................... 455,264 454,126
Term Loan A, 7.75%, 3/31/05 ............................. 2,039,474 2,038,199
Term Loan B, 8.50%, 3/31/06 ............................. 7,437,500 7,465,391
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS (cont.)
PAPER (cont.)
Packaging Corp. of America,
Term Loan A, 8.56%, 4/12/06 .................................... $ 6,076,789 $ 6,084,385
Term Loan B, 8.56%, 4/12/07 .................................... 4,636,543 4,671,317
Term Loan C, 8.68%, 4/12/08 .................................... 4,648,760 4,683,626
Repap New Brunswick, Term Loan, 8.86%, 6/04/04 .................... 15,000,000 14,550,000
(c) Riverwood International Corp., Revolver, 7.16 - 8.38%,
3/31/03 ......................................................... 2,012,500 1,952,125
Stone Container Corp., Term Loan E, 8.69%, 10/01/03 ............... 5,866,012 5,877,010
-----------
47,776,179
-----------
REAL ESTATE INVESTMENT TRUSTS 2.5%
Meditrust Corp.,
(c) Revolver, 8.062%, 7/17/01 ......................................... 6,223,537 6,130,183
Term Loan D, 8.062%, 7/17/01 .................................... 10,000,000 9,912,500
Prison Realty Corp., Term Loan B, 8.31%, 12/31/02 ................. 8,955,000 8,943,806
Ventas Realty LP, Term Loan D, 7.92%, 4/30/03 ..................... 2,629,640 2,327,232
-----------
27,313,721
-----------
RENTAL/LEASING COMPANIES 1.7%
NationsRent Inc., Term Loan B, 8.188%, 7/20/06 .................... 15,000,000 14,971,875
Rent-A-Center Inc.,
Term Loan B, 7.42 - 7.43%, 1/31/06 ............................. 1,481,249 1,479,399
Term Loan C, 7.67%, 1/31/07 .................................... 1,810,418 1,808,153
-----------
18,259,427
-----------
SEMICONDUCTORS .6%
Fairchild Semiconductor Corp., Term Loan B, 8.25 - 8.437%, 12/15/04 7,000,000 7,035,000
-----------
SOFT DRINKS .9%
Triarc,
Term Loan B, 8.656%, 3/01/06 ................................... 2,899,709 2,906,959
Term Loan C, 8.906%, 3/01/07 ................................... 7,075,291 7,092,979
-----------
9,999,938
-----------
SPECIALTY CHEMICALS .4%
Arteva B.V. (Kosa), Term Loan B, 8.625%, 12/31/06 ................. 3,928,000 3,950,095
-----------
STEEL/IRON ORE 1.1%
Ispat Sidbec Inc.,
Term Loan B, 7.827%, 7/16/04 ................................... 4,974,969 4,925,219
Term Loan C, 8.327%, 1/16/05 ................................... 4,962,438 4,912,813
Wheeling-Pittsburg, Term Loan 8.562%, 11/15/06 .................... 2,000,000 1,920,000
-----------
11,758,032
-----------
TELECOMMUNICATIONS EQUIPMENT 2.7%
American Tower Systems Inc., Term Loan B, 8.53%, 12/16/06 ......... 5,000,000 5,012,500
Arch Paging, Term Loan C, 12.187%, 6/30/06 ........................ 8,468,750 8,140,581
Nextel Operations Inc., Leveraged Lease Loan, 9.41%, 3/15/05 ...... 5,000,000 5,025,000
Pacific Crossing Ltd., Term Loan B, 7.687%, 7/26/08 ............... 5,000,000 4,925,000
(c) Pagenet, Revolver, 6.72 - 8.75%, 12/31/04 ......................... 7,787,500 7,047,690
-----------
30,150,771
-----------
</TABLE>
FRANKLIN FLOATING RATE TRUST
STATEMENT OF INVESTMENTS, JULY 31, 1999 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- -----------
<S> <C> <C>
(a) SENIOR FLOATING RATE INTERESTS (cont.)
Tools/Hardware .3%
Shop Vac Corp., Term Loan, 7.75%, 6/30/07...................... $ 3,000,000 $ 3,013,124
-------------
WHOLESALE DISTRIBUTORS .6%
Spartan Stores, Term Loan B, 8.687%, 3/18/07................... 7,000,000 6,982,500
-------------
TOTAL LONG TERM INVESTMENTS (COST $1,043,222,422).............. 1,046,813,651
-------------
</TABLE>
<TABLE>
<CAPTION>
SHARES
------
<S> <C> <C>
SHORT TERM INVESTMENTS 3.3%
(b) Franklin Institutional Fiduciary Trust Money Market
Portfolio (Cost $36,258,404)................................. 36,258,404 36,258,404
-------------
TOTAL INVESTMENTS (COST $1,079,480,826) 97.9%.................. 1,083,072,055
OTHER ASSETS, LESS LIABILITIES 2.1% ........................... 23,290,953
--------------
NET ASSETS 100.0%.............................................. $1,106,363,008
--------------
</TABLE>
(a) Senior secured corporate loans in the Fund's portfolio generally have
variable rates which adjust to a base, such as the London Inter-Bank Offered
Rate (LIBOR), on the set dates, typically every 30 days but not greater than
one year; and/or have interest rates that float at a margin above a widely
recognized base lending rate such as the Prime Rate of a designated U.S.
Bank.
(b) See Note 3 regarding investments in the "Sweep Money Fund".
(c) See Note 7 regarding unfunded loan commitments.
See notes to financial statements.
FRANKLIN FLOATING RATE TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1999
<TABLE>
<S> <C>
Assets:
Investments in securities, at value (cost $1,079,480,826) ............................................ $ 1,083,072,055
Cash ................................................................................................. 956,163
Receivables:
Capital shares sold ................................................................................. 22,678,515
Interest ............................................................................................ 7,450,304
Organizational costs ................................................................................. 71,547
---------------
Total assets .......................................................................................... 1,114,228,584
---------------
Liabilities:
Payables:
Affiliates .......................................................................................... 1,166,761
Deferred facilities fees (Note 1) ................................................................... 1,222,039
Registration fees ................................................................................... 100,000
Distributions to shareholders ........................................................................ 5,330,610
Other liabilities .................................................................................... 46,166
---------------
Total liabilities ..................................................................................... 7,865,576
---------------
Net assets, at value ................................................................................. $ 1,106,363,008
===============
Net assets consist of:
Net unrealized appreciation .......................................................................... $ 3,591,229
Accumulated net realized loss ........................................................................ (2,130,924)
Capital shares ....................................................................................... 1,104,902,703
---------------
Net assets, at value ............................................................................. $ 1,106,363,008
===============
Net asset value and maximum offering price per share ($1,106,363,008 / 110,821,530 shares outstanding)* $ 9.98
===============
</TABLE>
*Tender offer redemption price is equal to net asset value less any applicable
early withdrawal charges (Note 2).
See notes to financial statements.
FRANKLIN Floating Rate Trust
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Investment Income:
Interest ............................................................................... $43,412,582
-----------
Expenses:
Management fees (Note 3) ............................................................... 3,840,156
Administrative fees (Note 3) ........................................................... 711,718
Transfer agent fees (Note 3) ........................................................... 2,070,752
Custodian fees ......................................................................... 5,781
Reports to shareholders ................................................................ 19,954
Registration and filing fees ........................................................... 482,780
Professional fees ...................................................................... 97,854
Amortization of organization costs ..................................................... 19,541
Other .................................................................................. 105,246
-----------
Total expenses .......................................................................... 7,353,782
Expenses waived/paid by affiliate (Note 3) .............................................. (98,357)
-----------
Net expenses ........................................................................... 7,255,425
-----------
Net investment income ................................................................. 36,157,157
-----------
Realized and unrealized gains (losses):
Net realized loss from investments ..................................................... (2,125,932)
Net unrealized appreciation on investments ............................................. 3,407,972
-----------
Net realized and unrealized gain ........................................................ 1,282,040
-----------
Net increase in net assets resulting from operations .................................... $37,439,197
===========
</TABLE>
See notes to financial statements.
FRANKLIN FLOATING RATE TRUST
Financial Statements (continued)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended July 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998*
---- -----
Increase (decrease) in net assets:
<S> <C> <C>
Operations:
Net investment income ......................................................... $ 36,157,157 $ 3,370,979
Net realized gain (loss) from investments ..................................... (2,125,932) 20,161
Net unrealized appreciation on investments .................................... 3,407,972 183,257
-------------------------------------
Net increase in net assets resulting from operations ..................... 37,439,197 3,574,397
Distributions to shareholders from net investment income ....................... (36,182,310)(a) (3,370,979)
Capital share transactions (Note 2) ............................................ 936,569,171 168,384,635
Reduction in capital shares due to offering costs (Note 1) ..................... -- (51,103)
-------------------------------------
Net increase in net assets ............................................... 937,826,058 168,536,950
Net assets (there is no undistributed net investment at beginning or end of year)
Beginning of year .............................................................. 168,536,950 --
-------------------------------------
End of year .................................................................... $ 1,106,363,008 $ 168,536,950
=====================================
</TABLE>
*For the period October 10, 1997 (effective date) to July 31, 1998.
(a)Distributions were increased by a net realized gain from investments of
$25,153.
See notes to financial statements.
FRANKLIN FLOATING RATE TRUST
Financial Statements (continued)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JULY 31, 1999
<TABLE>
<S> <C>
Cash flow from operating activities:
Interest and facility fees received ......................................... $ 36,933,703
Operating expenses paid ..................................................... (5,896,083)
---------------
Cash provided - operations.................................................. 31,037,620
---------------
Cash flow from investing activities:
Investment purchases ........................................................ (8,533,842,630)
Investment sales and maturities ............................................. 7,612,059,097
---------------
Cash used - investments (921,783,533)
===============
Cash flow from financing activities:
Distributions to shareholders ............................................... (36,182,310)
Net proceeds from capital shares sold ....................................... 926,372,064
---------------
Cash provided - financing .................................................. 890,189,754
===============
Net change in cash ........................................................... (556,159)
Cash at beginning of year .................................................... 1,512,322
---------------
Cash at end of year .......................................................... $ 956,163
===============
</TABLE>
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR
THE YEAR ENDED JULY 31, 1999
<TABLE>
<S> <C>
Net investment income ........................................................ $ 36,157,157
Amortization income ......................................................... (1,241,975)
Decrease in other receivables ............................................... 276,988
Facility fees received ...................................................... 1,279,782
Increase in interest receivable ............................................. (6,515,913)
Increase in other liabilities ............................................... 1,081,581
---------------
Cash provided - operations ................................................... $ 31,037,620
===============
</TABLE>
See notes to financial statements.
FRANKLIN FLOATING RATE TRUST
NOTES TO FINANCIAL STATEMENTS
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Floating Rate Trust (the Fund) is registered under the Investment
Company Act of 1940 as a closed-end, continuously offered, non-diversified
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.
Investment in these securities may be considered illiquid and prompt sale of
these securities at an acceptable price may be difficult.
The Fund values its securities based on quotations provided by banks or
broker/dealers 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. 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
distribute all of its taxable income.
c. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Discount from
securities is amortized on an income tax basis. Facility fees received are
recognized as income over the expected term of the loan. Dividends from net
investment income are normally declared daily and distributed monthly to
shareholders.
d. ORGANIZATION COSTS:
Organization costs are amortized on a straight-line basis over five years.
e. OFFERING COSTS:
Offering costs of $51,103 were charged to paid in capital at the end of the
initial offering period to the public.
f. ACCOUNTING ESTIMATES:
The preparation of financial statements in accordance with generally accepted
accounting principles 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.
FRANKLIN FLOATING RATE TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (cont.)
g. LINE OF CREDIT:
The Fund has an unsecured line of credit which, subject to limitations, allows
the fund to borrow up to an aggregate maximum amount of $25,000,000.
For the year ending July 31, 1999, the line of credit was unused.
2. SHARES OF BENEFICIAL INTEREST
The Fund may, on a quarterly basis, make tender offers at net asset value for
the repurchase of a portion of the common shares outstanding. The price will be
established as of the close of business on the day the tender offer ends. An
early withdrawal charge may be imposed on shares offered for tender which have
been held for less than twelve months.
At July 31, 1999, there were an unlimited number of shares authorized ($.01 par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------------------
1999 1998*
---------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------------------------------------
<S> <C> <C> <C> <C>
Shares sold 104,460,894 $1,040,256,145 16,956,054 $170,114,020
Shares issued in reinvestment of distributions 2,647,643 26,360,763 52,652 528,834
Shares repurchased (13,071,015) (130,047,737) (224,698) (2,258,219)
----------------------------------------------------------
Net increase 94,037,522 $ 936,569,171 16,784,008 $168,384,635
==========================================================
</TABLE>
*For the period October 10, 1997 (effective date) to July 31, 1998.
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services) and
Franklin/Templeton Investor Services, Inc. (Investor Services), the Fund's
investment manager, principal underwriter, administrative manager and transfer
agent, respectively.
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund) which is managed by Advisers.
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 Sweep Money Fund.
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (continued)
3. TRANSACTIONS WITH AFFILIATES (cont.)
The Fund pays an administrative fee to FT Services, Inc. based on the Fund's
average daily net assets 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
Advisers agreed in advance to waive a portion of administrative fees for the
Fund, as noted in the Statement of Operations.
Distributors received early withdrawal charges for the period of $344,379.
4. INCOME TAXES
At July 31, 1999, the unrealized appreciation based on the cost of investments
for income tax purposes of $1,079,488,132 was as follows:
Unrealized appreciation ......... $8,955,462
Unrealized depreciation ......... (5,371,539)
----------
Net unrealized appreciation ..... $3,583,923
==========
At July 31, 1999, the Fund has deferred capital losses occurring subsequent to
October 31, 1998 of $2,123,618. For tax purposes, such losses will be reflected
in the year ending July 31, 2000.
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatment of wash sales.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended July 31, 1999 aggregated $1,204,370,558 and $304,634,068,
respectively.
6. CREDIT RISK
The Fund has investments in excess of 10% of its total net assets in the
Hotels/Resorts industry. Such concentration may subject the Fund more
significantly to economic changes occurring within that industry.
FRANKLIN FLOATING RATE TRUST
Notes to Financial Statements (continued)
7. UNFUNDED LOAN COMMITMENTS
As of July 31, 1999, the Fund had unfunded loan commitments, which could be
extended at the option of the borrowers, pursuant to the following loan
agreements:
COMMITMENT UNFUNDED
SECURITY AMOUNT AMOUNT
------------------------------------------------------------
AMFM Inc., Revolver ............. $ 6,400,000 $ 1,980,000
Capstar Broadcasting Revolver ... 5,263,158 1,915,792
Jefferson Smurfit Corp., Revolver 2,894,737 2,439,475
Meditrust Corp., Revolver ....... 10,000,000 3,772,595
Northpoint Communications
Revolver ....................... 5,000,000 4,330,357
Pagenet Revolver ................ 12,500,000 4,712,500
Regal Cinemas Inc., Revolver .... 8,861,702 931,971
Riverwood International
Corp., Revolver ................ 5,000,000 2,987,500
Wyndham International Inc.,
Revolver ....................... 7,500,000 6,500,000
-----------
$29,570,190
-----------
FRANKLIN FLOATING RATE TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
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, cash-flows, and the financial highlights present fairly,
in all material respects, the financial position of Franklin Floating Rate Trust
(the "Fund") at July 31, 1999, the results of its operations for the year then
ended, the changes in its net assets, and financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
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 generally accepted auditing standards which require that we plan and
perform the audit 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, 1999 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
September 8, 1999
