UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-09869
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FRANKLIN FLOATING RATE MASTER TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Address of principal executive offices) (Zip code)
CRAIG S. TYLE, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code:_650 312-2000
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Date of fiscal year end: 7/31
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Date of reporting period: 7/31/06
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ITEM 1. REPORTS TO STOCKHOLDERS.
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
FINANCIAL HIGHLIGHTS
YEAR ENDED JULY 31,
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2006 2005 2004 2003 2002
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year $ 9.85 $ 9.84 $ 9.69 $ 9.58 $ 9.88
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Income from investment operations a:
Net investment income 0.56 0.398 0.334 0.464 0.545
Net realized and unrealized gains (losses) (0.076) 0.013 0.151 0.111 (0.300)
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Total from investment operations 0.48 0.411 0.485 0.575 0.245
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Less distributions from net investment income (0.569) (0.401) (0.335) (0.465) (0.545)
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Net asset value, end of year $ 9.77 $ 9.85 $ 9.84 $ 9.69 $ 9.58
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Total return 5.09% 4.23% 5.08% 6.19% 2.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,140,854 $ 1,121,133 $ 757,987 $ 218,647 $ 265,940
Ratios to average net assets:
Expenses 0.95% 0.95% 0.98% 1.02% 0.98%
Expenses net of waiver and payments by affiliate 0.60% 0.60% 0.60% 0.60% 0.60%
Net investment income 5.76% 4.08% 3.34% 4.86% 5.55%
Portfolio turnover rate 78.29% 72.38% 54.41% 75.69% 77.29%
a The amount shown for a share outstanding throughout the period may not
correlate with the Statement of Operations for the period due to the
timing of sales and repurchase of the Fund shares in relation to income
earned and/or fluctuating market value of the investments of the Fund.
The accompanying notes are an integral part of these financial statements.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
STATEMENT OF INVESTMENTS, JULY 31, 2006
COUNTRY PRINCIPAL d VALUE % OF NET
AMOUNT ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
a,b SENIOR FLOATING RATE INTERESTS
ADVERTISING/MARKETING SERVICES
Adams Outdoor Advertising Inc., Term Loan B,
6.96 - 7.27%, 10/15/12 United States $ 1,774,038 $ 1,778,330 0.16
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AEROSPACE & DEFENSE
CACI International Inc., Term Loan B, 6.79 - 6.85%, 5/03/11 United States 4,438,245 4,441,263 0.39
DRS Technologies Inc., Term Loan, 6.68 - 7.00%, 1/31/13 United States 2,620,501 2,624,563 0.23
Dyncorp International, Term Loan B, 7.813 - 8.313%, 2/11/11 United States 2,962,500 2,983,504 0.26
GenCorp Inc.,
L/C, 8.65%, 12/06/10 United States 1,553,398 1,556,567 0.13
Term Loan B, 8.68%, 12/06/10 United States 1,446,602 1,449,553 0.13
ILC Industries Inc., Term Loan B, 7.99 - 7.999%, 2/24/12 United States 885,923 888,209 0.08
K&F Acquisition Inc., Term Loan C, 7.40%, 11/18/12 United States 1,442,149 1,447,543 0.13
MRO Acquisition Corp. (Piedmont), First Lien Term Loan,
7.48%, 8/27/10 United States 2,354,140 2,370,125 0.21
Onex Wind Finance LP (Mid-Western Aircraft), Term Loan B,
7.748%, 12/31/11 United States 1,435,503 1,447,332 0.13
SI International Inc., Term Loan, 6.97%, 2/09/11 United States 1,279,948 1,280,408 0.11
TransDigm Inc., Term Loan B, 7.449%, 6/23/13 United States 4,400,000 4,401,936 0.38
Vought Aircraft Industries Inc., Term Loan B, 8.00%, 12/22/11 United States 5,299,118 5,337,589 0.47
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30,228,592 2.65
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AIRLINES
United Air Lines Inc.,
Delay Draw, 9.188%, 2/01/12 United States 225,000 228,866 0.02
Term Loan B, 8.625%, 2/01/12 United States 1,575,000 1,602,058 0.14
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1,830,924 0.16
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ALUMINUM
Novelis Corp., U.S. Term Loan, 7.38%, 1/09/12 United States 3,352,079 3,356,236 0.29
Novelis Inc., Canadian Term Loan, 7.38%, 1/09/12 Canada 1,929,985 1,932,378 0.17
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5,288,614 0.46
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APPAREL/FOOTWEAR
St. John Knits International Inc., Term Loan B, 7.75%, 3/23/12 United States 869,350 873,540 0.08
Warnaco Inc., Term Loan, 6.41 - 8.75%, 1/31/13 United States 2,693,250 2,682,181 0.23
The William Carter Co., Term Loan B, 6.758 - 6.985%, 7/14/12 United States 5,147,965 5,147,604 0.45
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8,703,325 0.76
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APPAREL/FOOTWEAR RETAIL
c Easton Bell Sports Inc., Term Loan B, 6.81 - 6.94%, 3/16/12 United States 1,680,158 1,682,258 0.15
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AUTO PARTS: ORIGINAL EQUIPMENT MANUFACTURER
Accuride Corp., Term Loan B, 7.313%, 1/31/12 United States 2,237,818 2,243,972 0.20
Cooper Standard Automotive Inc.,
Term Loan B, 8.00%, 12/23/11 Canada 3,235,330 3,227,888 0.28
Term Loan C, 8.00%, 12/23/11 United States 5,167,952 5,153,792 0.45
Dayco Products LLC (Mark IV), Term Loan B, 7.88 - 8.10%, 6/21/11 United States 3,854,760 3,863,511 0.34
Key Plastics LLC and Key Safety Inc., First Lien Term Loan,
8.23 - 8.59%, 6/25/10 United States 1,336,886 1,329,319 0.12
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
Lear Corp., Term Loan B, 7.93 - 7.999%, 4/25/12 United States 1,700,000 1,688,372 0.15
Tenneco Automotive Inc.,
L/C Term Loan, 7.346%, 12/12/10 United States 1,068,966 1,073,755 0.09
Term Loan B, 7.19%, 12/12/10 United States 2,433,436 2,444,338 0.21
TRW Automotive Inc.,
Term Loan B, 7.188%, 6/30/12 United States 3,201,250 3,185,692 0.28
Term Loan B2, 6.813%, 6/30/12 United States 995,000 990,164 0.09
Term Loan E, 6.75%, 10/31/10 United States 3,435,107 3,429,954 0.30
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28,630,757 2.51
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AUTOMOTIVE AFTERMARKET
Affinia Group Inc., Term Loan B, 8.50%, 11/30/11 United States 5,003,323 4,959,795 0.44
United Components Inc., Term Loan D, 7.41%, 6/30/12 United States 3,593,666 3,588,239 0.31
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8,548,034 0.75
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BEVERAGES: ALCOHOLIC
Constellation Brands Inc., Term Loan B, 6.75 - 7.00%, 6/05/13 United States 7,933,333 7,962,608 0.70
Southern Wine & Spirits of America Inc., Term Loan B,
6.999%, 5/31/12 United States 2,196,532 2,201,430 0.19
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10,164,038 0.89
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BROADCASTING
Alliance Atlantis Communications Inc., Term Loan C, 6.999%, 12/17/11 United States 2,962,500 2,949,080 0.26
Cumulus Media Inc., Term Loan B, 7.329 - 7.626%, 6/07/13 United States 3,400,000 3,412,172 0.30
Emmis Operating Co., Term Loan B, 7.09 - 7.14%, 11/10/11 United States 1,448,409 1,450,697 0.13
Entravision Communications Corp., Term Loan B, 7.01%, 3/29/12 United States 8,535,500 8,490,347 0.74
c Gray Television Inc.,
Incremental Facility Loan, 7.00%, 5/22/13 United States 1,866,872 1,856,642 0.16
Term Loan B, 7.01%, 11/22/12 United States 1,019,594 1,014,313 0.09
LBI Media Inc., Term Loan B, 6.763%, 3/31/12 United States 997,500 985,869 0.09
Mission Broadcasting Inc., Term Loan B, 7.249%, 10/01/12 United States 3,814,359 3,804,442 0.33
NEP Supershooters LP, First Lien Term Loan, 9.13 - 9.50%, 2/03/11 United States 967,670 979,969 0.09
Nexstar Broadcasting Inc., Term Loan B, 7.25%, 10/01/12 United States 3,704,800 3,695,167 0.32
NextMedia Inc.,
Delay Draw, 7.334%, 11/15/12 United States 549,692 548,747 0.05
Term Loan B, 7.37%, 11/15/12 United States 1,236,808 1,239,665 0.11
Spanish Broadcasting System Inc., Term Loan B, 6.73%, 6/11/12 United States 1,975,000 1,970,102 0.17
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32,397,212 2.84
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BUILDING PRODUCTS
Building Materials Holding Corp., Term Loan B, 7.25%, 8/21/10 United States 970,000 971,911 0.09
Euramax International Inc., Domestic Term Loan, 8.063%, 6/29/12 United States 4,813,702 4,840,178 0.42
Goodman Global Holdings Inc., Term Loan C, 6.938%, 12/15/11 United States 2,815,508 2,828,909 0.25
Headwaters Inc., Term Loan B, 7.38 - 7.50%, 4/30/11 United States 3,033,951 3,035,650 0.27
NCI Building Systems Inc., Term Loan B, 6.71%, 6/18/10 United States 4,627,949 4,642,943 0.41
Nortek Inc., Term Loan, 7.40 - 9.25%, 8/27/11 United States 10,879,687 10,888,065 0.95
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27,207,656 2.39
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CABLE/SATELLITE TELEVISION
e,f Century Cable (Adelphia),
Discretionary Term Loan, 10.25%, 12/31/09 United States 4,500,000 4,336,875 0.38
Term Loan B, 10.25%, 6/30/09 United States 3,000,000 2,887,500 0.25
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
Cequel Communications LLC (Cebridge III), Term Loan B,
7.739%, 11/05/13 United States 5,400,000 5,369,490 0.47
Charter Communications Operating LLC, Term Loan B, 8.125%, 4/28/13 United States 11,008,399 11,020,728 0.97
CSC Holdings Inc. (Cablevision), Incremental Term Loan,
6.88 - 7.258%, 3/29/13 United States 14,164,500 14,081,213 1.24
DIRECTV Holdings LLC, Term Loan B, 6.90%, 4/13/13 United States 5,619,144 5,588,688 0.49
Insight Midwest Holdings LLC,
Term Loan A, 6.688%, 6/30/09 United States 3,564,378 3,562,311 0.31
Term Loan C, 7.438%, 12/31/09 United States 1,950,000 1,955,616 0.17
Intelsat Subsidiary Holding Co. Ltd., Term Loan B, 7.758%, 6/30/13 United States 7,418,625 7,421,815 0.65
MCC Iowa,
Term Loan D-1, 6.90 - 7.37%, 1/31/15 United States 3,882,513 3,880,222 0.34
Term Loan D-2 (Delayed Draw), 7.38%, 1/31/15 United States 1,200,000 1,199,292 0.11
Mediacom Broadband (MCC Iowa), Term Loan A, 6.50 - 6.62%, 3/31/10 United States 2,452,500 2,425,719 0.21
Mediacom LLC, Term Loan C, 6.90 - 7.37%, 1/31/15 United States 2,287,500 2,286,150 0.20
c NTL Dover LLC, Tranche B4, 9.25%, 12/31/12 United States 5,245,902 5,266,780 0.46
e,f Olympus Cable Holdings LLC (Adelphia), Term Loan B, 10.25%, 9/30/10 United States 2,000,000 1,927,500 0.17
PanAmSat Opco, Term Loan B2, 8.008%, 12/03/13 United States 6,417,447 6,441,705 0.57
Persona Communications Inc., Term Loan, 8.499%, 7/30/11 Canada 3,430,000 3,455,691 0.30
UPC Financing Partnership,
Term Loan J2, 7.64%, 3/31/13 Netherlands 4,356,000 4,343,367 0.38
Term Loan K2, 7.64%, 12/31/13 Netherlands 4,356,000 4,343,368 0.38
WideOpenWest Finance LLC, Term Loan B, 7.421 - 7.758%, 4/29/13 United States 800,000 800,712 0.07
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92,594,742 8.12
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CASINOS/GAMING
Boyd Gaming Corp., Term Loan B, 6.61 - 6.999%, 6/30/11 United States 465,190 465,353 0.04
CCM Merger Inc. (MotorCity Casino), Term Loan B,
7.214 - 7.49%, 7/13/12 United States 2,859,808 2,851,657 0.25
Global Cash Access LLC, Term Loan B, 7.15%, 3/10/10 United States 1,593,147 1,605,765 0.14
Greektown Casinos LLC, Term Loan B, 8.00%, 12/03/12 United States 2,677,386 2,696,824 0.24
Isle of Capri Black Hawk LLC, Term Loan, 7.13 - 7.51%, 10/24/11 United States 3,068,799 3,078,865 0.27
Penn National Gaming Inc., Term Loan B, 6.91 - 7.25%, 10/03/12 United States 5,151,050 5,163,155 0.45
Venetian Casino Resorts,
Delay Draw, 7.25%, 6/15/11 United States 1,316,239 1,319,503 0.12
Term Loan B, 7.25%, 6/15/11 United States 6,383,761 6,399,592 0.56
VML US Finance LLC (Venetian Macau), Term Loan B, 8.20%, 5/26/13 United States 3,533,333 3,545,382 0.31
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27,126,096 2.38
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CATALOG/SPECIALTY DISTRIBUTION
Affinity Group Inc., Term Loan, 7.90%, 6/17/09 United States 779,821 785,530 0.07
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CHEMICALS: MAJOR DIVERSIFIED
Basell BV,
Term Loan B4, 7.727%, 8/01/13 Netherlands 100,000 100,745 0.01
Term Loan C4, 8.227%, 8/01/14 Netherlands 100,000 100,805 0.01
Basell USA Inc.,
Term Loan B2, 7.727%, 8/01/13 United States 500,000 504,275 0.05
Term Loan C2, 8.227%, 8/01/14 United States 500,000 504,025 0.04
BCP Crystal U.S. Holdings Corp. (Celanese),
Term Loan B, 7.499%, 4/06/11 United States 5,226,992 5,244,711 0.46
Huntsman International LLC, Term Loan B, 7.15%, 8/16/12 United States 10,681,593 10,645,275 0.93
Ineos U.S. Finance LLC,
Term Loan B2, 7.339%, 12/16/13 United States 1,700,000 1,717,374 0.15
Term Loan C2, 7.839%, 12/23/14 United States 1,700,000 1,717,612 0.15
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
Invista Canada Co., Term Loan B2, 7.00%, 4/29/11 Canada 1,002,117 1,005,976 0.09
Invista SARL, Term Loan B1, 7.00%, 4/29/11 Luxembourg 1,971,383 1,978,973 0.17
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23,519,771 2.06
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CHEMICALS: SPECIALTY
Brenntag Holding GM,
Acquisition Facility, 8.08%, 12/23/13 Germany 451,636 453,610 0.04
Term Loan B2, 8.08%, 12/23/13 United States 1,848,364 1,857,402 0.16
Compass Minerals Group Inc., Term Loan, 6.95 - 7.00%, 12/22/12 United States 3,095,636 3,109,567 0.27
Hexion Specialty Chemicals BV, Term Loan C-2, 7.50%, 5/05/13 Netherlands 2,672,774 2,665,397 0.23
Hexion Specialty Chemicals Inc., Term Loan C-1,
7.563%, 5/05/13 United States 12,303,977 12,270,018 1.08
ISP Chemco Inc., Term Loan, 6.938 - 7.375%, 2/16/13 United States 2,094,750 2,101,202 0.19
Nalco Co., Term Loan B, 7.10 - 7.30%, 11/04/10 United States 6,763,342 6,761,990 0.59
Polymer Group Inc., Term Loan, 7.74%, 11/22/12 United States 1,009,925 1,016,792 0.09
Rockwood Specialties Group Inc., Term Loan E, 7.485%, 7/30/12 United States 3,235,601 3,252,717 0.29
Vertellus Specialties Inc., First Lien Term Loan,
8.62%, 7/10/13 United States 2,200,000 2,198,658 0.19
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35,687,353 3.13
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COAL
Alpha Natural Resources LLC, Term Loan B, 7.249%, 10/26/12 United States 2,288,500 2,288,134 0.20
Walter Industries Inc., Term Loan B, 6.87 - 7.249%, 10/03/12 United States 980,526 980,899 0.09
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3,269,033 0.29
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COMMERCIAL PRINTING/FORMS
Cenveo Corp., Term Loan B, 7.424%, 6/21/13 United States 1,600,000 1,598,944 0.14
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CONSTRUCTION MATERIALS
Gibraltar Industries Inc., Term Loan B, 7.188 - 7.25%, 12/08/10 United States 1,086,957 1,093,413 0.10
St. Marys Cement Inc., Term Loan B, 7.499%, 12/04/09 Canada 3,407,451 3,443,059 0.30
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4,536,472 0.40
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CONSUMER SUNDRIES
Central Garden & Pet Co., Term Loan B, 6.84 - 6.90%, 9/30/12 United States 3,228,949 3,235,051 0.28
Nutro Products Inc., Term Loan B, 7.265%, 4/26/13 United States 2,793,000 2,810,233 0.25
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6,045,284 0.53
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CONTAINERS/PACKAGING
Atlantis Plastics Inc., First Lien Term Loan, 8.09%, 9/22/11 United States 987,500 994,333 0.09
Berry Plastics Corp., Term Loan, 7.15%, 12/02/11 United States 1,929,686 1,931,982 0.17
c Bluegrass Container Co. LLC,
Delay Draw First Lien Term Loan, 9.50%, 6/30/13 United States 1,013,333 1,015,917 0.09
First Lien Term Loan, 9.50%, 6/30/13 United States 3,386,667 3,395,303 0.30
BWAY Corp., Term Loan B, 9.00%, 7/17/13 United States 1,400,000 1,402,968 0.12
Graham Packaging Co.,
First Lien Term Loan, 7.563 - 7.875%, 10/07/11 United States 7,880,130 7,912,124 0.69
Incremental Term Loan B, 7.813%, 10/07/11 United States 897,722 901,770 0.08
Graphic Packaging International Corp., Term Loan C,
7.62 - 8.14%, 8/08/10 United States 1,475,827 1,487,367 0.13
Intertape Polymer Group Inc., Term Loan B,
7.55 - 7.76% 7/28/11 United States 4,716,000 4,754,907 0.42
Smurfit-Stone Container Canada Inc.,
Term Loan C, 7.50 - 7.625%, 11/01/11 Canada 634,574 637,195 0.05
Term Loan C-1, 7.625%, 11/01/11 Canada 212,408 213,368 0.02
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
Smurfit-Stone Container Enterprises,
L/C Term Loan, 5.37%, 11/01/10 United States 261,990 262,889 0.02
Term Loan B, 7.50 - 7.688%, 11/01/11 United States 1,356,470 1,362,072 0.12
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26,272,195 2.30
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DATA PROCESSING SERVICES
InfoUSA Inc., Term Loan B, 7.25%, 2/14/12 United States 2,945,354 2,951,981 0.26
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DEPARTMENT STORES
Neiman Marcus Group Inc., Term Loan, 7.77%, 4/06/13 United States 3,132,911 3,151,772 0.28
Sears Canada Inc., Non-Revolving Term Facility,
7.249%, 12/22/12 Canada 2,394,000 2,408,292 0.21
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5,560,064 0.49
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DIVERSIFIED TELECOMMUNICATION SERVICES
Alaska Communications Systems Holdings Inc.,
2006-1 Incremental Facility Loan, 7.249%, 2/01/12 United States 300,000 299,328 0.02
Incremental Term Loan, 7.249%, 2/01/12 United States 728,567 727,918 0.06
Term Loan, 7.249%, 2/01/12 United States 2,357,133 2,355,035 0.21
Cincinnati Bell Inc., Term Loan, 6.66 - 6.93%, 8/31/12 United States 2,084,250 2,082,041 0.18
Consolidated Communications Inc., Term Loan D,
7.40 - 7.45%, 10/14/11 United States 1,000,000 1,002,760 0.09
Hawaiian Telecom Communications Inc.,
g Term Loan A, 7.75%, 4/30/12 United States 1,450,000 1,446,418 0.13
Term Loan B, 7.75%, 10/31/12 United States 1,521,611 1,519,846 0.13
Wind Telecomunicazioni SpA,
Term Loan B, 8.282%, 9/30/13 Italy 3,150,000 3,165,404 0.28
Term Loan C, 7.782%, 9/30/14 Italy 3,150,000 3,173,908 0.28
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15,772,658 1.38
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DRUG STORE CHAINS
The Jean Coutu Group (PJC) Inc., Term Loan B,
7.938 - 8.00%, 7/30/11 Canada 1,115,979 1,118,289 0.10
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ELECTRIC UTILITIES
Astoria Generating Co. Acquisitions LLC,
L/C Term Loan, 7.45%, 2/23/11 United States 284,264 284,025 0.02
Term Loan B, 7.45%, 2/23/13 United States 1,205,352 1,204,026 0.11
LSP General Finance Co. LLC, Term Loan, 7.249%, 5/04/13 United States 2,207,071 2,195,174 0.19
Midwest Generation LLC, Term Loan, 6.86 - 7.31%, 4/27/11 United States 1,464,287 1,469,573 0.13
NRG Energy Inc.,
Credit Link, 7.499%, 2/01/13 United States 3,453,333 3,463,970 0.30
Term Loan B, 7.231%, 2/01/13 United States 13,113,800 13,154,059 1.15
Pike Electric Inc.,
Term Loan B, 6.688%, 7/02/12 United States 518,301 519,690 0.05
Term Loan C, 6.875%, 12/10/12 United States 295,033 295,723 0.03
Plum Point Energy Associates LLC,
First Lien Term Loan, 8.749%, 3/14/14 United States 1,073,515 1,077,476 0.09
L/C Term Loan, 8.624%, 3/14/14 United States 291,429 292,504 0.03
------------------------
23,956,220 2.10
------------------------
ELECTRICAL PRODUCTS
EnerSys Capital Inc., Term Loan D, 7.03 - 7.594%, 3/17/11 United States 2,677,745 2,688,858 0.24
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
ELECTRONICS/APPLIANCES
DEI Sales Inc., Term Loan, 7.43 - 7.77%, 6/17/10 United States 938,906 937,234 0.08
Eastman Kodak Co.,
Term Loan B1, 7.439 - 7.75%, 10/18/12 United States 5,990,550 5,995,702 0.53
Term Loan B2 (Delayed Draw), 7.52 - 7.757%, 10/18/12 United States 3,352,941 3,355,624 0.29
Jarden Corp.,
Term Loan B1, 7.499%, 1/24/12 United States 766,095 767,122 0.07
Term Loan B2, 7.249%, 1/24/12 United States 5,403,110 5,397,760 0.47
Oreck Corp., Term Loan B, 8.25%, 2/02/12 United States 1,793,722 1,797,651 0.16
------------------------
18,251,093 1.60
------------------------
ENVIRONMENTAL SERVICES
Allied Waste North America Inc.,
Credit Link, 5.334%, 1/15/12 United States 3,140,172 3,128,930 0.27
g Revolver, 8.12 - 8.15%, 1/15/10 United States 64,762 63,865 0.01
Term Loan B, 6.72 - 7.27%, 1/15/12 United States 8,088,103 8,059,147 0.71
c Casella Waste Systems Inc., Term Loan B, 9.00%, 4/28/10 United States 1,100,000 1,103,036 0.10
EnviroSolutions Inc., Term Loan B, 8.81 - 9.00%, 7/07/12 United States 2,830,882 2,857,775 0.25
IESI Corp., Term Loan B, 6.939 - 7.248%, 1/21/12 United States 900,000 899,595 0.08
c Safety-Kleen Systems Inc.,
Synthetic L/C, 9.75%, 8/01/13 United States 330,508 331,219 0.03
Term Loan B, 9.75%, 8/01/13 United States 1,169,492 1,172,006 0.10
Synagro Technologies Inc.,
Delay Draw, 7.77%, 4/29/12 United States 185,714 186,364 0.01
Term Loan B, 7.761%, 4/29/12 United States 1,114,286 1,118,186 0.10
------------------------
18,920,123 1.66
------------------------
FINANCE/RENTAL/LEASING
Avis Budget Car Rental, Term Loan, 6.75%, 4/19/12 United States 4,990,714 4,948,193 0.43
Baker Tanks Inc., Term Loan, 7.90 - 7.999%, 11/23/12 United States 664,621 668,768 0.06
Hertz Corp.,
Credit Link, 5.424%, 12/21/12 United States 544,444 547,118 0.05
Term Loan B, 7.41 - 7.69%, 12/21/12 United States 4,336,529 4,357,821 0.38
J.G. Wentworth LLC, Term Loan, 9.008%, 4/12/11 United States 340,000 341,979 0.03
Vanguard Car Rental USA Holdings Inc., Term Loan, 8.319%, 6/14/13 United States 3,300,000 3,308,481 0.29
------------------------
14,172,360 1.24
------------------------
FINANCIAL CONGLOMERATES
Fidelity National Information Services Inc., Term Loan B,
7.099%, 3/09/13 United States 11,413,259 11,406,412 1.00
Nasdaq Stock Market Inc.,
Term Loan B, 6.971 - 7.249%, 4/18/12 United States 4,235,224 4,228,744 0.37
Term Loan C (Delayed Draw), 6.831 - 7.249%, 4/18/12 United States 2,448,026 2,444,280 0.21
------------------------
18,079,436 1.58
------------------------
FOOD DISTRIBUTORS
OSI Group LLC,
Dutch Term Loan, 7.249%, 9/02/11 Netherlands 545,833 546,696 0.05
German Term Loan, 7.249%, 9/02/11 Germany 436,667 437,357 0.04
U.S. Term Loan, 7.249%, 9/02/11 United States 982,500 984,052 0.08
------------------------
1,968,105 0.17
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
FOOD RETAIL
Supervalu Inc., Term Loan B, 7.063%, 6/02/12 United States 1,197,000 1,193,014 0.10
------------------------
FOOD: MAJOR DIVERSIFIED
Birds Eye Foods Inc. (Agrilink Foods), Term Loan B,
8.15 - 8.18%, 6/30/08 United States 914,015 920,888 0.08
Chiquita Brands LLC, Term Loan C, 7.65%, 6/28/12 United States 2,277,000 2,277,888 0.20
Del Monte Foods Co., Term Loan B, 7.00 - 7.072%, 2/08/12 United States 2,957,393 2,964,106 0.26
Dole Food Co. Inc., Term Loan B, 7.00 - 8.75%, 4/12/13 United States 1,357,887 1,332,332 0.12
Pinnacle Foods Holding Corp., Term Loan B, 7.45 - 7.48%, 11/25/10 United States 5,318,905 5,322,096 0.47
Solvest Ltd. (Dole),
L/C, 5.37%, 4/12/13 Bermuda 610,115 598,633 0.05
Term Loan C, 7.00 - 9.00%, 4/12/13 Bermuda 4,575,863 4,489,746 0.39
------------------------
17,905,689 1.57
------------------------
FOOD: MEAT/FISH/DAIRY
Bumble Bee Foods LLC, Term Loan B, 6.899 - 7.25%, 5/02/12 United States 800,000 800,272 0.07
Michael Foods Inc., Term Loan B1, 7.032 - 7.553%, 11/21/10 United States 912,752 912,961 0.08
------------------------
1,713,233 0.15
------------------------
FOOD: SPECIALTY/CANDY
CBRL Group (Cracker Barrel), Term Loan B1, 6.63%, 4/27/13 United States 3,064,282 3,042,740 0.27
c Herbalife International Inc., Term Loan B, 8.75%, 12/30/10 United States 2,100,000 2,103,024 0.18
Otis Spunkmeyer Inc., Term Loan B, 8.09 - 8.15%, 6/30/11 United States 2,937,255 2,955,114 0.26
------------------------
8,100,878 0.71
------------------------
FOREST PRODUCTS
Roseburg Forest Products (RLC Industries), Term Loan B,
6.999%, 2/24/10 United States 1,835,357 1,835,798 0.16
------------------------
HOME FURNISHINGS
Knoll Inc., Term Loan, 7.249%, 10/03/12 United States 1,477,255 1,485,041 0.13
National Bedding Co. LLC, Term Loan, 7.35 - 7.49%, 8/31/11 United States 2,957,070 2,977,947 0.26
c Sealy Mattress Co., Term Loan D, 6.981 - 8.50%, 4/14/13 United States 4,106,936 4,120,981 0.36
Simmons Bedding Co., Term Loan D, 7.125 - 9.50%, 12/19/11 United States 2,838,058 2,845,181 0.25
------------------------
11,429,150 1.00
------------------------
HOME IMPROVEMENT CHAINS
Harbor Freight Tools USA Inc., Term Loan C, 6.921%, 7/15/10 United States 3,655,742 3,657,058 0.32
------------------------
HOMEBUILDING
CONTECH Construction Products Inc., Term Loan B, 7.22 - 9.25%, 12/07/10 United States 1,510,079 1,511,664 0.13
Lanoga Corp. (Pro-Build Holdings), Term Loan B, 7.249%, 6/29/13 United States 2,800,000 2,798,432 0.25
Propex Fabrics Inc., Term Loan B, 7.76%, 7/31/12 United States 1,038,204 1,037,176 0.09
Stile Acquisition Corp. (Masonite), Canadian Term Loan,
7.49 - 7.499%, 4/05/13 Canada 5,525,294 5,481,699 0.48
Stile U.S. Acquisition Corp. (Masonite), U.S. Term Loan,
7.49 - 7.499%, 4/05/13 United States 5,534,706 5,491,038 0.48
------------------------
16,320,009 1.43
------------------------
HOSPITAL/NURSING MANAGEMENT
Iasis Healthcare LLC, Term Loan B, 7.73%, 6/22/11 United States 2,303,000 2,324,211 0.20
LifePoint Hospitals Inc., Term Loan B, 6.905%, 4/15/12 United States 9,120,767 9,130,252 0.80
Vanguard Health Holding Co. II LLC, Term Loan C,
7.749 - 7.868%, 9/23/11 United States 5,422,874 5,451,117 0.48
------------------------
16,905,580 1.48
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
HOTEL/RESORTS/CRUISELINES
Flag Luxury Properties (Anguilla) LLC, First Lien Term Loan,
8.674 - 8.749%, 3/21/11 United States 798,000 797,042 0.07
Hilton Hotels Corp., Term Loan B, 6.669 - 6.775%, 2/22/13 United States 2,112,000 2,104,777 0.19
Kuilima Resort Co. (Turtle Bay), First Lien Term Loan,
8.15%, 9/30/10 United States 1,183,358 1,153,620 0.10
------------------------
4,055,439 0.36
------------------------
HOUSEHOLD/PERSONAL CARE
Acco Brands Corp., Term Loan B, 6.939 - 7.24%, 8/17/12 United States 2,421,080 2,433,984 0.21
Prestige Brands Inc., Term Loan B, 7.23%, 4/06/11 United States 1,894,009 1,900,322 0.17
Spectrum Brands Inc., Term Loan B, 8.08 - 8.51%, 2/06/12 United States 4,155,299 4,160,494 0.36
VJCS Acquisition Inc., Term Loan, 7.69 - 7.81%, 7/19/13 United States 1,700,000 1,702,397 0.15
------------------------
10,197,197 0.89
------------------------
INDUSTRIAL CONGLOMERATES
Amsted Industries Inc., Term Loan B, 7.01 - 7.50%, 4/05/13 United States 1,092,977 1,100,256 0.10
Day International Group Inc., Term Loan B, 8.12%, 12/05/12 United States 708,665 714,158 0.06
FCI USA,
Term Loan B1, 8.83%, 11/01/13 United States 1,350,000 1,360,476 0.12
Term Loan C1, 8.225%, 10/31/14 United States 1,350,000 1,359,572 0.12
Sensata Technologies Finance Co. LLC, Term Loan B,
7.148 - 7.24%, 4/27/13 United States 2,600,000 2,591,472 0.23
c TriMas Co. LLC,
Tranche B-1 L/C, 10.00%, 8/01/11 United States 683,559 686,067 0.06
Term Loan B, 10.00%, 7/31/13 United States 2,962,087 2,973,106 0.26
------------------------
10,785,107 0.95
------------------------
INDUSTRIAL MACHINERY
CI Acquisition Inc. (Chart Industries), Term Loan B,
7.438 - 7.563%, 10/17/12 United States 1,744,824 1,748,872 0.15
Colfax Corp., Term Loan B, 7.50%, 11/30/11 United States 985,255 992,812 0.09
Dresser Inc., Unsecured Term Loan, 8.65%, 3/01/10 United States 1,250,000 1,267,447 0.11
Flowserve Corp., Term Loan B, 7.00 - 7.125%, 8/10/12 United States 3,089,708 3,106,176 0.27
Mueller Group, Term Loan B, 7.36 - 7.868%, 11/01/12 United States 2,856,469 2,875,550 0.25
Nacco Materials Handling Group Inc., Delay Draw,
7.17 - 7.349%, 3/21/13 United States 1,300,000 1,302,496 0.12
c RBS Global Inc. (Rexnord), Term Loan, 10.00%, 7/19/13 United States 3,000,000 3,007,890 0.26
c Sensus Metering Systems Inc.,
Term Loan B1, 6.94 - 7.583%, 12/17/10 United States 5,189,199 5,192,364 0.46
Term Loan B2, 6.94 - 7.583%, 12/17/10 Luxembourg 689,280 690,203 0.06
------------------------
20,183,810 1.77
------------------------
INDUSTRIAL SPECIALTIES
Babcock and Wilcox Co., Synthetic L/C, 5.399%, 2/22/12 United States 800,000 804,528 0.07
------------------------
INFORMATION TECHNOLOGY SERVICES
Transfirst Holdings, Term Loan B, 8.50%, 3/31/10 United States 2,408,059 2,409,889 0.21
------------------------
INSURANCE BROKERS/SERVICES
Alliant Resources Group Inc., First Lien Term Loan, 8.50%, 11/30/11 United States 895,500 896,109 0.08
HMSC Holdings Corp. (Swett & Crawford), First Lien Term Loan,
8.19 - 8.248%, 11/11/11 United States 1,097,250 1,102,144 0.10
------------------------
1,998,253 0.18
------------------------
INVESTMENT BANKS/BROKERS
Ameritrade Holding Corp., Term Loan B, 6.85%, 12/31/12 United States 9,576,000 9,546,123 0.84
LPL Holdings Inc., Term Loan B, 8.13 - 8.749%, 6/28/13 United States 1,741,250 1,761,927 0.15
------------------------
11,308,050 0.99
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
LIFE/HEALTH INSURANCE
Conseco Inc., Term Loan, 7.119%, 6/22/10 United States 1,334,089 1,342,441 0.12
------------------------
MANAGED HEALTH CARE
Multiplan Inc., Term Loan B, 7.499%, 4/12/13 United States 1,558,353 1,545,980 0.14
------------------------
MARINE SHIPPING
Horizon Lines LLC, Term Loan C, 7.75%, 7/07/11 United States 1,960,000 1,974,092 0.17
US Shipping Partners LP, Term Loan, 7.499%, 4/30/10 United States 750,174 750,962 0.07
------------------------
2,725,054 0.24
------------------------
MEDICAL DISTRIBUTORS
VWR International Inc., Term Loan B, 7.77%, 4/07/11 United States 1,939,679 1,946,836 0.17
------------------------
MEDICAL SPECIALTIES
DJ Orthopedics LLC, Term Loan B, 6.938 - 7.063%, 4/07/13 United States 3,291,750 3,275,686 0.29
------------------------
MEDICAL/NURSING SERVICES
AMR Holdco/EmCare Holdco, Term Loan B, 7.16 - 7.27%, 2/10/12 United States 2,373,800 2,379,022 0.21
DaVita Inc., Term Loan B, 7.11 - 7.69%, 10/05/12 United States 12,647,950 12,678,179 1.11
c Fresenius Medical Care Holdings Inc., Term Loan B,
6.782 - 6.874%, 3/31/13 United States 13,266,750 13,101,181 1.15
HealthSouth Corp., Term Loan B, 8.52%, 3/10/13 United States 5,800,000 5,796,926 0.51
National Renal Institutes Inc., Term Loan B, 7.416 - 7.531% 3/31/13 United States 650,000 648,557 0.06
Renal Advantage Inc., Term Loan B, 7.84%, 10/06/12 United States 1,505,655 1,511,211 0.13
Team Finance LLC, Term Loan B, 7.694%, 11/23/12 United States 1,492,500 1,499,619 0.13
US Oncology Inc., Term Loan B, 7.50 - 7.875%, 8/20/11 United States 2,100,989 2,108,658 0.18
------------------------
39,723,353 3.48
------------------------
MISCELLANEOUS COMMERCIAL SERVICES
Affiliated Computer Services Inc.,
g Additional Term Loan, 7.334%, 3/20/13 United States 3,700,000 3,705,365 0.33
Term Loan B, 7.40%, 3/20/13 United States 1,293,500 1,295,376 0.11
Alliance Laundry Systems LLC, Term Loan, 7.60%, 1/27/12 United States 2,092,929 2,093,787 0.18
American Reprographics, Term Loan C, 7.144 - 9.00%, 6/18/09 United States 3,217,499 3,223,291 0.28
Audatex North America Inc., Term Loan B, 7.075%, 4/13/13 United States 1,150,000 1,154,014 0.10
Buhrmann U.S. Inc., Term Loan D-1, 6.88 - 7.146%, 12/23/10 United States 3,920,000 3,926,978 0.35
CCC Information Services Group Inc., Term Loan B, 8.00%, 2/10/13 United States 3,627,181 3,646,072 0.32
Coinmach Corp., Term Loan B-1, 7.688 - 7.875%, 12/19/12 United States 1,496,974 1,510,132 0.13
Duratek Inc. (EnergySolutions), Term Loan B, 7.65 - 7.77%, 6/07/13 United States 1,039,849 1,044,539 0.09
EnergySolutions LLC,
Synthetic L/C, 7.62%, 6/07/13 United States 108,318 108,806 0.01
Term Loan B, 7.65 - 7.77%, 6/07/13 United States 2,296,333 2,306,689 0.20
JohnsonDiversey Inc.,
Delay Draw, 7.86%, 12/16/10 United States 178,033 177,686 0.02
Term Loan B, 7.63%, 12/16/11 United States 2,512,138 2,516,132 0.22
Language Lines Inc., Term Loan B, 9.71 - 9.77%, 6/11/11 United States 1,495,239 1,507,545 0.13
Open Solutions Inc., First Lien Term Loan, 7.78%, 9/03/11 United States 2,528,276 2,546,302 0.22
RGIS Holdings LLC, Term Loan B, 7.999%, 12/31/12 United States 3,184,259 3,192,219 0.28
Workflow Management Inc., Term Loan B, 9.485%, 11/30/11 United States 2,437,500 2,450,711 0.22
Worldspan LP, Term Loan B, 7.938 - 8.25%, 2/11/10 United States 2,325,316 2,313,690 0.20
------------------------
38,719,334 3.39
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
MOVIES/ENTERTAINMENT
24 Hour Fitness Worldwide Inc., Term Loan B, 7.99 - 8.12%, 5/26/12 United States 1,995,000 1,999,189 0.18
Carmike Cinemas Inc., Delay Draw, 9.02%, 5/19/12 United States 1,861,164 1,872,015 0.16
Century Theaters Inc., Term Loan B, 7.106%, 3/01/13 United States 1,500,000 1,504,950 0.13
c Cinemark USA Inc., Term Loan C, 7.19 - 7.26%, 3/31/11 United States 2,459,478 2,462,085 0.22
Cinram International Inc., Term Loan B, 7.084%, 5/05/11 Canada 2,696,572 2,682,307 0.23
Hallmark Entertainment LLC, Term Loan B, 8.00%, 12/31/11 United States 1,800,000 1,811,574 0.16
Metro-Goldwyn-Mayer Inc., Term Loan B, 7.749%, 4/08/12 United States 11,371,500 11,385,146 1.00
Minnesota Hockey Ventures Group LP (Holding Co.),
Term Loan, 9.21%, 12/29/08 United States 1,350,000 1,360,125 0.12
Minnesota Wild Hockey Club LP (Operating Co.), Term Loan,
8.258%, 12/29/08 United States 944,444 949,167 0.08
Regal Cinemas Corp., Term Loan B, 6.819 - 7.249%, 11/10/10 United States 12,182,282 12,123,320 1.06
WMG Acquisition Corp. (Warner Music), Term Loan B,
7.205 - 7.511%, 3/01/11 United States 10,470,058 10,497,385 0.92
------------------------
48,647,263 4.26
------------------------
OIL & GAS PIPELINES
c El Paso Corp., Deposit Loan, 9.25%, 7/31/11 United States 1,334,520 1,337,269 0.12
MGG Holdings (Magellan Midstream), Term Loan B, 7.424%, 12/16/10 United States 2,744,952 2,757,798 0.24
OPTI Canada, Term Loan B, 7.17 - 7.24%, 5/17/13 Canada 3,000,000 2,999,730 0.26
------------------------
7,094,797 0.62
------------------------
OIL & GAS PRODUCTION
Helix Energy Solutions Group Inc., Term Loan B,
7.346 - 7.64%, 7/01/13 United States 5,100,000 5,104,539 0.45
MEG Energy Corp., Term Loan B, 7.50%, 4/03/13 United States 1,296,750 1,299,927 0.11
------------------------
6,404,466 0.56
------------------------
OIL REFINING/MARKETING
c Alon USA Energy Inc.,
Edgington Facility, 9.75%, 6/22/13 United States 244,444 245,302 0.02
Paramount Facility, 9.75%, 6/22/13 United States 1,955,556 1,962,420 0.17
c Citgo Petroleum Corp., Term Loan B, 6.695%, 11/15/12 United States 4,873,006 4,861,262 0.43
Lyondell-Citgo Refining LP, Term Loan, 7.499%, 5/21/07 United States 4,655,000 4,675,715 0.41
Niska Gas Storage Canada ULC (C/R Gas),
Asset Sale Term Loan, 7.033%, 5/13/11 Canada 581,818 581,498 0.05
Canadian Term Loan, 7.033%, 5/12/13 Canada 3,192,364 3,190,161 0.28
Niska Gas Storage U.S. LLC (C/R Gas), U.S. Term Loan,
7.033%, 5/12/13 United States 609,382 607,676 0.05
Universal Compression Inc., Term Loan B, 7.00%, 2/15/12 United States 1,975,012 1,990,318 0.18
------------------------
18,114,352 1.59
------------------------
OILFIELD SERVICES/EQUIPMENT
Petroleum Geo-Services ASA and PGS Finance Inc., Term Loan,
7.75%, 12/17/12 Norway 1,352,382 1,358,901 0.12
------------------------
OTHER CONSUMER SERVICES
Affinion Group, Term Loan B, 7.921 - 8.12%, 10/17/12 United States 7,441,860 7,486,050 0.66
Education Management LLC, Term Loan B, 8.063%, 6/01/13 United States 4,100,000 4,109,963 0.36
Protection One Inc., Term Loan C, 7.70 - 8.00%, 3/31/12 United States 930,600 932,982 0.08
VICAR Operating Inc. (Veterinary Centers),
Term Loan B, 6.875%, 5/16/11 United States 954,275 957,892 0.08
------------------------
13,486,887 1.18
------------------------
OTHER CONSUMER SPECIALTIES
Solo Cup Co., Term Loan B, 7.61 - 7.999%, 2/27/11 United States 6,829,989 6,842,283 0.60
Tupperware Corp., Term Loan B, 6.81%, 12/05/12 United States 7,422,406 7,384,180 0.65
Visant Holding Corp. (Jostens IH Corp.), Term Loan C,
7.068%, 10/01/11 United States 3,086,597 3,099,190 0.27
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
Waterpik Technologies Inc., First Lien Term Loan,
7.40%, 6/28/13 United States 800,000 806,944 0.07
------------------------
18,132,597 1.59
------------------------
OTHER TRANSPORTATION
c Laidlaw International Inc., Term Loan B, 9.00%, 6/28/12 United States 1,800,000 1,800,000 0.16
c Laidlaw Transit Inc., Term Loan B, 9.00%, 6/28/12 Canada 600,000 600,000 0.05
------------------------
2,400,000 0.21
------------------------
PACKAGED SOFTWARE
c Infor Global Solutions,
Delayed Draw First Lien Term Loan, 11.00%, 7/28/12 United States 902,256 906,370 0.08
First Lien Term Loan, 11.00%, 7/28/12 United States 1,729,323 1,737,209 0.15
Nuance Communications Inc., Term Loan, 7.40%, 3/31/13 United States 798,000 790,084 0.07
SunGard Data Systems Inc., Term Loan, 7.66%, 2/11/13 United States 12,214,620 12,282,289 1.08
------------------------
15,715,952 1.38
------------------------
PERSONNEL SERVICES
Allied Security Holdings LLC, Term Loan D, 10.25%, 6/30/10 United States 905,152 907,442 0.08
U.S. Investigations Services Inc.,
Term Loan B, 7.92%, 10/14/12 United States 1,594,025 1,597,644 0.14
Term Loan C, 7.92%, 10/14/12 United States 1,384,699 1,387,843 0.12
------------------------
3,892,929 0.34
------------------------
PUBLISHING: BOOKS/MAGAZINES
Dex Media East LLC, Term Loan B, 6.66 - 7.00%, 5/08/09 United States 2,202,533 2,203,128 0.19
Dex Media West LLC,
Term Loan B1, 6.67 - 7.00%, 3/09/10 United States 2,998,769 2,986,324 0.26
Term Loan B2, 6.67 - 7.00%, 3/09/10 United States 3,547,883 3,533,159 0.31
Primedia Inc., Term Loan B, 7.625%, 9/30/13 United States 990,000 976,487 0.09
R.H. Donnelley Inc.,
Term Loan A-4, 6.46 - 6.76%, 12/31/09 United States 886,999 883,389 0.08
Term Loan D-2, 6.72 - 7.01%, 6/30/11 United States 7,374,242 7,352,562 0.64
------------------------
17,935,049 1.57
------------------------
PUBLISHING: NEWSPAPERS
c Black Press Group Ltd., Term Loan B2, 9.75%, 8/02/13 Canada 566,667 568,775 0.05
c Black Press U.S. Partnership, Term Loan B1, 9.75%, 8/02/13 United States 933,333 936,805 0.08
MediaNews Group Inc.,
Term Loan B, 6.65%, 12/30/10 United States 908,820 896,842 0.08
c Term Loan C, 9.00%, 6/30/13 United States 1,900,000 1,895,744 0.17
------------------------
4,298,166 0.38
------------------------
PULP & PAPER
Boise Cascade LLC, Term Loan D, 7.125 - 7.25%, 10/28/11 United States 2,243,456 2,248,796 0.20
Georgia-Pacific Corp.,
Second Lien Term Loan, 8.30%, 12/23/13 United States 3,500,000 3,524,115 0.31
Term Loan B, 7.30 - 7.499%, 12/20/12 United States 13,733,494 13,718,250 1.20
NewPage Corp., Term Loan, 8.499%, 5/02/11 United States 3,870,577 3,871,235 0.34
c Verso Paper Holdings LLC, Term Loan B, 9.00%, 8/01/13 United States 2,900,000 2,904,727 0.25
------------------------
26,267,123 2.30
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
RAILROADS
Helm Financial Corp., Term Loan B, 7.66%, 7/08/11 United States 1,239,827 1,251,233 0.11
Kansas City Southern Railway Co., Term Loan B,
6.97 - 7.25%, 4/28/13 United States 2,154,208 2,152,808 0.19
RailAmerica Transportation Corp.,
Canadian Term Loan, 7.25%, 9/29/11 Canada 39,384 39,662 -- h
U.S. Term Loan, 7.25%, 9/29/11 United States 333,171 335,516 0.03
------------------------
3,779,219 0.33
------------------------
REAL ESTATE DEVELOPMENT
EH/Transeastern LLC (Technical Olympic USA), Term Loan B,
7.75%, 7/29/08 United States 2,500,000 2,511,000 0.22
Kyle Acquisition Group,
Term Loan B, 7.438%, 7/08/10 United States 684,017 686,288 0.06
Term Loan C, 7.438%, 7/20/10 United States 715,983 717,873 0.06
LandSource Communities Development LLC, Term Loan B, 7.875%, 3/31/10 United States 4,000,000 4,015,600 0.35
London Arena and Waterfront Finance LLC, Term Loan A, 8.783%, 3/08/12 United States 1,396,500 1,406,666 0.13
Mattamy Group, Term Loan B, 7.477%, 4/11/13 United States 1,600,000 1,605,648 0.14
November 2005 Land Investors LLC, (North Las Vegas), Term Loan B,
8.249%, 5/31/11 United States 598,500 598,877 0.05
Pivotal Promontory LLC, Term Loan, 8.15%, 8/31/10 United States 994,987 989,575 0.09
Rhodes Cos. LLC, First Lien Term Loan, 8.749%, 11/21/10 United States 2,312,500 2,316,917 0.20
Standard Pacific Corp., Term Loan B, 6.671%, 5/05/13 United States 1,800,000 1,777,032 0.16
SunCal Master I LLC, Term Loan B, 8.70 - 8.74%, 1/19/10 United States 2,139,250 2,136,469 0.19
Yellowstone Club, Term Loan, 7.775%, 9/30/10 United States 1,854,320 1,847,904 0.16
------------------------
20,609,849 1.81
------------------------
REAL ESTATE INVESTMENT TRUSTS
Capital Automotive REIT, Term Loan B, 7.10%, 12/10/10 United States 10,876,550 10,879,378 0.95
c General Growth Properties Inc., Term Loan A-1, 6.65%, 2/24/10 United States 3,850,000 3,801,990 0.33
Lion Gables Realty LP, Term Loan B, 7.10%, 9/30/06 United States 1,007,147 1,007,520 0.09
Macerich Co., Term Loan B, 6.875%, 4/25/10 United States 3,500,000 3,498,495 0.31
Maguire Properties Inc., Term Loan B, 7.106%, 3/15/10 United States 2,082,222 2,082,035 0.18
Newkirk Master LP, Term Loan B, 7.096%, 8/11/08 United States 2,243,371 2,248,733 0.20
Trizec Properties Inc., Term Loan B, 6.775%, 5/02/07 United States 3,100,000 3,097,613 0.27
------------------------
26,615,764 2.33
------------------------
RECREATIONAL PRODUCTS
Bombardier Recreational Products, Term Loan B, 8.24%, 6/28/13 United States 2,000,000 1,995,100 0.17
Fender Musical Instruments, Term Loan B, 7.87%, 3/30/12 United States 1,473,540 1,481,379 0.13
Mega Bloks Inc., Term Loan B, 6.938 - 7.25%, 7/26/12 Canada 2,079,000 2,086,984 0.18
PlayPower Inc., Term Loan, 8.50%, 12/18/09 United States 750,000 756,825 0.07
True Temper Sports Inc., Term Loan, 8.03 - 10.25%, 3/15/11 United States 1,550,368 1,542,120 0.14
------------------------
7,862,408 0.69
------------------------
RESTAURANTS
Arby's Restaurant Holdings LLC, Term Loan B, 7.735 - 7.749%,
7/25/12 United States 5,137,548 5,147,310 0.45
Burger King Corp., Term Loan B1, 7.00%, 6/30/12 United States 2,644,674 2,632,006 0.23
Dominos Inc., Term Loan B, 6.875 - 7.00%, 6/25/10 United States 1,850,849 1,849,461 0.16
Jack In The Box Inc., Term Loan B, 6.61 - 7.01%, 1/08/11 United States 957,634 961,004 0.09
------------------------
10,589,781 0.93
------------------------
SEMICONDUCTORS
Fairchild Semiconductor Corp., Term Loan, 6.945 - 6.985%, 6/26/13 United States 1,960,188 1,962,226 0.17
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
SERVICES TO THE HEALTH INDUSTRY
Matria Healthcare Inc., Term Loan C, 7.439%, 1/19/07 United States 619,231 618,476 0.05
Per-Se Technologies Inc., Term Loan B, 7.68 - 7.75%, 12/14/12 United States 2,743,678 2,764,036 0.24
Quintiles Transnational Corp., Term Loan B, 7.50%, 3/31/13 United States 997,500 995,794 0.09
------------------------
4,378,306 0.38
------------------------
SPECIALTY STORES
J.Crew Operating Corp., Term Loan, 9.50%, 5/15/13 United States 964,912 962,230 0.09
Pantry Inc., Term Loan, 7.15%, 1/02/12 United States 1,522,074 1,530,795 0.13
The Sports Authority Inc. (TSA Stores), Term Loan B, 7.749%,
5/03/13 United States 1,700,000 1,694,458 0.15
Travelcenters of America Inc., Term Loan, 6.86 - 7.25%, 12/01/11 United States 3,781,000 3,802,174 0.33
------------------------
7,989,657 0.70
------------------------
SPECIALTY TELECOMMUNICATIONS
D&E Communications Inc., Term Loan B, 7.21 - 9.25%, 12/31/11 United States 2,047,002 2,054,924 0.18
Fairpoint Communications Inc., Term Loan B, 7.25%, 2/08/12 United States 7,000,000 7,005,530 0.61
Iowa Telecommunications Services Inc., Term Loan B, 7.15 - 7.25%,
11/23/11 United States 5,250,000 5,276,670 0.46
Madison River Capital LLC, Term Loan B-1, 7.73%, 7/29/12 United States 3,000,000 2,999,970 0.26
NTELOS Inc., Term Loan B-1, 7.65%, 8/24/11 United States 5,885,133 5,884,662 0.52
c Windstream Corp., Term Loan B, 9.00%, 7/17/13 United States 15,700,000 15,682,259 1.38
------------------------
38,904,015 3.41
------------------------
TOBACCO
Commonwealth Brands Inc., Term Loan B, 7.75%, 12/22/12 United States 2,615,530 2,628,320 0.23
Reynolds American Inc., Term Loan B, 7.188 - 7.313%, 5/31/12 United States 7,200,000 7,224,552 0.63
------------------------
9,852,872 0.86
------------------------
WHOLESALE DISTRIBUTORS
Interline Brands,
Delayed Draw Term Loan, 7.21 - 7.26%, 6/23/13 United States 1,026,069 1,027,618 0.09
Term Loan B, 7.26%, 6/23/13 United States 789,284 790,475 0.07
------------------------
1,818,093 0.16
------------------------
WIRELESS COMMUNICATIONS
Nextel Partners Inc., Term Loan D, 6.85%, 5/31/12 United States 5,989,736 5,971,947 0.52
------------------------
TOTAL SENIOR FLOATING RATE INTERESTS (COST $1,056,392,244) 1,055,498,332 92.52
------------------------
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
SHORT TERM INVESTMENT (COST $117,819,812)
REPURCHASE AGREEMENT United States 117,819,812 117,819,812 10.33
i Joint Repurchase Agreement, 5.247%, 8/01/06 (Maturity Value
$117,836,985)
ABN AMRO Bank, N.V., New York Branch (Maturity Value
$10,733,771)
Banc of America Securities LLC (Maturity Value $10,733,771)
Barclays Capital Inc. (Maturity Value $10,733,771)
Bear, Stearns & Co. Inc. (Maturity Value $10,733,771)
BNP Paribas Securities Corp. (Maturity Value $10,733,771)
Deutsche Bank Securities Inc. (Maturity Value $10,733,771)
Greenwich Capital Markets Inc. (Maturity Value $10,733,771)
Lehman Brothers Inc. (Maturity Value $10,499,275)
Merrill Lynch Government Securities Inc. (Maturity Value
$10,733,771)
Morgan Stanley & Co. Inc. (Maturity Value $10,733,771)
UBS Securities LLC (Maturity Value $10,733,771)
Collateralized by U.S. Government Agency Securities,
2.625 - 7.00%, 8/15/06 - 5/15/13; j U.S. Government
Agency Discount Notes, 9/22/06; U.S. Treasury Notes,
2.375 - 4.875%, 1/15/11 - 4/05/11
-------------------------
TOTAL INVESTMENTS (COST $1,174,212,056) 1,173,318,144 102.85
OTHER ASSETS, LESS LIABILITIES (32,463,860) (2.85)
-------------------------
NET ASSETS $ 1,140,854,284 100.00
=========================
a The coupon rate shown represents the rate at period end.
b See Note 1(d) regarding senior floating rate interests.
c See Note 1(c) regarding securities purchased on a when-issued or delayed
delivery basis.
d The principal amount is stated in U.S. dollars unless otherwise indicated.
e See Note 10 regarding other considerations.
f See Note 11 regarding fund litigation.
g See Note 8 regarding unfunded loan commitments.
h Rounds to less than 0.1% of net assets.
i See Note 1(b) regarding joint repurchase agreement.
j The security is traded on a discount basis with no stated coupon rate.
SELECTED PORTFOLIO ABBREVIATIONS
FRN Floating Rate Note
L/C Letters of Credit
REIT Real Estate Investment Trust
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2006
Assets:
Investments in securities:
Cost - Unaffiliated issuers $ 1,056,392,244
Cost - Repurchase agreements 117,819,812
---------------
Total cost of investments $ 1,174,212,056
---------------
Value - Unaffiliated issuers 1,055,498,332
Value - Repurchase agreements 117,819,812
---------------
Total value of investments 1,173,318,144
Cash 9,176,980
Receivables:
Investment securities sold 10,866,507
Capital shares sold 6,495,633
Interest 7,119,350
Unrealized gain on unfunded loan commitments (Note 8) 54,821
---------------
Total assets 1,207,031,435
---------------
Liabilities:
Payables:
Investment securities purchased 58,775,730
Affiliates 510,883
Distributions to shareholders 6,548,970
Accrued expenses and other liabilities 341,568
---------------
Total liabilities 66,177,151
---------------
Net assets, at value $ 1,140,854,284
===============
Net assets consist of:
Paid-in capital $ 1,152,383,753
Accumulated distributions in excess of net investment income (469,924)
Net unrealized appreciation (depreciation) (839,091)
Accumulated net realized gain (loss) (10,220,454)
---------------
Net assets, at value $ 1,140,854,284
===============
Net asset value and maximum offering price per share ($1,140,854,284
-:- 116,781,120 shares outstanding) $ 9.77
===============
The accompanying notes are an integral part of these financial statements.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 2006
Investment income:
Interest $ 69,847,505
---------------
Expenses:
Management fees (Note 3a) 8,791,933
Administrative fees (Note 3b) 1,373,991
Custodian fees (Note 4) 22,871
Reports to shareholders 7,298
Professional fees 104,639
Other 97,213
---------------
Total expenses 10,397,945
Expense reductions (Note 4) (22,640)
Expenses waived/paid by affiliate (Note 3d) (3,780,771)
---------------
Net expenses 6,594,534
---------------
Net investment income (loss) 63,252,971
---------------
Realized and unrealized gains (losses):
Net realized gain (loss) from investments 502,393
Net change in unrealized appreciation (depreciation) on investments (8,914,543)
---------------
Net realized and unrealized gain (loss) (8,412,150)
---------------
Net increase (decrease) in net assets resulting from operations $ 54,840,821
===============
The accompanying notes are an integral part of these financial statements.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED JULY 31,
2006 2005
----------------------------------
Increase (decrease) in net assets:
Operations:
Net investment income $ 63,252,971 $ 39,821,846
Net realized gain (loss) from investments 502,393 (1,104,671)
Net change in unrealized appreciation (depreciation) on investments (8,914,543) 2,318,139
----------------------------------
Net increase (decrease) in net assets resulting from operations 54,840,821 41,035,314
Distributions to shareholders from net investment income (63,744,758) (40,252,180)
Capital share transactions (Note 2) 28,625,266 362,363,109
----------------------------------
Net increase (decrease) in net assets 19,721,329 363,146,243
Net assets:
Beginning of year 1,121,132,955 757,986,712
----------------------------------
End of year $ 1,140,854,284 $ 1,121,132,955
==================================
Distributions in excess of net investment income included in net assets:
End of year $ (469,924) $ (440,677)
==================================
The accompanying notes are an integral part of these financial statements.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Franklin Floating Rate Master Trust (the Trust) is registered under the
Investment Company Act of 1940 (1940 Act) as a non-diversified, open-end
investment company, consisting of one fund, the Franklin Floating Rate Master
Series (the Fund), which is organized as a partnership. The shares of the Fund
are issued in the form of partnership interests and are exempt from registration
under the Securities Act of 1933.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Short term investments are valued at cost.
Corporate debt securities generally trade in the over-the-counter market rather
than on a securities exchange. The Fund may utilize independent pricing
services, quotations from bond dealers, and information with respect to bond and
note transactions, to assist in determining a current market value for each
security. The Fund's pricing services may use valuation models or matrix pricing
which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.
Senior secured corporate loans with floating or variable interest rates
generally trade in the over-the-counter market rather than on a securities
exchange. The Fund may utilize independent pricing services, quotations from
loan dealers and other financial institutions, and information with respect to
bond and note transactions, to assist in determining a current market value for
each security. The Fund's pricing services use independent market quotations
from loan dealers or financial institutions and may incorporate valuation
methodologies that consider multiple bond characteristics such as dealer quotes,
issuer type, coupon, maturity, weighted average maturity, interest rate spreads
and yield curves, cash flow and credit risk/quality analysis to determine
current value.
The Trust has procedures to determine the fair value of individual securities
and other assets for which market prices are not readily available or which may
not be reliably priced. Methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security is completed and the close of the NYSE that might call into question
the availability (including the reliability) of the value of a portfolio
security held by the Fund. If such an event occurs, the securities may be valued
using fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Trust's Board of
Trustees.
B. JOINT REPURCHASE AGREEMENT
The Fund may enter into a joint repurchase agreement whereby its uninvested cash
balance is deposited into a joint cash account with other funds managed by the
investment manager or an affiliate of the investment manager and is used to
invest in one or more repurchase agreements. The value and face amount of the
joint repurchase agreement are allocated to the funds based on their pro-rata
interest. A repurchase agreement is accounted for as a loan by the Fund to the
seller, collateralized by securities which are delivered to the Fund's
custodian. The market value, including accrued interest, of
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the initial collateralization is required to be at least 102% of the dollar
amount invested by the Funds, with the value of the underlying securities marked
to market daily to maintain coverage of at least 100%. Repurchase agreements are
valued at cost. At July 31, 2006, all repurchase agreements held by the Fund had
been entered into on that date.
C. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS
The Fund may purchase securities on a when-issued or delayed delivery basis,
with payment and delivery scheduled for a future date. These transactions are
subject to market fluctuations and are subject to the risk that the value at
delivery may be more or less than the trade date purchase price. Although the
Fund will generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. Sufficient
assets have been segregated for these securities.
D. SENIOR FLOATING RATE INTERESTS
Senior 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). Senior secured corporate loans often
require prepayment of principal from excess cash flows or at the discretion of
the borrower. As a result, actual maturity may be substantially less than the
stated maturity.
Senior secured corporate loans in which the Fund invests are generally readily
marketable, but may be subject to some restrictions on resale.
E. INCOME TAXES
No provision has been made for income taxes because all income, expenses, gains
and losses are allocated to the partners for inclusion in their individual
income tax returns.
F. 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. Amortization of
premium and accretion of discount on debt securities are included in interest
income. Facility fees are recognized as income over the expected term of the
loan. Net investment income is proportionately allocated to the partners daily
and distributed monthly. Net capital gains (or losses) realized by the Fund will
be allocated proportionately to each partner and will not be distributed.
Distributions to partners are determined according to income tax regulations
(tax basis). Distributable earnings determined on a tax basis may differ from
earnings recorded in accordance with accounting principles generally accepted in
the United States. These differences may be permanent or temporary. Permanent
differences are reclassified among capital accounts to reflect their tax
character. These reclassifications have no impact on net assets or the results
of operations. Temporary differences are not reclassified, as they may reverse
in subsequent periods.
G. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
H. GUARANTEES AND INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees are
indemnified by the Trust against certain liabilities arising out of the
performance of their duties to the Trust. Additionally, in the normal course of
business, the Trust enters into contracts with service providers that contain
general indemnification clauses. The Trust's maximum
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
exposure under these arrangements is unknown as this would involve future claims
that may be made against the Trust that have not yet occurred. However, based on
experience, the Trust expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At July 31, 2006, there were an unlimited number of shares authorized ($0.01 par
value). Transactions in the Fund's shares were as follows:
YEAR ENDED JULY 31,
2006 2005
-------------------------------------------------------------
Shares Amount Shares Amount
-------------------------------------------------------------
Shares sold 25,347,164 $ 248,905,074 45,298,765 $ 445,643,440
Shares redeemed (22,428,878) (220,279,808) (8,473,583) (83,280,331)
============================================================
Net increase (decrease) 2,918,286 $ 28,625,266 36,825,182 $ 362,363,109
============================================================
3. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Trust are also officers and/or directors of the following
subsidiaries:
Entity Affiliation
- ---------------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manager
Franklin/Templeton Investor Services, LLC (Investor Services) Transfer agent
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers of 0.80% per year of the
average daily net assets of the Fund.
B. ADMINISTRATIVE FEES
The Fund pays an administrative fee to FT Services based on the Fund's average
daily net assets as follows:
ANNUALIZED FEE
RATE NET ASSETS
- -------------------------------------------------------------------------------
0.150% Up to and including $200 million
0.135% Over $200 million, up to and including $700 million
0.100% Over $700 million, up to and including $1.2 billion
0.075% In excess of $1.2 billion
C. TRANSFER AGENT FEES
Investor Services, under terms of an agreement, performs shareholder servicing
for the Fund and is not paid by the Fund for the services.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
D. VOLUNTARY WAIVER AND EXPENSE REIMBURSEMENTS
FT Services agreed in advance to voluntarily waive administrative fees.
Additionally, Advisers agreed in advance to voluntarily waive a portion of
management fees as noted in the Statement of Operations. Total expenses waived
by FT Services and Advisers are not subject to reimbursement by the Fund
subsequent to the Fund's fiscal year end.
E. OTHER AFFILIATED TRANSACTIONS
At July 31, 2006, the shares of the Fund were owned by the following entities:
ENTITY SHARES
- -------------------------------------------------------------------
Franklin Floating Rate Fund PLC 116,761,120
Franklin Resources Inc. 10,000
Templeton Investment Counsel Inc. 10,000
-----------
TOTAL 116,781,120
===========
4. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended July 31, 2006, the
custodian fees were reduced as noted in the Statement of Operations.
5. INCOME TAXES
At July 31, 2006, the cost of investments, net unrealized appreciation
(depreciation) for income tax purposes were as follows:
Cost of investments $ 1,174,578,795
===============
Unrealized appreciation $ 1,863,992
Unrealized depreciation (3,124,643)
---------------
Net unrealized appreciation (depreciation) $ (1,260,651)
===============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatment of bond premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales and bond premiums.
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short term securities) for the
year ended July 31, 2006, aggregated $830,441,104 and $798,427,198,
respectively.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CREDIT RISK
The Fund has 86.30% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
8. 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. Funded portions of credit agreements are presented on the
Statement of Investments.
At July 31, 2006, unfunded commitments were as follows:
- --------------------------------------------------------------------------------
UNFUNDED
BORROWER COMMITMENT
- --------------------------------------------------------------------------------
Affiliated Computer Services Inc., Additional Term Loan $ 3,700,000
Allied Waste North America Inc., Revolver 1,635,238
American Greetings Corp., Term Loan 1,000,000
Amsted Industries Inc., Delay Draw 500,000
Babcock and Wilcox Co., Delay Draw 3,400,000
Baker Tanks Inc., Delay Draw 80,357
CBRL Group (Cracker Barrel), Term Loan B2 (Delayed Draw) 427,242
Conseco Inc., Revolver 4,000,000
Hawaiian Telecom Communications Inc., Term Loan A 1,450,000
LSP General Finance Co. LLC, Delay Draw 92,929
MEG Energy Corp., Delay Draw 600,000
Niska Gas Storage U.S. LLC (C/R Gas), Delay Draw 407,273
Sealy Mattress Co., Revolver 750,000
VML US Finance LLC (Venetian Macau), Delay Draw 2,766,667
W&T Offshore Inc., Term Loan B 1,200,000
WMG Acquisition Corp. (Warner Music), Revolver A 3,427,333
-----------
$25,437,039
Unfunded loan commitments and funded portions of credit agreements are marked to
market daily and any unrealized gain or loss is included in the Statement of
Assets and Liabilities and Statement of Operations.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDER DISTRIBUTIONS
For the year ended July 31, 2006, the Fund made the following distributions:
Payment Date Amount Per Share
- -------------------------------------------
8/31/2005 $0.040466
9/30/2005 $0.040654
10/31/2005 $0.044632
11/30/2005 $0.043318
12/30/2005 $0.046381
1/31/2006 $0.049234
2/28/2006 $0.045091
3/31/2006 $0.049378
4/28/2006 $0.050298
5/31/2006 $0.052204
6/30/2006 $0.051237
7/31/2006 $0.055975
- -------------------------------------------
Total $0.568868
Daily distribution information is available at the registered office upon
request.
10. OTHER CONSIDERATIONS
Directors or employees of Advisers, as the Fund's Investment Manager, may serve
as members of various bondholders' steering committees, on credit committees, or
may represent the Fund in certain corporate restructuring negotiations. At July
31, 2006, such individuals serve in one or more of these capacities for Adelphia
Communications Corp. As a result of this involvement, such individuals may be in
possession of certain material non-public information. If the Fund's Investment
Manager, while in possession of such information, seeks to buy or sell any of
these securities, it will comply with all applicable federal securities laws.
11. FUND LITIGATION
On July 6, 2003, Adelphia Communications Corp. ("Adelphia") and related parties,
along with its Official Committee of Unsecured Creditors, filed an adversary
proceeding in the Adelphia bankruptcy case in the U.S. Bankruptcy Court (SDNY)
against more than 400 banks, financial services companies, insurance companies,
investment banks, mutual funds and other parties that had arranged for the sale
of, or purchased the bank debt of, Adelphia or its related parties. Named
defendants included Franklin Advisers Inc., Franklin CLOs I - III, Franklin
Floating Rate Daily Access Fund, Franklin Floating Rate Master Series, and
Franklin Floating Rate Trust. The Complaint alleges that the purchasers of this
bank debt knew, or should have known, that the loan proceeds would not benefit
Adelphia, but instead would be used to enrich Adelphia insiders. It seeks
avoidance of the loans and recovery of fraudulent transfers. The reference of
this adversary proceeding to the Bankruptcy Court has been withdrawn, and the
matter is now pending in U.S. District Court (SDNY) before Judge Lawrence
McKenna.
The Franklin defendants have not yet been required to respond to the complaint
or to discovery, and other pending motions to dismiss have not been ruled upon.
Thus, it is not possible to predict the lawsuit's outcome at this preliminary
stage of the proceedings. However, management of the funds does not expect that
the result will have a material adverse effect on the financial condition of the
funds.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY MATTERS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, relating to certain practices in the
mutual fund industry, including late trading, market timing and marketing
support payments to securities dealers who sell fund shares, Franklin Resources,
Inc. and certain of its subsidiaries (collectively, the "Company"), entered into
settlements with certain of those regulators.
Specifically, the Company entered into settlements with the Securities and
Exchange Commission ("SEC") concerning market timing (the "August 2, 2004 SEC
Order") and marketing support payments to securities dealers who sell fund
shares (the "December 13, 2004 SEC Order") and with the California Attorney
General's Office ("CAGO") concerning marketing support payments to securities
dealers who sell fund shares (the "CAGO Settlement"). Under the terms of the
settlements with the SEC and the CAGO, the Company retained an Independent
Distribution Consultant ("IDC") to develop separate plans for the distribution
of the respective settlement monies. The CAGO approved the distribution plan
pertaining to the distribution of the monies owed under the CAGO settlement
agreement, and in March 2005, the disbursement of monies to the relevant funds
in accordance with the terms and conditions of that settlement was completed.
The Trust did not participate in the CAGO Settlement.
On June 23, 2006, the SEC approved the IDC's proposed plan of distribution
arising from the December 13, 2004 SEC Order. The relevant funds recorded the
settlement as other income and disbursement of the settlement monies to the
designated funds in accordance with the terms and conditions of the SEC's order
and the plan will be completed in September 2006. The Fund did not participate
in the December 13, 2004 SEC Order.
The IDC has also completed a proposed Plan of Distribution under the August 2,
2004 SEC Order resolving the SEC's market timing investigation and has submitted
that plan to the SEC staff, where it is under review. The SEC has announced the
following expected schedule with respect to the market timing Plan of
Distribution: "The SEC anticipates that Notice of the Plan will be published on
or after September 15, 2006. After publication and comment, the proposed
Distribution Plan will be submitted to the SEC for approval. When the SEC
approves the proposed Distribution Plan, with modifications as appropriate,
distributions will begin pursuant to that Plan. The SEC anticipates the
distribution will begin in the fall of 2006."
In addition, the Company, as well as most of the mutual funds within Franklin
Templeton Investments and certain current or former officers, directors, and/or
employees, have been named in private lawsuits (styled as shareholder class
actions, or as derivative actions on behalf of either the named funds or
Franklin Resources, Inc.) relating to the industry practices referenced above,
as well as to allegedly excessive advisory fees, commissions, and/or 12b-1 fees.
The lawsuits were filed in different courts throughout the country. Many of
those suits are now pending in a multi-district litigation in the United States
District Court for the District of Maryland.
The Company and fund management strongly believe that the claims made in each of
the private lawsuits referenced above are without merit and intend to defend
against them vigorously. The Company cannot predict with certainty the eventual
outcome of these lawsuits, nor whether they will have a material negative impact
on the Company. If it is determined that the Company bears responsibility for
any unlawful or inappropriate conduct that caused losses to the Fund, it is
committed to making the Fund or its shareholders whole, as appropriate.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST
FRANKLIN FLOATING RATE MASTER SERIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. NEW ACCOUNTING PRONOUNCEMENT
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
Interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions taken or expected to be taken in a
tax return. FIN 48 provides guidance on the measurement, recognition,
classification and disclosure of tax positions, along with accounting for the
related interest and penalties. FIN 48 is effective for fiscal years beginning
after December 15, 2006, and is to be applied to all open tax years as of the
date of effectiveness. We have not yet completed our evaluation of the impact,
if any, of adopting FIN 48 on the Trust's financial statements.
Annual Report
FRANKLIN FLOATING RATE MASTER TRUST OF FRANKLIN FLOATING RATE MASTER SERIES
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES OF FRANKLIN FLOATING RATE MASTER TRUST AND SHAREHOLDERS
OF FRANKLIN FLOATING RATE MASTER SERIES
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 Master
Series (the "Fund"), a series of Franklin Floating Rate Master Trust, at July
31, 2006, 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 five years in the period then ended, 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards 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, 2006 by
correspondence with the custodian, brokers and agent banks, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
SEPTEMBER 15, 2006
BOARD MEMBERS AND OFFICERS
The name, year of birth and address of the officers and board members, as well
as their affiliations, positions held with the Fund, principal occupations
during the past five years and number of portfolios overseen in the Franklin
Templeton Investments fund complex are shown below. Each board member will serve
until that person's successor is appointed and qualified.
INDEPENDENT BOARD MEMBERS
- -----------------------------------------------------------------
NUMBER
OF
PORTFOLIOS
NAME, YEAR IN FUND
OF BIRTH AND LENGTH COMPLEX OTHER
ADDRESS OF TIME OVERSEEN DIRECTORSHIPS
POSITION SERVED BY BOARD HELD
MEMBER*
- -----------------------------------------------------------------
Harris J. Trustee Since 139 Director, Bar-S
Ashton (1932) 1999 Foods (meat
One Franklin packing company).
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and
FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and
President, Chief Executive Officer and Chairman of the Board, General Host
Corporation (nursery and craft centers) (until 1998).
- -----------------------------------------------------------------
S. Joseph Trustee Since 140 None
Fortunato 1999
(1932)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Attorney; and FORMERLY, member of the
law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
- -----------------------------------------------------------------
Edith E. Trustee Since 135 Director, Hess
Holiday 1999 Corporation
(1952) (formerly,
One Franklin Amerada Hess
Parkway Corporation)
San Mateo, (exploration and
CA 94403-1906 refining of oil
and gas), H.J.
Heinz Company
(processed foods
and allied
products), RTI
International
Metals, Inc.
(manufacture and
distribution of
titanium),
Canadian
National Railway
(railroad) and
White Mountains
Insurance Group,
Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various
companies and trusts; 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 (198-1990); and Counselor to the Secretary and
Assistant Secretary for Public Affairs and Public Liaison-United States Treasury
Department (1988-1989).
- -----------------------------------------------------------------
Frank W.T. Trustee Since 114 Director, Center
LaHaye (1929) 1999 for Creative
One Franklin Land Recycling
Parkway (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. Trustee Since 139 Director, Martek
Macklin 1999 Biosciences
(1928) Corporation,
One Franklin MedImmune, Inc.
Parkway (biotechnology),
San Mateo, and
CA 94403-1906 Overstock.com
(Internet
services); and
FORMERLY,
Director, MCI
Communication
Corporation
(subsequently
known as MCI
WorldCom, Inc.
and WorldCom,
Inc.)
(communications
services)
(1988-2002),
White Mountains
Insurance Group,
Ltd. (holding
company)
(1987-2004) and
Spacehab, Inc.
(aerospace
services)
(1994-2003).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman,
White Mountains Insurance Group, Ltd. (holding company)
(2001-2004); Chairman, White River Corporation (financial
services) (1993-1998) and Hambrecht & Quist Group (investment
banking) (1987-1992); and President, National Association of
Securities Dealers, Inc. (1970-1987).
- -----------------------------------------------------------------
Frank A. Trustee Since 102 Director, Hess
Olson (1932) 2005 Corporation
One Franklin (formerly,
Parkway Amerada Hess
San Mateo, Corporation)
CA 94403-1906 (exploration and
refining of oil and gas) and
Sentient Jet (private jet
service); and FORMERLY, Director,
Becton Dickinson and Company
(medical technology), Cooper
Industries, Inc. (electrical
products and tools and hardware),
Health Net, Inc. (formerly
Foundation Health) (integrated
managed care), The Hertz
Corporation, Pacific Southwest
Airlines, the RCA Corporation,
Unicom (formerly, Commonwealth
Edison), UAL Corporation
(airlines) and White Mountains
Insurance Group, Ltd. (holding
company).
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman Emeritus, The Hertz
Corporation (car rental) ( since 2000) (Chairman of the Board (1980-2000) and
Chief Executive Officer (1977-1999)); and FORMERLY, Chairman of the Board,
President and Chief Executive Officer, UAL Corporation (airlines).
- -----------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- -----------------------------------------------------------------
NAME, YEAR POSITION LENGTH NUMBER OTHER
OF BIRTH AND OF TIME OF DIRECTORSHIPS
ADDRESS SERVED PORTFOLIOS HELD
IN FUND
COMPLEX
OVERSEEN
BY BOARD
MEMBER*
- -----------------------------------------------------------------
**Charles B. Trustee and Since 139 None
Johnson Chairman of 1999
(1933) the Board
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and
Director, Franklin Resources, Inc.; Vice President, Franklin
Templeton Distributors, Inc.; Director, Fiduciary Trust Company
International; and officer and/or director or trustee, as the
case may be, of some of the other subsidiaries of Franklin
Resources, Inc. and of 42 of the investment companies in
Franklin Templeton Investments.
- -----------------------------------------------------------------
**Rupert H. Trustee, Trustee 123 None
Johnson, Jr. President and
(1940) and Chief President
One Franklin Executive since
Parkway Officer 1999 and
San Mateo, -Investment Chief
CA 94403-1906 Management Executive
Officer-
Investment
Management
since
2002
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.; Senior Vice President, Franklin Advisory Services, LLC;
and officer and/or director or trustee, as the case may be, of
some of the other subsidiaries of Franklin Resources, Inc. and
of 45 of the investment companies in Franklin Templeton
Investments.
- -----------------------------------------------------------------
Mark Vice Since Not Not Applicable
Boyadjian President 2003 Applicable
(1964)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Vice President, Templeton Worldwide, Inc.; and officer
of two of the investment companies in Franklin Templeton
Investments.
- -----------------------------------------------------------------
Harmon E. Vice Since Not Not Applicable
Burns (1945) President 1999 Applicable
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.; and officer and/or director or
trustee, as the case may be, of some of the other subsidiaries
of Franklin Resources, Inc. and of 45 of the investment
companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
James M. Chief Chief Not Not Applicable
Davis Compliance Compliance Applicable
(1952) Officer and Officer
One Franklin Vice since
Parkway President - 2004 and
San Mateo, AML Vice
CA 94403-1906 Compliance President
- AML
Compliance
since
February
2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director, Global Compliance, Franklin Resources, Inc.; officer
of 47 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Director of Compliance, Franklin
Resources, Inc. (1994-2001).
- -----------------------------------------------------------------
Laura Treasurer Since Not Not Applicable
Fergerson 2004 Applicable
(1962)
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Franklin Templeton Services, LLC; officer of 31 of the
investment companies in Franklin Templeton Investments; and FORMERLY, Director
and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004);
Assistant Treasurer of most of the investment companies in Franklin Templeton
Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC
(1997-2003).
- -----------------------------------------------------------------
Jimmy D. Senior Vice Since Not Applicable Not
Gambill President 2002 Applicable
(1947) and Chief
500 East Executive
Broward Officer
Blvd. -Finance and
Suite 2100 Administration
Fort
Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice
President, Templeton Worldwide, Inc.; and officer of 47 of the
investment companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
David P. Vice Since Not Not Applicable
Goss (1947) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Templeton
Investments; officer and director of one of the subsidiaries of
Franklin Resources, Inc.; and officer of 47 of the investment
companies in Franklin Templeton Investments.
- -----------------------------------------------------------------
Barbara J. Vice Since Not Not Applicable
Green (1947) President 2000 Applicable
One Franklin
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin
Resources, Inc.; Secretary and Senior Vice President, Templeton
Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin
Advisory Services, LLC, Franklin Investment Advisory Services,
LLC, Franklin Mutual Advisers, LLC, Franklin Templeton
Alternative Strategies, Inc., Franklin Templeton Investor
Services, LLC, Franklin Templeton Services, LLC, Franklin
Templeton Distributors, Inc., Templeton Investment Counsel,
LLC, and Templeton/Franklin Investment Services, Inc.; and
officer of some of the other subsidiaries of Franklin
Resources, Inc. and of 47 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, U.S. Securities and
Exchange Commission (1986-1995); Attorney, Rogers & Wells
(until 1986); and Judicial Clerk, U.S. District Court (District
of Massachusetts) (until 1979).
- -----------------------------------------------------------------
Karen L. Vice Vice Not Not Applicable
Skidmore President President Applicable
(1952) and since
One Franklin Secretary March
Parkway 2006
San Mateo, and
CA 94403-1906 Secretary
since
April
2006
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Associate General Counsel,
Franklin Templeton Investments; Vice President and Secretary, Templeton Funds
Annuity Company; and officer of 31 of the investment companies in Franklin
Templeton Investments.
- -----------------------------------------------------------------
Craig S. Vice Since Not Not Applicable
Tyle (1960) President October Applicable
One Franklin 2005
Parkway
San Mateo,
CA 94403-1906
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Counsel and Executive Vice President, Franklin
Resources, Inc.; officer of 47 of the investment companies in
Franklin Templeton Investments; and FORMERLY, Partner, Shearman
& Sterling, LLP (2004-2005); and General Counsel, Investment
Company Institute (ICI) (1997-2004).
- -----------------------------------------------------------------
Galen G. Chief Since Not Not Applicable
Vetter (1951) Financial 2004 Applicable
500 East Officer and
Broward Chief
Blvd. Accounting
Suite 2100 Officer
Fort
Lauderdale,
FL 33394-3091
PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin
Templeton Services, LLC; officer of 47 of the investment companies in Franklin
Templeton Investments; and FORMERLY, Managing Director, RSM McGladrey, Inc.
(1999-2004); and Partner, McGladrey & Pullen, LLP (1979-1987 and 1991-2004).
- -----------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered
investment companies within the Franklin Templeton Investments fund complex.
These portfolios have a common investment manager or affiliated investment
managers.
**Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be 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 Fund's investment manager and distributor.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAS DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION
RULES AND RELEASES.
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.
SHAREHOLDER INFORMATION
BOARD REVIEW OF INVESTMENT MANAGEMENT AGREEMENT
At a meeting held February 28, 2006, the Board of Trustees ("Board"), including
a majority of non-interested or independent Trustees, approved renewal of the
investment management agreement for the Fund. In reaching this decision, the
Board took into account information furnished throughout the year at regular
Board meetings, as well as information prepared specifically in connection with
the annual renewal review process. Information furnished and discussed
throughout the year included portfolio performance and financial information for
the Fund, as well as periodic reports on shareholder services, legal compliance,
pricing, brokerage commissions and execution and other services provided by the
Manager and its affiliates. In addition, information specifically furnished to
the Trustees in connection with the contract renewals being considered at the
meeting included a Fund Profitability Analysis Report and additional
information. The Fund Profitability Analysis Report discussed the profitability
to Franklin Templeton Investments from its overall U.S. fund operations, as well
as on an individual fund-by-fund basis. Included in the additional material
prepared specifically for the meeting was information on a fund-by-fund basis
listing portfolio managers and other accounts they manage, as well as
information on management fees charged by the Manager and its affiliates,
including management's explanation of differences where relevant, and a
three-year expense analysis with an explanation for any increase in expense
ratios. Additional information accompanying such report were a memorandum
prepared by management describing enhancements to the services provided to the
Funds by the Franklin Templeton Investments organization, as well as a
memorandum relating to economies of scale.
In considering such information, the independent Trustees received assistance
and met separately with independent counsel. The Fund Profitability Report and
other additional material prepared by management were sent to each of the
Trustees on February 3, 2006. Such material was reviewed and discussed by the
independent Trustees among themselves and with Jeff Keil of Keil Fiduciary
Strategies and was discussed in a telephonic conference call between management
and the independent Trustees that took place February 15, 2006. Questions raised
in such telephonic conference call were responded to by management and were
discussed at a meeting of independent Trustees held prior to the Board meeting.
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 12(a)(1), the Registrant is attaching as an exhibit a copy
of its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES
FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT
INVESTMENT COMPANIES. N/A
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END
MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY Holders. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 11. CONTROLS AND PROCEDURES. (A) EVALUATION OF DISCLOSURE CONTROLS
AND PROCEDURES. The Registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Registrant's filings under the Securities Exchange Act of 1934 and the
Investment Company Act of 1940 is recorded, processed, summarized and reported
within the periods specified in the rules and forms of the Securities and
Exchange Commission. Such information is accumulated and communicated to the
Registrant's management, including its principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required
disclosure. The Registrant's management, including the principal executive
officer and the principal financial officer, recognizes that any set of controls
and procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 12. EXHIBITS.
(a) (1) Code of Ethics
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of
Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN FLOATING RATE MASTER TRUST
By /S/JIMMY D. GAMBILL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 27, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /S/JIMMY D. GAMIBLL
-------------------
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date September 27, 2006
By /S/GALEN G. VETTER
------------------
Galen G. Vetter
Chief Financial Officer
Date September 27, 2006