-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EalAR45sIm4dw2Jap7UNZD2gvqfT9S2sIFYJdGnNe/9i8P4uNwhLm1idONvRSa9R 7rNSIRO6FXL9OaF43dy/Jw== 0000854856-00-000009.txt : 20001211 0000854856-00-000009.hdr.sgml : 20001211 ACCESSION NUMBER: 0000854856-00-000009 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN MULTI INCOME TRUST CENTRAL INDEX KEY: 0000854856 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943111137 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05873 FILM NUMBER: 785586 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4155703000 MAIL ADDRESS: STREET 1: FRANKLIN MULTI INCOME TRUST STREET 2: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 N-30D 1 0001.txt SHAREHOLDER LETTER - -------------------------------------------------------------------------------- Your Fund's Objective: Franklin Multi-Income Trust seeks to provide high, current income consistent with preservation of capital. - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to bring you this semiannual report for Franklin Multi-Income Trust, which covers the period ended September 30, 2000. Overall, the reporting period boasted robust economic growth with minimal inflation. In May, the Federal Reserve Board (the Fed) raised short-term interest rates as part of its ongoing effort to slow fast-paced economic growth before inflation became a problem. However, with only moderate inflation in the second and third calendar quarters of 2000, the Fed held rates steady since the May increase. Meanwhile, the combination of strong economic growth and rising interest rates early in the period contributed to significant financial market volatility. The Dow Jones(R) Industrial Average declined 1.81% -- a number that masks the period's large swings, both up and down -- while the Nasdaq Composite declined 19.27%, with a precipitous drop in April, followed by some gradual improvement by the period's end.(1) 1. Sources: Standard & Poor's Micropal. The unmanaged Dow Jones Industrial Average is price-weighted based on the average market price of 30 blue chip stocks. The average is found by adding the prices of the 30 stocks and dividing by a denominator that has been adjusted for stock splits, stock dividends, and substitutions of stocks. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S. based common stocks listed on the Nasdaq Stock Market(R). The index is market-value weighted and includes over 4,400 companies (as of 9/30/00). The dollar value, number of shares or principal value, and complete legal titles of all portfolio holdings are listed in the Fund's Statement of Investments (SOI). The SOI begins on page 13. CONTENTS Shareholder Letter ...... 1 Performance Summary ..... 6 Dividend Reinvestment and Cash Purchase Plan ...... 8 Financial Highlights & Statement of Investments 12 Financial Statements .... 17 Notes to Financial Statements .............. 21
PORTFOLIO BREAKDOWN Based on Total Market Value 9/30/00 [PORTFOLIO BREAKDOWN PIE CHART] Corporate Bonds 46.1% Utilities and Telecommunications Stocks 46.8% Misc. Equities & Preferred Stocks 5.0% Convertible Bonds 1.0% Foreign Currency Denominated Bonds 0.3% Cash & Equivalents 0.8%
For its part, the benchmark 10-year U.S. Treasury note demonstrated greater stability due to the lack of Fed action during the latter part of the period. Ten-year Treasury yields began the period at 6.00%, and declined to 5.80% on September 30, 2000. Performance within the Trust's principal asset classes, high yield bonds and utility stocks, diverged greatly during this period. High yield bonds returned 0.89% for the six-month period, as investors demanded higher yields to compensate them for the asset class's inherent credit risk.(2) Since bond price moves inversely to yield, as the yield rises, the price falls. This price decline partially offset the high coupons paid on the bonds, resulting in a total return well below historical averages. Electric utility stocks delivered an impressive 50.03% return during the period, attributable, in part, to broader stock market volatility, particularly in the technology-heavy Nasdaq(R).(3) In this mixed environment for its asset classes, the Trust's six-month cumulative total returns were +20.49% based on net asset value and +26.58% based on the change in market price.(4) At the same time, the Trust's dividends totaled 33.6 cents per share. SECTOR DISCUSSIONS CONSUMER SERVICES - BROADCASTING & MEDIA Recent cable industry consolidation brought economies of scale and increased operating efficiencies for the leading participants, 2. Source: Chase Securities Inc., 9/30/00. The unmanaged Chase Global High Yield Index is a U.S. dollar-denominated and market-capitalization weighted index designed to mirror the investible universe of the global high yield corporate debt market, including domestic and international issues. International issues are composed of both developed and emerging market issues. As of 10/13/00, it had 1,564 issues with a market capitalization of $276 billion. The index does not include reinvested interest. One cannot invest directly in an index, nor is an index representative of the Trust's portfolio. 3. Source: Standard & Poor's Micropal, 9/30/00. The unmanaged S&P Electrical Companies Index is a subsector of the Utilities Sector of the S&P 500. It includes all the companies in the Electrical Companies industry that are in the S&P 500. This index, calculated by Standard & Poor's, is a total return index with dividends reinvested. One cannot invest directly in an index, nor is an index representative of the Trust's portfolio. 4. Cumulative total return represents the change in value of an investment for the period indicated. 2 favorably impacting the sector's bonds. Digital cable and cable modems for Internet access also provided additional growth opportunities. During the reporting period, we initiated a position in Adelphia Communications, a large, domestic cable operator that offers, in our opinion, an attractive mix of growth opportunities and a defensive, non-cyclical posture. TELECOMMUNICATIONS - WIRELESS The Trust continues to find the wireless sector to be extremely attractive. The U.S. wireless penetration, or percentage of the population subscribing to wireless services, stood at approximately 30% on December 31, 1999. Judging by Europe's penetration rates in excess of 50%, we believe there is still plenty of room for domestic growth. Reduced price competition among the sector's major companies led to fairly stable average revenue-per-unit growth during the period. As wireless use proliferates, the industry needs more transmitters, which must be located on tall buildings or towers, enabling the towers segment of the industry to capitalize on the same trends as the wireless communication companies. We maintained this sector's overweight position relative to the Chase Global High Yield Index, in an attempt to capitalize on what we believed to be favorable investment opportunities. CONSUMER SERVICES - GAMING The gaming sector delivered one of the best performances in the high yield universe, driven by stronger-than-expected results in Las Vegas and solid riverboat performance over the reporting period. We believe the gaming industry offers stable operating results and solid cash flow, backed by hard asset protection. In this vein, we increased the Trust's gaming exposure TOP 10 HOLDINGS 9/30/00
% OF TOTAL COMPANY MARKET SECTOR (SECURITY TYPE) VALUE - --------------------------------------- Enron Corp. 3.5% Utilities (Stock) Reliant Energy Inc. 3.4% Utilities (Stock) Duke Energy Corp. 3.4% Utilities (Stock) Unicom Corp. 3.1% Utilities (Stock) FPL Group Inc. 2.9% Utilities (Stock) Xcel Energy Inc. 2.7% Utilities (Stock) Southern Co. 2.6% Utilities (Stock) TXU Corp. 2.1% Utilities (Stock) Entergy Corp. 2.0% Utilities (Stock) Dominion Resources Inc. 1.9% Utilities (Stock)
3 DIVIDEND DISTRIBUTIONS 4/1/00 - 9/30/00
DIVIDEND MONTH PER SHARE - ----------------------------- April 5.6 cents May 5.6 cents June 5.6 cents July 5.6 cents August 5.6 cents September 5.6 cents - ----------------------------- TOTAL 33.6 CENTS
by purchasing Mandalay Resort Group and Station Casinos bonds. Mandalay Resort Group is one of the largest gaming operators in the country, and should benefit from the Las Vegas market's strength and the potential to pay off its debt. Station Casinos dominates the local Las Vegas market, one of the country's fastest growing gaming markets. ELECTRIC UTILITIES Our electric utility stock portfolio delivered superior returns during the reporting period. The turning point in this group's performance coincided with the Nasdaq's decline, which made utility stocks appear to be an attractive and stable investment alternative for many investors. Additionally, the sector's historically low valuations and high relative yields, compared to the overall market, brightened its appeal, as did the lack of further Fed interest rate increases. Deregulation opportunities also contributed to the electric industry's recent, higher earnings growth rate. We continue to believe the electric industry has improving earnings prospects and provides attractive value relative to other equity investments. WHAT'S AHEAD We believe the U.S. economic outlook remains positive, despite the last six months' volatility. The Fed interest-rate increases of the past year appear to have kept inflation at bay without halting economic growth. Going forward, a strong domestic economy, combined with low inflation, should provide a favorable environment for the Trust's major asset classes. Although utility bonds have staged an impressive rally, we feel they still remain attractive on a historical basis. As of the period's end, high yield 4 bonds also remained very cheap on a historical basis. With overall yield spreads, or the premium paid for their higher risk, over Treasuries approaching historical records, high yield bonds appear poised to generate favorable returns in the future. Sincerely, /s/ Christopher J. Molumphy Christopher J. Molumphy Senior Portfolio Manager /s/ Glenn I. Voyles Glenn I. Voyles Portfolio Manager Franklin Multi-Income Trust - -------------------------------------------------------------------------------- This discussion reflects our views, opinions and portfolio holdings as of September 30, 2000, the end of the reporting period. The information provided is not a complete analysis of every aspect of any country, industry, security or the Fund. Our strategies and the Fund's portfolio composition will change depending on market and economic conditions. Although historical performance is no guarantee of future results, these insights may help you understand our investment and management philosophy. - -------------------------------------------------------------------------------- 5 PERFORMANCE SUMMARY AS OF 9/30/00 Distributions will vary based on earnings of the Trust's portfolio and any profits realized from the sale of the portfolio's securities, as well as the level of the Trust's operating expenses. Past distributions are not indicative of future trends. All total returns include reinvested distributions according to the terms specified in the Trust's dividend reinvestment and cash purchase plan. Six-Month Total Return(1) +20.49% Based on change in Net Asset Value +26.58% Based on change in Market Price on the New York Stock Exchange (NYSE) Net Asset Value (NAV) $10.38 (9/30/00) $8.97 (3/31/00) Change in NAV +$1.41 Market Price (NYSE) $8.50 (9/30/00) $7.00 (3/31/00) Change in Market Price +$1.50 Distributions (4/1/99-9/30/00) Dividend Income $0.3360
ADDITIONAL PERFORMANCE
INCEPTION 1-YEAR 5-YEAR 10-YEAR (10/9/89) - ----------------------------------------------------------------------------- Cumulative Total Return(1) Based on change in NAV +21.21% +72.71% +323.69% 283.60% Based on change in market price +20.65% +58.44% +343.07% 192.48% Average Annual Total Return(1) Based on change in NAV +21.21% +11.55% +15.53% 13.03% Based on change in market price +20.65% +9.64% +16.05% 10.27% Distribution Rate(2) 7.91%
1. Total return calculations represent the cumulative and average annual changes in value of an investment over the periods indicated. 2. Distribution rate is based on an annualization of the Trust's 5.6 cent per share September dividend and the NYSE closing price of $8.50 on 9/30/00. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, currency volatility, and the economic, social and political climates of countries where the Trust invests. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. You may have a gain or loss when you sell your shares. For updated performance figures, please call Franklin Templeton Investments at 1-800/342-5236. Past performance does not guarantee future results. 6 PORTFOLIO OPERATIONS CHRISTOPHER J. MOLUMPHY Senior Portfolio Manager Franklin Advisers, Inc. - -------------------------------------------------------------------------------- Christopher Molumphy earned his Bachelor of Arts degree in economics from Stanford University and his master's degree in finance from the University of Chicago. He has been with Franklin Advisers, Inc. since 1988. Mr. Molumphy is a Chartered Financial Analyst and a member of several securities industry associations. He has managed Franklin Multi-Income Trust since 1991. GLENN I. VOYLES Portfolio Manager Franklin Advisers, Inc. - -------------------------------------------------------------------------------- Glenn Voyles is a Chartered Financial Analyst and holds a Bachelor of Arts degree in economics from Stanford University. He joined Franklin Templeton in 1993. He is a member of Security Analysts of San Francisco (SASF) and the Association for Investment Management and Research (AIMR). 7 DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Trust's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers you a prompt and simple way to reinvest dividends and capital gain distributions in shares of the Trust. The Plan also allows you to purchase additional shares of the Trust by making voluntary cash payments. PFPC Global Fund Services (the "Plan Agent"), 101 Federal Street, Boston, Massachusetts, 02110, acts as your Plan Agent in administering the Plan. The complete Terms and Conditions of the Dividend Reinvestment and Cash Purchase Plan are contained in the Trust's Dividend Reinvestment and Cash Purchase Plan Brochure. A copy of that Brochure may be obtained from the Trust at the address on the back cover of this report. You are automatically enrolled in the Plan unless you elect to receive dividends or distributions in cash. If you own shares in your own name, you should notify the Plan Agent, in writing, if you wish to receive dividends or distributions in cash. If the Trust declares a dividend or capital gain distribution, you, as a participant in the Plan, will automatically receive an equivalent amount of shares of the Trust purchased on your behalf by the Plan Agent. The Plan permits you on a voluntary basis to submit in cash payments of not less than $100 each up to a total of $5,000 per month to purchase additional shares of the Trust. It is entirely 8 up to you whether you wish to buy additional shares with voluntary cash payments, and you do not have to send in the same amount each time if you do. These payments should be made by check or money order payable to Franklin Multi-Income Trust and sent to PFPC Global Fund Services, 101 Federal Street, Boston, Massachusetts, 02110. Your cash payment will be aggregated with the payments of other participants and invested on your behalf by the Plan Agent in shares of the Trust which are purchased in the open market. The Plan Agent will invest cash payments on approximately the 15th of each month in which no dividend or distribution is payable and, during each month in which a dividend or distribution is payable, will invest cash payments beginning on the dividend payment date. Under no circumstances will interest be paid on your funds held by the Plan Agent. Accordingly, you should send any voluntary cash payments which you wish to make shortly before an investment date but in sufficient time to ensure that your payment will reach the Plan Agent not less than 2 business days before an investment date. Payments received less than 2 business days before an investment date will be invested during the next month or, if there are more than 30 days until the next investment date, will be returned to you. You may obtain a refund of any cash payment by written notice, if the Plan Agent receives the written notice not less than 48 hours before an investment date. There is no direct charge to participants for reinvesting dividends and capital gain distributions, since the Plan Agent's fees are paid by the Trust. However, when shares are purchased in the open market, each participant will pay a pro rata portion 9 of any brokerage commissions incurred. The Plan Agent will deduct a $5.00 service fee from each of your voluntary cash payments. The automatic reinvestment of dividends and capital gain distributions does not relieve you of any taxes which may be payable on dividends or distributions. In connection with the reinvestment of dividends and capital gain distributions, shareholders generally will be treated as having received a distribution equal to the cash distribution that would have been paid. The Trust does not issue new shares in connection with the Plan. All investments are in full and fractional shares, carried to three decimal places. If the market price exceeds the net asset value you will receive shares at a price greater than net asset value per share in connection with purchases through the Plan. You will receive a monthly account statement from the Plan Agent, showing total dividends and capital gain distributions, date of investment, shares acquired and price per share, and total shares of record held by you and by the Plan Agent for you. You are entitled to vote all shares of record, including shares purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will include all such shares. As long as you participate in the Plan, the Plan Agent will hold the shares it has acquired for you in safekeeping, in its name or in the name of its nominee. This convenience provides added protection against loss, theft or inadvertent destruction of certificates. However, you may request that a certificate representing your Plan shares be issued to you. You may withdraw from the Plan at any time, without penalty, by notifying the Plan Agent in writing at the address above. If you withdraw from the Plan, you may specify either: (a) that 10 you wish to receive, without charge, stock certificates issued in your name for all full shares; or (b) that you prefer the Plan Agent to sell your shares and send you the proceeds less brokerage commissions and a $5.00 fee. The Plan Agent will convert any fractional shares you hold at the time of your withdrawal to cash at current market price and send you a check for the proceeds. If you hold shares in your own name, please address all notices, correspondence, questions, or other communications regarding the Plan to the Plan Agent at the address noted above. If your shares are not held in your name, you should contact your brokerage firm, bank, or other nominee for more information and to determine if your nominee will participate in the Plan on your behalf. The Trust or the Plan Agent may amend or terminate the Plan. You will receive written notice at least 90 days before the effective date of termination or of any amendment. In the case of termination, you will receive written notice at least 90 days before the record date of any dividend or capital gain distribution by the Trust. 11 FRANKLIN MULTI-INCOME TRUST Financial Highlights
SIX MONTHS ENDED YEAR ENDED MARCH 31, SEPTEMBER 30, 2000 ----------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 -------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period $ 8.97 $ 10.04 $ 11.98 $ 10.34 $ 10.61 $ 9.60 -------------------------------------------------------------------------- Income from investment operations: Net investment income .33 .71 .76 .72 .79 .78 Net realized and unrealized gains (losses) 1.42 (.84) (1.70) 2.18 -- 1.11 -------------------------------------------------------------------------- Total from investment operations 1.75 (.13) (.94) 2.90 .79 1.89 -------------------------------------------------------------------------- Less distributions from: Net investment income (.33) (.70) (.76) (.74) (.77) (.77) In excess of net investment income (.01) -- (.01) (.03) -- -- Net realized gains -- (.24) (.23) (.49) (.29) (.11) -------------------------------------------------------------------------- Total distributions (.34) (.94) (1.00) (1.26) (1.06) (.88) -------------------------------------------------------------------------- Net asset value, end of period $ 10.38 $ 8.97 $ 10.04 $ 11.98 $ 10.34 $ 10.61 ========================================================================== Market value, end of period(a) $ 8.500 $ 7.000 $ 9.000 $11.000 $ 9.375 $ 9.000 ========================================================================== Total return (based on market value per share)(b) 26.58% (12.29)% (9.58)% 32.57% 16.24% 12.87% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) $60,775 $52,559 $58,827 $70,190 $60,594 $62,153 Ratios to average net assets: Expenses 3.30% 3.30% 3.07% 3.00% 3.14% 3.21% Net investment income 6.88% 7.33% 6.87% 6.47% 7.48% 7.53% Portfolio turnover rate 13.81% 30.42% 24.31% 45.31% 44.40% 35.06% Total debt outstanding at end of period (000's) $16,000 $16,000 $16,000 $16,000 $16,000 $16,000 Asset coverage per $1,000 of debt $ 3,798 $ 3,285 $ 3,677 $ 4,387 $ 3,787 $ 3,885 Average amount of notes per share during the period $ 2.73 $ 2.73 $ 2.73 $ 2.73 $ 2.73 $ 2.73
(a) Based on the last sale on the New York Stock Exchange. (b) Total return is not annualized for periods less than one year. 12 See notes to financial statements. FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2000 (UNAUDITED)
SHARES/ WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS 59.9% CONSUMER SERVICES .1% Marriott International Inc., A ........................................... 1,052 $ 38,332 ----------- ENERGY MINERALS 1.4% Ultramar Diamond Shamrock Corp. .......................................... 33,300 844,988 ----------- NON-ENERGY MINERALS (a)Gulf States Steel Inc., wts., 4/15/03 .................................... 1,000 1 ----------- PRODUCER MANUFACTURING .1% (a)Anacomp Inc. ............................................................. 20,565 8,997 (a)Harvard Industries Inc. .................................................. 27,466 68,665 ----------- 77,662 ----------- TELECOMMUNICATIONS 4.9% AT&T Corp. ............................................................... 37,500 1,101,563 BellSouth Corp. .......................................................... 24,000 966,000 (a)Loral Space & Communications Ltd., wts., 1/15/07 ......................... 1,000 2,905 SBC Communications Inc. .................................................. 7,000 350,000 Verizon Communications ................................................... 12,200 590,938 ----------- 3,011,406 ----------- UTILITIES 53.4% Allegheny Energy Inc. .................................................... 30,000 1,145,625 American Electric Power Co. Inc. ......................................... 17,500 684,688 Constellation Energy Group Inc. .......................................... 20,000 995,000 Dominion Resources Inc. .................................................. 25,000 1,451,563 DPL Inc. ................................................................. 25,000 743,750 DTE Energy Co. ........................................................... 37,050 1,417,163 Duke Energy Corp. ........................................................ 29,800 2,555,350 Enron Corp. .............................................................. 30,000 2,628,750 Entergy Corp. ............................................................ 40,000 1,490,000 FirstEnergy Corp. ........................................................ 20,000 538,750 Florida Progress Corp. ................................................... 10,000 529,375 FPL Group Inc. ........................................................... 33,900 2,228,925 Montana Power Co. ........................................................ 15,000 500,625 PECO Energy Co. .......................................................... 20,900 1,265,756 PG&E Corp. ............................................................... 59,000 1,427,063 Pinnacle West Capital Corp. .............................................. 25,000 1,271,875 Puget Sound Energy Inc. .................................................. 25,000 634,375 Reliant Energy Inc. ...................................................... 55,400 2,576,100 SCANA Corp. .............................................................. 12,621 389,673 Sempra Energy ............................................................ 3,202 66,642 Southern Co. ............................................................. 60,000 1,946,250 TXU Corp. ................................................................ 40,000 1,585,000 Unicom Corp. ............................................................. 42,000 2,359,875 Xcel Energy Inc. ......................................................... 73,000 2,007,500 ----------- 32,439,673 ----------- TOTAL COMMON STOCKS AND WARRANTS (COST $24,507,062) ...................... 36,412,062 -----------
13 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2000 (UNAUDITED) (CONT.)
SHARES VALUE - ------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS 1.5% Sinclair Capital, 11.625%, pfd. (Cost $1,000,000) ........................ 10,000 $ 900,000 ----------- CONVERTIBLE PREFERRED STOCKS 3.1% CONSUMER SERVICES .3% Host Marriott Corp., 6.75%, cvt. pfd. .................................... 4,400 166,650 ----------- UTILITIES 2.8% CMS Energy Trust I, 7.75%, cvt. pfd. ..................................... 22,000 873,125 (e)SEI Trust I, 6.25%, cvt. pfd., A ......................................... 1,600 105,600 Utilicorp United Inc., 9.75%, cvt. pfd. .................................. 27,300 767,813 ----------- 1,746,538 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (COST $2,050,768) ..................... 1,913,188 ----------- PRINCIPAL AMOUNT(d) --------- BONDS 57.8% COMMERCIAL SERVICES 1.5% (c)AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ......... $ 250,000 11,250 Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ................. 775,000 682,000 Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 (United Kingdom) ........................................................ 700,000 248,500 ----------- 941,750 ----------- CONSUMER NON-DURABLES 1.0% Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ........ 1,000,000 575,000 (c)Specialty Retailers Inc., senior note, B, 8.50%, 7/15/05 ................. 500,000 27,500 ----------- 602,500 ----------- CONSUMER SERVICES 18.2% Adelphia Communications Corp., senior note, 10.875%, 10/01/10 ............ 1,000,000 985,000 AMFM Inc., senior note, 8.00%, 11/01/08 .................................. 500,000 508,750 AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ........................... 500,000 511,250 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................................... 1,000,000 590,000 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) ...... 500,000 457,500 EchoStar Broadband Corp., senior note, 144A, 10.375%, 10/01/07 ........... 1,000,000 1,000,000 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 ............................................... 1,000,000 852,500 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ........ 1,000,000 987,500 (e)Host Marriott LP, senior note, 144A, 9.25%, 10/01/07 ..................... 500,000 493,705 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 .............................................. 850,000 620,500 Mandalay Resort Group, senior note, 144A, 9.50%, 8/01/08 ................. 100,000 102,500 Mandalay Resort Group, senior sub. note, 144A, 10.25%, 8/01/07 ........... 500,000 516,250 Park Place Entertainment Corp., senior sub. note, 9.375%, 2/15/07 ........ 1,000,000 1,020,000 Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 .............. 600,000 574,500 Station Casinos Inc., senior sub. note, 144A, 9.875%, 7/01/10 ............ 1,100,000 1,111,000 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 (United Kingdom) ..................... 500,000 268,750 United Pan-Europe Communications NV, senior disc. note, zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 (Netherlands) .................... 1,000,000 480,000 ----------- 11,079,705 ----------- ENERGY MINERALS 1.6% Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 (Mexico) ... 900,000 974,250 -----------
14 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2000 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT(d) VALUE - ------------------------------------------------------------------------------------------------------------ BONDS (CONT.) HEALTH SERVICES 1.3% HCA-The Healthcare Co., 8.75%, 9/01/10 ................................... $ 400,000 $ 407,365 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 .......... 600,000 402,000 ----------- 809,365 ----------- INDUSTRIAL SERVICES 4.8% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ......... 900,000 787,500 Calpine Corp., senior note, 8.625%, 8/15/10 .............................. 1,000,000 998,351 RBF Finance Co., senior note, 11.375%, 3/15/09 ........................... 650,000 754,000 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 .............................................. 500,000 385,000 ----------- 2,924,851 ----------- NON-ENERGY MINERALS .4% LTV Corp., senior note, 8.20%, 9/15/07 ................................... 450,000 227,250 ----------- PROCESS INDUSTRIES 6.1% Anchor Glass, first mortgage, 11.25%, 4/01/05 ............................ 1,000,000 755,000 Consolidated Container Co. LLC, senior disc. note, 10.125%, 7/15/09 ...... 1,000,000 1,015,000 Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75% thereafter, 1/15/09 .............................................. 200,000 123,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ................ 200,000 169,000 Huntsman ICI Chemicals, senior disc. note, zero cpn., 12/31/09 ........... 2,000,000 680,000 Lyondell Chemical Co., senior secured note, 9.875%, 5/01/07 .............. 300,000 293,250 Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/02 (Indonesia) ............................................................. 1,000,000 662,500 ----------- 3,697,750 ----------- PRODUCER MANUFACTURING 4.1% Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 ......... 500,000 400,000 Aetna Industries Inc., senior note, 11.875%, 10/01/06 .................... 1,000,000 725,000 Derlan Industries Ltd., senior note, 10.00%, 1/15/07 (Canada) ............ 291,000 277,905 Nortek Inc., senior note, 8.875%, 8/01/08 ................................ 250,000 231,250 Nortek Inc., senior note, B, 9.125%, 9/01/07 ............................. 500,000 476,250 Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 .................... 400,000 384,000 ----------- 2,494,405 ----------- TELECOMMUNICATIONS 16.5% Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ..................................... 1,000,000 655,000 Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 .......... 1,000,000 1,000,000 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 .................................. 1,250,000 1,043,750 Level 3 Communications Inc., senior note, 9.125%, 5/01/08 ................ 1,000,000 870,000 Loral Space and Communications Ltd., senior disc. note, zero cpn. to 1/15/02, 12.50% thereafter, 1/15/07 .................................. 1,000,000 345,000 Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ........................ 1,000,000 675,000 Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01, 13.50% thereafter, 6/01/06 (Luxembourg) .................... 1,500,000 1,297,500 Nextel Communications Inc., senior note, 9.375%, 11/15/09 ................ 1,000,000 980,000 Nextel Partners Inc., senior sub. note, 144A, 11.00%, 3/15/10 ............ 300,000 301,500 NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 .............. 500,000 448,750 NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ................ 500,000 432,500 PSINet Inc., senior note, 11.00%, 8/01/09 ................................ 750,000 491,250
15 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2000 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT(d) VALUE - ------------------------------------------------------------------------------------------------------------ BONDS (CONT.) TELECOMMUNICATIONS (CONT.) Voicestream Wireless Corp., senior note, 10.375%, 11/15/09 ............... $ 500,000 $ 542,500 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ....... 1,000,000 925,000 ----------- 10,007,750 ----------- TRANSPORTATION .9% American Commercial Lines LLC, senior note, 10.25%, 6/30/08 .............. 600,000 513,000 ----------- UTILITIES 1.4% ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) ................ 2,175,000ZAR 261,295 Niagara Mohawk Power Corp., senior note, G, 7.75%, 10/01/08 .............. 600,000 604,195 ----------- 865,490 ----------- TOTAL BONDS (COST $39,807,461) ........................................... 35,138,066 ----------- CONVERTIBLE BONDS 1.3% ELECTRONIC TECHNOLOGY .7% Amkor Technology Inc., cvt., 144A, 5.00%, 3/15/07 ........................ 500,000 397,500 ----------- HEALTH SERVICES .6% Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 ........................... 500,000 373,125 ----------- TOTAL CONVERTIBLE BONDS (COST $872,163) 770,625 ----------- SHARES ------ SHORT TERM INVESTMENTS 1.0% (b)Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $608,189) .......................................................... 608,189 608,189 ----------- TOTAL INVESTMENTS (COST $68,845,643) 124.6% .............................. 75,742,130 OTHER ASSETS, LESS LIABILITIES (24.6)% ................................... (14,967,118) ----------- NET ASSETS 100.0% ........................................................ $60,775,012 ===========
CURRENCY ABBREVIATION: ZAR - South African Rand (a) Non-income producing (b) The Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund) is managed by Franklin Advisers Inc. (c) See Note 7 regarding defaulted securities. (d) The principal amount is stated in U.S. dollars unless otherwise indicated. (e) Sufficient collateral has been segregated for securities traded on a when-issued or delayed delivery basis. 16 See notes to financial statements. FRANKLIN MULTI-INCOME TRUST Financial Statements STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2000 (UNAUDITED) Assets: Investments in securities: Cost ................................................................ $ 68,845,643 ============ Value ............................................................... 75,742,130 Receivables: Investment securities sold .......................................... 1,084,657 Dividends and interest .............................................. 917,196 Note issuance costs (Note 3) ......................................... 76,013 ------------ Total assets .................................................... 77,819,996 ------------ Liabilities: Payables: Investment securities purchased ..................................... 573,705 Affiliates .......................................................... 53,548 Notes (Note 3) ...................................................... 16,000,000 Accrued interest (Note 3) ........................................... 48,000 Distributions to shareholders ........................................ 328,026 Other liabilities .................................................... 41,705 ------------ Total liabilities ............................................... 17,044,984 ------------ Net assets, at value ........................................... $ 60,775,012 ============ Net assets consist of: Accumulated distributions in excess of net investment income ......... $ (190,478) Net unrealized appreciation .......................................... 6,896,092 Accumulated net realized gain ........................................ 279,284 Capital shares ....................................................... 53,790,114 ------------ Net assets, at value ........................................... $ 60,775,012 ============ Net asset value per share ($60,775,012 / 5,857,600 shares outstanding) $ 10.38 ============
See notes to financial statements. 17 FRANKLIN MULTI-INCOME TRUST Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) Investment income: Dividends .............................................................. $ 872,939 Interest ............................................................... 1,953,571 ------------ Total investment income ........................................... 2,826,510 ------------ Expenses: Management fees (Note 4) ............................................... 299,046 Transfer agent fees .................................................... 18,586 Custodian fees ......................................................... 498 Reports to shareholders ................................................ 11,416 Professional fees (Note 4) ............................................. 18,162 Trustees' fees and expenses ............................................ 2,626 Amortization of note issuance costs (Note 3) ........................... 9,607 Other .................................................................. 14,523 ------------ Expenses before interest expense .................................. 374,464 Interest expense (Note 3) ......................................... 540,000 ------------ Total expenses ................................................... 914,464 ------------ Net investment income ........................................... 1,912,046 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ........................................................... 343,315 Foreign currency transactions ......................................... (1,459) ------------ Net realized gain ................................................. 341,856 Net unrealized appreciation on: Investments ........................................................... 7,930,486 Translation of assets and liabilities denominated in foreign currencies 166 ------------ Net unrealized appreciation ....................................... 7,930,652 ------------ Net realized and unrealized gain ........................................ 8,272,508 ------------ Net increase in net assets resulting from operations .................... $ 10,184,554 ============
18 See notes to financial statements. FRANKLIN MULTI-INCOME TRUST Financial Statements (continued) STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND THE YEAR ENDED MARCH 31, 2000
SIX MONTHS YEAR ENDED ENDED SEPTEMBER 30, 2000 MARCH 31, 2000 --------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ............................................. $ 1,912,046 $ 4,203,819 Net realized gain (loss) from investments and foreign currency transactions ..................................................... 341,856 (65,559) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ....................................................... 7,930,652 (4,869,985) --------------------------------------- Net increase (decrease) in net assets resulting from operations 10,184,554 (731,725) Distributions to shareholders from: Net investment income ............................................. (1,912,046) (4,123,750) In excess of net investment income ................................ (56,108) -- Net realized gains ................................................ -- (1,412,853) --------------------------------------- Total distributions to shareholders ................................ (1,968,154) (5,536,603) --------------------------------------- Net increase (decrease) in net assets ......................... 8,216,400 (6,268,328) Net assets: Beginning of period ................................................ 52,558,612 58,826,940 --------------------------------------- End of period ...................................................... $ 60,775,012 $ 52,558,612 ======================================= Accumulated distributions in excess of net investment income included in net assets: End of period ...................................................... $ (190,478) $ (134,370) =======================================
See notes to financial statements. 19 FRANKLIN MULTI-INCOME TRUST Financial Statements (continued) STATEMENT OF CASH FLOWS FOR THE PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED) Cash flow from operating activities: Dividends and interest received ........................... $ 2,405,482 Operating expenses paid ................................... (350,207) Interest expense paid ..................................... (540,000) ------------ Cash provided - operations ............................... 1,515,275 ============ Cash flow from investing activities: Investment purchases ...................................... (19,128,932) Investment sales and maturities ........................... 19,581,811 ------------ Cash provided - investments ............................... 452,879 ============ Cash flow from financing activities: Distributions to shareholders ............................. (1,968,154) ------------ Cash used - financing .................................... (1,968,154) ============ Net change in cash ......................................... -- Cash at beginning of period ................................ -- ------------ Cash at end of period ...................................... $ -- ============
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 2000 (UNAUDITED) Net investment income ...................................... $ 1,912,046 Amortization income ....................................... (526,314) Amortization of note issuance costs ....................... 9,607 Increase in dividends and interest receivable ............. 105,286 Decrease in other liabilities ............................. 14,650 ------------ Cash provided - operations ................................. $ 1,515,275 ============
20 See notes to financial statements. FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (unaudited) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin Multi-Income Trust (the Fund) is registered under the Investment Company Act of 1940 as a non-diversified, closed-end investment company. The Fund has two classes of securities: senior fixed-rate notes (the Notes) and shares of beneficial interest (the Shares). The Fund seeks high current income. The following summarizes the Fund's significant accounting policies. a. SECURITY VALUATION Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Trustees. b. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollars equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. c. INCOME TAXES No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income. d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Bond discount is amortized on an income tax basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. e. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 21 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (unaudited) (continued) 2. SHARES OF BENEFICIAL INTEREST At September 30, 2000, there were an unlimited number of shares authorized ($0.01 par value). During the period ended September 30, 2000, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. SENIOR FIXED-RATE NOTES On August 16, 1999, the Fund issued $16 million principal amount of a new class of five-year senior notes (the Notes). The Notes are general unsecured obligations of the Fund and rank senior to Trust shares and all existing or future unsecured indebtedness of the Fund. The Notes bear interest, payable semi-annually, at the rate of 6.75% per year, to maturity on September 15, 2004. The Notes were issued in a private placement, and are not available for resale; therefore, no market value can be obtained for the Notes. The Fund is required to maintain on a monthly basis a specified discounted asset value for its portfolio in compliance with guidelines established by Standard & Poor's Corporation, and is required to maintain asset coverage for the Notes of at least 300%. The Fund has met these requirements during the period ended September 30, 2000. The issuance costs of $96,069 incurred by the Fund are deferred and amortized on a straight line basis over the term of the Notes. 4. TRANSACTION WITH AFFILIATES Certain officers and trustees of the Fund are also officers or directors of Franklin Advisers, Inc. (Advisers) and Franklin Templeton Services, Inc. (FT Services), the Fund's investment manager and administrative manager, respectively. The Fund pays an investment management fee to Advisers of .85% per year of the average weekly net assets of the Fund excluding the principal amount of the Notes. Management fees were reduced on assets invested in the Sweep Money Fund. Under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Fund. Included in professional fees are legal fees of $1,022 that were paid to a law firm in which a partner was an officer of the Fund. 5. INCOME TAXES At March 31, 2000, the Fund had tax basis capital losses of $62,572 which may be carried over to offset future capital gains. Such losses expire in 2008. At March 31, 2000, the Fund had deferred currency losses occurring subsequent to October 31, 1999 of $285. For tax purposes, such losses will be reflected in the year ending March 31, 2001. 22 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (unaudited) (continued) 5. INCOME TAXES (CONT.) At September 30, 2000, the net unrealized appreciation based on the cost of investments for income tax purposes of $68,845,643 was as follows: Unrealized appreciation $13,775,600 Unrealized depreciation (6,879,113) ----------- Net unrealized appreciation $ 6,896,487 ===========
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities and foreign currency transactions. Net realized capital gains differ for financial statement and tax purposes primarily due to differing treatment of foreign currency transactions. 6. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended September 30, 2000 aggregated $9,406,108 and $9,497,930, respectively. 7. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 47.2% of its portfolio invested in lower rated 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. At September 30, 2000, the Fund held two defaulted securities with a value aggregating $38,750 representing .1% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. 23 This page intentionally left blank. -----END PRIVACY-ENHANCED MESSAGE-----