-----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, Er85rGugNRjX/J8VNoU27xEiBMYMGrXc3c1tpx7BqYuDbjguj/m4eBzKyKnwdxcy ovUhRZcaCG9UEe0XHLCnJw== 0000854856-02-000004.txt : 20020607 0000854856-02-000004.hdr.sgml : 20020607 20020606172636 ACCESSION NUMBER: 0000854856-02-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020606 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN MULTI INCOME TRUST CENTRAL INDEX KEY: 0000854856 IRS NUMBER: 943111137 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-05873 FILM NUMBER: 02672685 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: FRANKLIN MULTI INCOME TRUST STREET 2: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 N-30D 1 fmitn30da.txt Annual Report [GRAPHIC OMITTED] MARCH 31, 2002 FRANKLIN MULTI-INCOME TRUST [LOGO OMITTED] FRANKLIN TEMPLETON INVESTMENTS THANK YOU FOR INVESTING WITH FRANKLIN TEMPLETON. WE ENCOURAGE OUR INVESTORS TO MAINTAIN A LONG-TERM PERSPECTIVE AND REMEMBER THAT ALL SECURITIES MARKETS MOVE BOTH UP AND DOWN, AS DO FUND SHARE PRICES. WE APPRECIATE YOUR PAST SUPPORT AND LOOK FORWARD TO SERVING YOUR INVESTMENT NEEDS IN THE YEARS AHEAD. [PHOTO OMITTED] CHRISTOPHER J. MOLUMPHY, CFA SENIOR PORTFOLIO MANAGER FRANKLIN MULTI-INCOME TRUST FRANKLINTEMPLETON.COM [GRAPHIC OMITTED] Electronic delivery is a convenient alternative to receiving these reports through the mail. Visit franklintempleton.com today, click on Account Services and sign up. SHAREHOLDER LETTER - -------------------------------------------------------------------------------- YOUR TRUST'S GOAL: FRANKLIN MULTI-INCOME TRUST SEEKS TO PROVIDE HIGH, CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL. - -------------------------------------------------------------------------------- Dear Shareholder: We are pleased to bring you Franklin Multi-Income Trust's annual report covering the period ended March 31, 2002. The 12 months under review will be remembered mainly for the unprecedented terrorist attacks on American soil. Many economists believe this exacerbated the U.S. economic recession begun in March 2001. In fact, for the third quarter of 2001, U.S. gross domestic product fell for the first time in more than eight years. Immediately following the terrorist attacks, investor risk aversion and uncertainty regarding our country's response led to a large sell-off in financial assets. To help restore investor faith in U.S. capital markets and ensure that the economy's liquidity remained strong, the Federal Reserve Board (the Fed) aggressively cut interest rates, resulting in a 175 basis point (1.75%) decline in short-term rates following the events of September 11 and an overall reduction of 275 basis points, or 2.75%, for the 12-month reporting period. In the weeks 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 16. CONTENTS Shareholder Letter ...................1 Performance Summary ..................8 Dividend Reinvestment and Cash Purchase Plan ..............10 Annual Meeting of Shareholders ........................14 Financial Highlights & Statement of Investments ............15 Financial Statements ................20 Notes to Financial Statements ................24 Independent Auditors' Report ....................28 Tax Designation .....................29 Board Members and Officers ........................30 PORTFOLIO BREAKDOWN Based on Total Market Value 3/31/02 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: Corporate Bonds 56.4% Utilities Stocks 36.9% Misc. Equities & Preferred Stocks 4.6% Foreign Currency Denominated Bonds 0.3% Cash & Equivalents 1.8% after the attacks, Treasury bonds rose while stocks fell precipitously as investors sought Treasuries' relative safety. However, as the U.S. military campaign met with success and the country rallied together, investors switched course, driving stocks up from their lows and Treasuries' prices back down to prior levels. For example, the 10-year Treasury note ended the 12-month period yielding 5.42%, compared with a 4.93% yield at the beginning of the reporting period. Bond yields and prices move inversely, so that as yields rise, bond prices fall. Like other higher risk asset classes, high yield bonds experienced tremendous volatility over the course of the Trust's fiscal year and generally fell in value. In addition to investors' risk aversion during the weeks following September 11, continued telecommunications industry defaults contributed to downward pressure on the high yield asset class. However, as the period progressed into 2002 and signs emerged that the recession might be short-lived, investors' expectations for nascent economic recovery contributed to a rebound for high yield bonds, and the CSFB High Yield Index returned 3.36% for the Trust's fiscal year ended March 31, 2002.(1) Meanwhile, utility stock performance generally depended on whether a company was regulated or exposed to fluctuating electricity and natural gas prices. Regulated utilities, which comprised a majority of the Trust's utility holdings, generally performed well, while unregulated utilities, which the Trust also owned, declined. Overall, the S&P Utilities Index returned -22.62% during the 12 months under review.(2) 1. Source: Standard & Poor's Micropal. The unmanaged CSFB High Yield Index is constructed to mirror the investable universe of the U.S. dollar-denominated high yield debt market and includes reinvested interest. 2. Source: Standard & Poor's Micropal. The unmanaged S&P Utilities Index is a market capitalization-weighted index that includes utility stocks in the S&P 500 Index. The index includes reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Trust's portfolio. 2 The Trust sought to take advantage of various opportunities during this tumultuous period by continuing its strategy of selling high yield bonds we believed were trading above their fundamental prospects or whose fortunes were susceptible to the economic weakness. We initiated positions in the bonds of companies we felt were unduly punished for their cyclical exposure or that offered potentially attractive returns in less cyclical businesses. Among utility investments, the Trust sold stocks that had benefited from selling electricity into California in 2000 and 2001, as electricity prices in the West have since tumbled. We also added exposure to natural gas utilities, as we believed their valuations became attractive after natural gas prices fell. In this overall volatile environment, Franklin Multi-Income Trust's cumulative total return for the year ended March 31, 2002, was -3.81% based on the change in net asset value and +9.23% based on the change in market price on the New York Stock Exchange, as shown in the Performance Summary on page 8. INDUSTRY DISCUSSIONS CABLE AND ALTERNATE PAY TELEVISION The cable sector continued to offer investors a combination of relative stability and attractive growth prospects, in our opinion. During the reporting period, digital cable and high-speed Internet access providers continued to gain subscribers. Video-on-demand recently launched in several markets, which we believe should provide further growth opportunities, and these new services led to healthy revenue and cash flow growth in the sector. Additional industry consolidation during the period, such TOP 10 HOLDINGS 3/31/02 COMPANY % OF TOTAL SECTOR/INDUSTRY MARKET (SECURITY TYPE) VALUE - ---------------------------------------- TXU Corp. 3.3% UTILITY (STOCK) Duke Energy Corp. 2.9% UTILITY (STOCK) Xcel Energy Inc. 2.8% UTILITY (STOCK) Entergy Corp. 2.6% UTILITY (STOCK) DTE Energy Co. 2.5% UTILITY (STOCK) Dominion Resources Inc. 2.5% UTILITY (STOCK) Exelon Corp. 2.4% UTILITY (STOCK) FPL Group Inc. 2.3% UTILITY (STOCK) Reliant Energy Inc. 2.2% UTILITY (STOCK) Allegheny Energy Inc. 1.9% UTILITY (STOCK) 3 as the announced AT&T and Comcast merger, could be credit-enhancing for the sector going forward. Meanwhile, direct broadcast satellite providers experienced very strong subscriber growth, which benefited the Trust's position in EchoStar. In our opinion, the proposed merger between EchoStar and DirecTV could result in a stronger credit in the future. We believe this sector's outlook is healthy, with new product offerings expected to drive revenue and cash flow growth. MEDIA Despite a weak advertising environment, our media investments held up well during the reporting period. Overall, advertising spending is estimated to have declined between 5%-9% during the reporting period; however, we avoided traditional U.S. advertising-based media companies, which benefited the Trust's performance during the period. CanWest Media achieved a successful integration of its existing Canadian television stations with the leading Canadian newspapers it acquired in 2001. Canadian advertising spending held up better than in the U.S., also benefiting the company. As we expected, Six Flags performed relatively well because its theme parks are regional, generally drawing visitors from within a 200-mile radius. Thus, they were not as exposed as destination amusement parks to the decline in air travel following September 11. GAMING The gaming sector underperformed the market following the September terrorist attacks, as investors worried that diminished travel would have a negative impact on the industry. However, our investments in this sector had strong liquidity and healthy 4 balance sheets and bounced back strongly, outperforming the market during 2002's first quarter and for the Trust's reporting period overall. The Trust benefited by having limited exposure to Las Vegas, which may suffer if air travel remains weak. Of our gaming-related investments, Horseshoe's riverboat casinos experienced little negative impact from September 11; Park Place benefited from its large, diversified businesses so that any declines in its Las Vegas properties were not significant to overall operations; and Station Casinos, which caters to local patrons, was not dependent on the level of air travel. WIRELESS During the reporting period, the wireless industry continued to benefit from healthy growth and greater market penetration. Revenues grew despite increased pricing pressures, and although highly competitive, the wireless services market provided attractive opportunities for companies with sound business plans. In general, we focused on lower-cost operators who successfully expanded their networks, offering their customers better coverage. For example, Nextel Communications, a Trust holding, recently announced that a new technological advance in its transmission protocol would allow it to increase its network capacity with reduced capital expenditures. Additionally, we continue to expect that industry consolidation will positively impact high yield wireless issuers over the long term. UTILITIES The year under review proved volatile for utilities. Although the recessionary environment made stable, yield-oriented utilities attractive to investors, relatively low electricity and natural gas DIVIDEND DISTRIBUTIONS 4/1/01-3/31/02 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 October 5.6 cents November 5.6 cents December 5.6 cents January 5.6 cents February 5.6 cents March 5.6 cents - ------------------------------ TOTAL 67.2 CENTS 5 prices coupled with Enron's bankruptcy and scandal heightened investors' level of scrutiny toward the entire industry. Overall, those utilities that adhered to their traditional business platforms performed solidly. We continued to focus on high-quality electric and natural gas utility companies that produce a large percentage of their operating income from traditional utility services, and this strategy benefited the Trust during the 12-month period. WHAT'S AHEAD The combination of a recession and the terrorist attacks made the past year extremely difficult. However, we believe the outlook is significantly better. Many analysts expect an economic rebound in 2002, driven by lower short-term interest rates and an end to the inventory reduction that companies undertook in late 2001. The U.S. consumer has proven to be extremely resilient, and we believe inflation is likely to remain at or near its current low levels. The yield spread between Treasuries and high yield bonds stood at 7.44% on March 31, 2002, which is well above the historical average of 5.6%.(3) In addition, high yield bonds should benefit as the default rate is expected to decline in the latter part of 2002. In our opinion, utilities are favorably positioned for the future. Because 2001 was such a volatile year for utilities, given the bankruptcies of two major utility companies (PG&E and Enron), we believe 2002 holds promise to provide some more stability for this sector. We continue to find utilities offering attractive investment opportunities, as their relative valuations are historically low. Overall, with 3. Source: CSFB. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. 6 the valuations of the Trust's major asset classes attractive on a historical basis, and with expectations of an improving economy for the remainder of 2002, we hold a positive outlook for the Trust. We thank you for your continued investment in Franklin Multi-Income Trust and welcome your comments or suggestions. Sincerely, /S/SIGNATURE Christopher J. Molumphy, CFA Senior Portfolio Manager /S/SIGNATURE Glenn I. Voyles, CFA Portfolio Manager Franklin Multi-Income Trust This discussion reflects our views, opinions and portfolio holdings as of March 31, 2002, the end of the reporting period. The information provided is not a complete analysis of every aspect of any country, industry, security or the Trust. Our strategies and the Trust'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. 7 PERFORMANCE SUMMARY AS OF 3/31/02 DISTRIBUTIONS AND RETURNS 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. ALL TOTAL RETURNS INCLUDE REINVESTED DISTRIBUTIONS ACCORDING TO THE TERMS SPECIFIED IN THE TRUST'S DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN AND DO NOT REFLECT ANY SALES CHARGES PAID AT INCEPTION OR BROKERAGE COMMISSIONS PAID ON SECONDARY MARKET PURCHASES. THE PERFORMANCE TABLE DOES NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON TRUST DISTRIBUTIONS OR THE SALE OF TRUST SHARES. PRICE AND DISTRIBUTION INFORMATION CHANGE 3/31/02 3/31/01 - -------------------------------------------------------------------------------- Net Asset Value -$1.09 $8.71 $9.80 Market Price (NYSE) +$0.08 $8.70 $8.62 DISTRIBUTIONS (4/1/01-3/31/02) Dividend Income $0.672 PERFORMANCE 1-YEAR 5-YEAR 10-YEAR - -------------------------------------------------------------------------------- Cumulative Total Return(1) Based on change in net asset value -3.81% +39.06% +147.82% Based on change in market price +9.23% +53.12% +157.70% Average Annual Total Return(1) Based on change in net asset value -3.81% +6.82% +9.50% Based on change in market price +9.23% +8.89% +9.93% Distribution Rate(2) 7.72% 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 March monthly dividend and the NYSE closing price of $8.70 on 3/31/02. Ongoing stock market volatility can dramatically change the Trust's short-term performance; current results may differ. 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. 8 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). 9 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 Inc. (the "Plan Agent"), P.O. Box 8030, Boston, MA 02266-8030, 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 10 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 Inc. (the "Plan Agent"), Attn: Franklin Multi-Income Trust, P.O. Box 8030, Boston, MA 02266-8030. 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 of 11 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. 12 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 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. 13 FRANKLIN MULTI-INCOME TRUST MINUTES OF THE ANNUAL SHAREHOLDERS' MEETING At an annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund") held on September 11, 2001, shareholders approved the following: 1. Regarding the proposal to elect nominees for Trustees:
% OF % OF % OF OUT- OUT- OUT- STANDING % OF STANDING STANDING TRUSTEES SHARES FOR SHARES VOTED WITHHELD SHARES SHARES - --------------------------------------------------------------------------------------------- Edward B. Jamieson 4,870,290.14 83.145% 96.382% 182,796.32 3.121% 3.618% Charles B. Johnson 4,877,623.14 83.270% 96.528% 175,463.32 2.995% 3.472% Rupert H. Johnson, Jr. 4,878,623.14 83.287% 96.547% 174,463.32 2.978% 3.453%
14 FRANKLIN MULTI-INCOME TRUST Financial Highlights
YEAR ENDED MARCH 31, ------------------------------------------------------ 2002 2001 2000 1999 1998 ------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $ 9.80 $ 8.97 $10.04 $11.98 $ 10.34 ------------------------------------------------------ Income from investment operations: Net investment income .................................... .63 .66 .71 .76 .72 Net realized and unrealized gains (losses) ............... (1.05) .84 (.84) (1.70) 2.18 ------------------------------------------------------ Total from investment operations .......................... (.42) 1.50 (.13) (.94) 2.90 ------------------------------------------------------ Less distributions from: Net investment income .................................... (.67) (.67) (.70) (.77) (.77) Net realized gains ....................................... -- -- (.24) (.23) (.49) ------------------------------------------------------ Total distributions ....................................... (.67) (.67) (.94) (1.00) (1.26) Net asset value, end of year .............................. $ 8.71 $ 9.80 $ 8.97 $10.04 $ 11.98 ====================================================== Market value, end of year(a) .............................. $8.700 $8.620 $7.000 $9.000 $11.000 ====================================================== Total return (based on market value per share) ............ 9.23% 33.54% (12.29)% (9.58)% 32.57% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $51,047 $57,412 $52,559 $58,827 $70,190 Ratios to average net assets: Expenses ................................................. 3.45% 3.23% 3.30% 3.07% 3.00% Net investment income .................................... 6.97% 6.88% 7.33% 6.87% 6.47% Portfolio turnover rate ................................... 18.27% 26.72% 30.42% 24.31% 45.31% Total debt outstanding at end of year (000's) ............. $16,000 $16,000 $16,000 $16,000 $16,000 Asset coverage per $1,000 of debt ......................... $ 3,190 $ 3,588 $ 3,285 $ 3,677 $ 4,387 Average amount of notes per share during the year ......... $2.73 $2.73 $2.73 $2.73 $2.73
a Based on the last sale on the New York Stock Exchange. See notes to financial statements. 15 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2002
SHARES/ WARRANTS VALUE - -------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS 48.2% COMMUNICATIONS 3.1% AT&T Corp. ............................................................................ 37,500 $ 588,750 a AT&T Wireless Services Inc. ........................................................... 12,067 108,000 BellSouth Corp. ....................................................................... 24,000 884,640 a Loral Space & Communications Ltd., wts., 12/27/06 ..................................... 4,188 2,094 a Loral Space & Communications Ltd., wts., 1/15/07 ...................................... 1,000 1,290 ------------ 1,584,774 ------------ CONSUMER SERVICES .1% Marriott International Inc., A ........................................................ 1,052 47,287 ------------ UTILITIES 45.0% Allegheny Energy Inc. ................................................................. 30,000 1,240,500 American Electric Power Co. Inc. ...................................................... 17,500 806,575 Atmos Energy Corp. .................................................................... 35,000 826,000 CMS Energy Corp. ...................................................................... 30,000 678,900 Dominion Resources Inc. ............................................................... 25,000 1,629,000 DPL Inc. .............................................................................. 25,000 638,750 DTE Energy Co. ........................................................................ 37,050 1,685,775 Duke Energy Corp. ..................................................................... 50,000 1,890,000 Entergy Corp. ......................................................................... 40,000 1,736,400 Exelon Corp. .......................................................................... 30,000 1,589,100 FPL Group Inc. ........................................................................ 25,000 1,488,750 NSTAR ................................................................................. 15,500 702,770 Public Service Enterprise Group Inc. .................................................. 11,100 508,380 Puget Energy Inc. ..................................................................... 25,000 519,750 Questar Corp. ......................................................................... 12,500 321,375 Reliant Energy Inc. ................................................................... 55,400 1,428,766 SCANA Corp. ........................................................................... 12,621 386,203 Sempra Energy ......................................................................... 3,202 80,530 Southern Co. .......................................................................... 30,000 794,700 TXU Corp. ............................................................................. 40,000 2,180,400 Xcel Energy Inc. ...................................................................... 73,000 1,850,550 ------------ 22,983,174 ------------ TOTAL COMMON STOCKS AND WARRANTS (COST $18,335,672) ................................... 24,615,235 ------------ PREFERRED STOCKS 2.1% CONSUMER SERVICES Sinclair Capital, 11.625%, pfd. (COST $1,000,000) ..................................... 10,000 1,055,000 ------------ CONVERTIBLE PREFERRED STOCKS 3.6% CONSUMER DURABLES .3% Ford Motor Co. Capital Trust II, 6.5%, cvt. pfd. ...................................... 2,500 140,600 ------------ CONSUMER SERVICES .4% Host Marriott Corp., 6.75%, cvt. pfd. ................................................. 4,400 194,181 ------------
16 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
SHARES/ WARRANTS VALUE - -------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCKS (CONT.) UTILITIES 2.9% Aquila Inc., 9.75%, cvt. pfd. ......................................................... 27,300 $ 742,560 CMS Energy Trust I, 7.75%, cvt. pfd. .................................................. 22,000 737,308 ------------ 1,479,868 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (COST $2,096,053) .................................. 1,814,649 ------------ PRINCIPAL AMOUNT D ---------- BONDS 73.6% COMMERCIAL SERVICES 1.8% Key3Media Group Inc., senior sub. note, 11.25%, 6/15/11 ............................... $1,000,000 915,000 ------------ COMMUNICATIONS 13.5% Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ................................................................... 1,000,000 615,000 Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ....................... 1,000,000 985,000 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 ................................................................... 1,250,000 1,156,250 Level 3 Communications Inc., senior note, 9.125%, 5/01/08 ............................. 1,000,000 440,000 Loral CyberStar Inc., senior note, 10.00%, 7/15/06 .................................... 424,000 320,120 b McLeodUSA Inc., senior note, 11.375%, 1/01/09 ......................................... 500,000 127,500 b Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ..................................... 1,000,000 15,000 Millicom International Cellular SA, senior disc. note, 13.50%, 6/01/06 (Luxembourg) ... 1,500,000 817,500 Nextel Communications Inc., senior note, 9.375%, 11/15/09 ............................. 1,000,000 667,500 Nextel Partners Inc., senior sub. note, 11.00%, 3/15/10 ............................... 300,000 193,500 Triton PCS Inc., senior sub. note, 144A, 8.75%, 11/15/11 .............................. 500,000 467,500 Triton PCS Inc., senior sub. note, 9.375%, 2/01/11 .................................... 500,000 483,750 Voicestream Wireless Corp., senior note, 10.375%, 11/15/09 ............................ 312,000 338,520 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 .................... 1,000,000 155,000 b XO Communications Inc., senior note, 9.625%, 10/01/07 ................................. 500,000 65,000 b XO Communications Inc., senior note, 9.00%, 3/15/08 ................................... 500,000 65,000 ------------ 6,912,140 ------------ CONSUMER NON-DURABLES 3.6% Armkel Finance Inc., senior sub. note, 9.50%, 8/15/09 ................................. 400,000 428,000 Dimon Inc., senior note, 9.625%, 10/15/11 ............................................. 500,000 532,500 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ..................... 1,000,000 460,000 William Carter, senior sub. note, 10.875%, 8/15/11 .................................... 400,000 427,000 ------------ 1,847,500 ------------ CONSUMER SERVICES 25.9% Adelphia Communications Corp., senior note, 10.875%, 10/01/10 ......................... 1,000,000 935,000 CanWest Media Inc., senior sub. note, 10.625%, 5/15/11 (Canada) ....................... 500,000 552,500 Chancellor Media Corp., senior note, 8.00%, 11/01/08 .................................. 500,000 525,000 Chancellor Media Corp., senior sub. note, B, 8.75%, 6/15/07 ........................... 500,000 523,750 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................................................................... 1,000,000 692,500 Charter Communications Holdings LLC, senior note, 11.125%, 1/15/11 .................... 500,000 503,750
17 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT D VALUE - -------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) ................... $ 500,000 $ 407,500 EchoStar Broadband Corp., senior note, 10.375%, 10/01/07 .............................. 1,000,000 1,077,500 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 ................................................................... 1,000,000 1,016,250 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ..................... 1,000,000 1,045,000 Host Marriott LP, 9.50%, 1/15/07 ...................................................... 500,000 526,250 Host Marriott LP, senior note, 9.25%, 10/01/07 ........................................ 500,000 520,000 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 ................................................................... 850,000 760,750 Park Place Entertainment Corp., senior sub. note, 9.375%, 2/15/07 ..................... 1,000,000 1,062,500 Quebecor Media Inc., senior note, 11.125%, 7/15/11 (Canada) ........................... 1,000,000 1,090,000 Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ........................... 600,000 626,628 Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 ............................... 1,100,000 1,185,250 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 (United Kingdom) .................................................. 500,000 181,250 ------------ 13,231,378 ------------ DISTRIBUTION SERVICES b AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ...................... 250,000 1,875 ------------ ELECTRONIC TECHNOLOGY .7% Solectron Corp., senior note, 9.625%, 2/15/09 ......................................... 400,000 382,000 ------------ HEALTH SERVICES 4.6% Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 ............................. 1,000,000 1,070,000 Insight Health Services Corp., 144A, 9.875%, 11/01/11 ................................. 500,000 513,125 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ....................... 1,000,000 780,000 ------------ 2,363,125 ------------ INDUSTRIAL SERVICES 3.9% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ...................... 500,000 483,750 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 ................................................................... 500,000 482,500 URS Corp., senior sub. note, 12.25%, 5/01/09 .......................................... 1,000,000 1,035,000 ------------ 2,001,250 ------------ NON-ENERGY MINERALS 1.7% Compass Minerals Group, senior sub. note, 144A, 10.00%, 8/15/11 ....................... 300,000 317,625 Louisiana Pacific Corp., senior sub. note, 10.875%, 11/15/08 .......................... 200,000 216,500 Steel Dynamics Inc., senior note, 144A, 9.50%, 3/15/09 ................................ 300,000 313,500 ------------ 847,625 ------------ PROCESS INDUSTRIES 12.0% Anchor Glass, first mortgage, 11.25%, 4/01/05 ......................................... 1,000,000 995,000 Consolidated Container Co. LLC, senior disc. note, 10.125%, 7/15/09 ................... 1,000,000 740,000 Equistar Chemical, senior note, 10.125%, 9/01/08 ...................................... 200,000 207,000 FiberMark Inc., senior note, 10.75%, 4/15/11 .......................................... 1,000,000 885,000 Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75% thereafter, 1/15/09 ................................................................... 200,000 168,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ............................. 200,000 189,000 Huntsman ICI Chemicals LLC, senior disc. note, zero cpn., 12/31/09 .................... 2,000,000 520,000
18 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
PRINCIPAL AMOUNT D VALUE - -------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) PROCESS INDUSTRIES (CONT.) Millennium America Inc., senior note, 9.25%, 6/15/08 .................................. $ 500,000 $ 517,500 OM Group Inc., senior sub. note, 144A, 9.25%, 12/15/11 ................................ 200,000 209,000 b Pindo Deli Finance Mauritius, senior note, 10.25%, 10/01/02 (Indonesia) ............... 1,000,000 185,000 Resolution Performance Products, senior sub. note, 13.50%, 11/15/10 (United Kingdom) .. 400,000 450,000 Riverwood International, senior sub. note, 10.875%, 4/01/08 ........................... 1,000,000 1,042,500 ------------ 6,108,000 ------------ PRODUCER MANUFACTURING 4.0% b Aetna Industries Inc., senior note, 11.875%, 10/01/06 ................................. 1,000,000 155,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 .......................................... 750,000 776,250 Nortek Inc., senior note, B, 8.875%, 8/01/08 .......................................... 250,000 257,500 Terex Corp., senior sub. note, 144A, 9.25%, 7/15/11 ................................... 800,000 836,000 ------------ 2,024,750 ------------ UTILITIES 1.9% Calpine Corp., senior note, 8.625%, 8/15/10 ........................................... 1,000,000 786,286 ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) ............................. 2,175,000 ZAR 171,761 ------------ 958,047 ------------ TOTAL BONDS (COST $45,606,253) ........................................................ 37,592,690 ------------ TOTAL LONG TERM INVESTMENTS (COST $67,037,978) ........................................ 65,077,574 ------------ SHARES ---------- SHORT TERM INVESTMENTS 2.4% c Franklin Institutional Fiduciary Trust Money Market Portfolio (COST $1,222,864) ....... 1,222,864 1,222,864 ------------ TOTAL INVESTMENTS (COST $68,260,842) 129.9% ........................................... 66,300,438 OTHER ASSETS, LESS LIABILITIES (29.9)% ................................................ (15,253,677) ------------ NET ASSETS 100.0% $51,046,761 ============
CURRENCY ABBREVIATIONS: ZAR - South African Rand a Non-income producing b See Note 7 regarding defaulted securities. c The Franklin Institutional Fiduciary Trust Money Market Portfolio is managed by Franklin Advisers, Inc. d The principal amount is stated in U.S. dollars unless otherwise indicated. See notes to financial statements. 19 FRANKLIN MULTI-INCOME TRUST Financial Statements STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2002 Assets: Investments in securities: Cost ................................................ $68,260,842 ============ Value ............................................... 66,300,438 Cash ................................................. 18,894 Receivables: Dividends and interest .............................. 1,143,515 Note issuance costs (Note 3) ......................... 47,192 ------------ Total assets .................................. 67,510,039 ------------ Liabilities: Payables: Affiliates .......................................... 46,709 Notes (Note 3) ...................................... 16,000,000 Accrued interest (Note 3) ........................... 48,000 Distributions to shareholders ........................ 328,026 Other liabilities .................................... 40,543 ------------ Total liabilities ............................. 16,463,278 ------------ Net assets, at value ......................... $51,046,761 ============ Net assets consist of: Undistributed net investment income .................. (398,831) Net unrealized depreciation .......................... (1,960,307) Accumulated net realized loss ........................ (384,215) Capital shares ....................................... 53,790,114 ------------ Net assets, at value ......................... $51,046,761 ============ Net asset value per share ($51,046,761 / 5,857,600 shares outstanding) .......... $8.71 ============ See notes to financial statements. 20 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2002 Investment income: Dividends ............................................ $1,357,611 Interest ............................................. 4,175,279 ------------ Total investment income ....................... 5,532,890 ------------ Expenses: Management fees (Note 4) ............................. 582,946 Transfer agent fees .................................. 37,818 Custodian fees ....................................... 871 Reports to shareholders .............................. 14,746 Registration and filing fees ......................... 350 Professional fees .................................... 40,785 Trustees' fees and expenses .......................... 11,516 Amortization of note issuance costs (Note 3) ......... 19,214 Other ................................................ 45,568 ------------ Expenses before interest expense .............. 753,814 Interest expense (Note 3) ..................... 1,080,000 ------------ Total expenses ............................... 1,833,814 ------------ Net investment income ....................... 3,699,076 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ......................................... 14,495 Foreign currency transactions ....................... (2,751) ------------ Net realized gain ............................. 11,744 Net unrealized appreciation (depreciation) on: Investments .......................................... (6,140,304) Translation of assets and liabilities denominated in foreign currencies ................................... 400 ------------ Net unrealized depreciation ................... (6,139,904) ------------ Net realized and unrealized loss ...................... (6,128,160) ------------ Net decrease in net assets resulting from operations .. $(2,429,084) ============ See notes to financial statements. 21 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 2002 AND 2001
2002 2001 - --------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ...................................................................... $ 3,699,076 $ 3,900,851 Net realized gain (loss) from investments and foreign currency transactions ................ 11,744 (332,098) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies .............................................. (6,139,904) 5,221,094 ------------------------------- Net increase (decrease) in net assets resulting from operations ...................... (2,429,084) 8,789,847 Distributions to shareholders from net investment income .................................... (3,936,307) (3,936,307) ------------------------------- Net increase (decrease) in net assets ................................................ (6,365,391) 4,853,540 Net assets Beginning of year ........................................................................... 57,412,152 52,558,612 ------------------------------- End of year ................................................................................. $51,046,761 $57,412,152 =============================== Undistributed net investment income included in net assets: End of year ................................................................................. $ (398,831) $ (172,668) ===============================
See notes to financial statements. 22 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2002 Cash flow from operating activities: Dividends and interest received ...................... $ 4,672,756 Operating expenses paid .............................. (748,571) Interest expense paid ................................ (1,080,000) ------------ Cash provided - operations .......................... 2,844,185 ============ Cash flow from investing activities: Investment purchases ................................. (28,715,247) Investment sales and maturities ...................... 29,826,263 ------------ Cash provided - investments ......................... 1,111,016 ============ Cash flow from financing activities: Distributions to shareholders ........................ (3,936,307) ------------ Cash used - financing ............................... (3,936,307) ============ Net change in cash .................................... 18,894 Cash at beginning of year ............................. -- ------------ Cash at end of year ................................... $ 18,894 ============ RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR THE YEAR ENDED MARCH 31, 2002 Net investment income ................................. $ 3,699,076 Amortization income .................................. (784,365) Amortization of note issuance costs .................. 19,214 Increase in dividends and interest receivable ........ (75,769) Increase in other liabilities ........................ (13,971) ------------ Cash provided - operations ............................ $ 2,844,185 ============ See notes to financial statements. 23 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements 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 and premium are amortized on a yield to maturity 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 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 expense during the reporting period. Actual results could differ from those estimates. 24 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) F. AUDIT GUIDE In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide requires the Fund to amortize all premium and discount on fixed-income securities. Such amortization is included in net investment income but did not impact the net assets or the distributions of the Fund. Prior to April 1, 2001, premiums and de minimus market discount on fixed-income securities were included in realized gains and losses. The cumulative effect of this accounting change resulted in an increase of $6,937 in the recorded cost of investments and a corresponding decrease in unrealized appreciation. The effect of this change for the year ended March 31, 2002 was to decrease net investment income by $7,729, increase unrealized gains by $3,236, and increase realized gains by $4,493. The per share effect of this change for the year ended March 31, 2002 was less than $.005. The statements of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in accounting policy. 2. SHARES OF BENEFICIAL INTEREST At March 31, 2002, there were an unlimited number of shares authorized ($0.01 par value). During the year ended March 31, 2002, 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 year ended March 31, 2002. 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. 25 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 4. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Fund are also officers or directors of the following entities: ENTITY AFFILIATION - ----------------------------------------------------------------------------- Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager 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 Franklin Institutional Fiduciary Trust Money Market Portfolio. 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. 5. INCOME TAXES At March 31, 2002, the Fund had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows. Capital loss carryovers expiring in: 2008 ............................................ $ 24,985 2009 ............................................ 150,106 -------- $175,091 ======== At March 31, 2002, the Fund had deferred capital losses and deferred currency losses occurring subsequent to October 31, 2001 of $206,735 and $2,389, respectively. For tax purposes, such losses will be reflected in the year ending March 31, 2003. The tax character of distributions paid during the year ended March 31, 2002, was the same for financial statement and tax purposes. At March 31, 2002, the cost of investment, net unrealized depreciation, undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows: Cost of investments .......................... $ 68,257,141 ============= Unrealized appreciation ...................... 8,493,934 Unrealized depreciation ...................... (10,450,637) ------------- Net unrealized depreciation .................. $ (1,956,703) ------------- Undistributed ordinary income ................ $ 688,639 Undistributed long term capital gains ........ -- ------------- Distributable earnings ....................... $ 688,639 ============= 26 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 5. INCOME TAXES (CONT.) Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions, and bond discounts and premiums. Net realized losses differ for financial statement and tax purposes primarily due to differing treatment of foreign currency transactions and bond discounts and premiums. 6. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended March 31, 2002 aggregated $12,317,250 and $13,824,119, respectively. 7. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 55.8% 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. At March 31, 2002, the Fund held defaulted securities with a value aggregating $614,375 representing 1.2% 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. 8. OTHER CONSIDERATIONS Advisers, as the Fund's Manager, may serve as a member of various bondholder's steering committees, representing bondholder's interests in certain corporate restructuring negotiations, or on creditors committees. Currently the Manager serves on the bondholder committees of Metrocall Inc. As a result of this involvement, Advisers may be in possession of certain material non-public information. If the Fund's Manager, while in possession of such information, seeks to sell any of its holdings in these securities it will comply with all applicable federal securities laws. 27 FRANKLIN MULTI-INCOME TRUST Independent Auditors' Report TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN MULTI-INCOME TRUST In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations, cash flows, and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin Multi-Income Trust (the "Fund") at March 31, 2002, the results of its operations and its cash flows 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 periods presented, 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 auditing standards generally accepted in the United States of America which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California May 1, 2002 28 FRANKLIN MULTI-INCOME TRUST Tax Designation Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 25.42% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended March 31, 2002. 29 BOARD MEMBERS AND OFFICERS The name, age and address of the officers and board members, as well as their affiliations, positions held with the Trust, 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 elected and qualified. INDEPENDENT BOARD MEMBERS
NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ FRANK H. ABBOTT, III (81) Trustee Since 1989 108 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Director, Abbott Corporation (an investment company); and FORMERLY, Director, MotherLode Gold Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing) (until 1996). - ------------------------------------------------------------------------------------------------------------------------------------ HARRIS J. ASHTON (69) Trustee Since 1989 138 Director, RBC Holdings, Inc. (bank holding One Franklin Parkway company) and Bar-S Foods (meat packing San Mateo, CA 94403-1906 company). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). - ------------------------------------------------------------------------------------------------------------------------------------ ROBERT F. CARLSON (74) Trustee Since 2000 44 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS); and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. - ------------------------------------------------------------------------------------------------------------------------------------ S. JOSEPH FORTUNATO (69) Trustee Since 1989 139 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Member of the law firm of Pitney, Hardin, Kipp & Szuch. - ------------------------------------------------------------------------------------------------------------------------------------ FRANK W.T. LAHAYE (72) Trustee Since 1989 108 Director, The California Center for Land One Franklin Parkway Recycling (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). - ------------------------------------------------------------------------------------------------------------------------------------
30
NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ GORDON S. MACKLIN (73) Trustee Since 1992 138 Director, Martek Biosciences Corporation; One Franklin Parkway WorldCom, Inc.(communications services); San Mateo, CA 94403-1906 MedImmune, Inc.(biotechnology); Overstock.com (Internet services); and Spacehab, Inc. (aerospaceservices). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Deputy Chairman and Director, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation (financial services) (until 1998) and Hambrecht & Quist Group (investment banking) (until 1992); and President, National Association of Securities Dealers, Inc. (until 1987). - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED BOARD MEMBERS AND OFFICERS NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ **EDWARD B. JAMIESON (53) President and President 10 None One Franklin Parkway Trustee Since 1992 San Mateo, CA 94403-1906 and Trustee since 1993 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; officer of other subsidiaries of Franklin Resources, Inc.; and officer of five of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **CHARLES B. JOHNSON (69) Chairman of Chairman of 138 None One Franklin Parkway the Board the Board San Mateo, CA 94403-1906 and Trustee since 1993 and Trustee since 1989 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Chief Executive Officer, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **RUPERT H. JOHNSON, JR. (61) Senior Vice Senior Vice 120 None One Franklin Parkway President and President San Mateo, CA 94403-1906 Trustee since 1992 and Trustee since 1989 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. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc.; and officer of 51 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------
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NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ HARMON E. BURNS (57) Vice President Since 1989 Not Applicable None 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.; Director, Franklin Investment Advisory Services, Inc.; and officer and/or director or trustee, as the case may be, of most of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ MARTIN L. FLANAGAN (41) Vice President Since 1995 Not Applicable None One Franklin Parkway and Chief San Mateo, CA 94403-1906 Financial Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Member - Office of the President, Chief Financial Officer and Chief Operating Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; Executive Vice President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of 52 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (54) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Resources, Inc.; President, Chief Executive Officer and Director, Property Resources, Inc. and Franklin Properties, Inc.; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; officer of 53 of the investment companies in Franklin Templeton Investments; and FORMERLY, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000). - ------------------------------------------------------------------------------------------------------------------------------------ BARBARA J. GREEN (54) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and Deputy General Counsel, Franklin Resources, Inc.; and Senior Vice President, Templeton Worldwide, Inc.; officer of 53 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). - ------------------------------------------------------------------------------------------------------------------------------------ CHARLES E. JOHNSON (45) Vice President Since 1989 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Member - Office of the President and Director, Franklin Resources, Inc.; Senior Vice President, Franklin Templeton Distributors, Inc.; President and Director, Templeton Worldwide, Inc. and Franklin Advisers, Inc.; Chairman of the Board, President and Director, Franklin Investment Advisory Services, Inc.; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; and officer and/or director or trustee, as the case may be, of 34 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------
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NUMBER OF PORTFOLIOS IN FUND LENGTH OF COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ GREGORY E. JOHNSON (40) Vice President Since 1989 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Member - Office of the President, Franklin Resources, Inc.; Chairman of the Board and Director, Franklin Templeton Distributors, Inc.; President, Franklin Agency, Inc.; Vice President, Franklin Advisers, Inc.; Director, Fiduciary Trust Company International; officer and/or director of some of the other subsidiaries of Franklin Resources, Inc.; and officer of two of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ EDWARD V. MCVEY (64) Vice President Since 1989 Not Applicable None 26335 Carmel Rancho Blvd. Carmel, CA 93923 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Distributors, Inc.; Executive Vice President, Templeton/Franklin Investment Services, Inc.; and officer of 29 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ KIMBERLEY MONASTERIO (38) Treasurer and Since 2000 Not Applicable None One Franklin Parkway Principal San Mateo, CA 94403-1906 Accounting Officer PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; and officer of 34 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ *We base the number of portfolios on each separate series of the registered investment companies comprising the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers. **Charles B. Johnson and Rupert H. Johnson, Jr. are considered 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 Trust's adviser and distributor. Edward B. Jamieson is considered an interested person of the the Trust under the federal securities laws due to his position as Executive Vice President of Franklin Advisers, Inc., which is the the Trust's adviser. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Charles E. Johnson and Gregory E. Johnson.
33 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. LITERATURE REQUEST For a brochure and prospectus, which contain more complete information, including charges and expenses, call Franklin Templeton Investments at 1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before investing or sending money. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS GLOBAL GROWTH Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Franklin Global Health Care Fund Mutual Discovery Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton International (Ex EM) Fund Templeton Latin America Fund Templeton Pacific Growth Fund Templeton World Fund GLOBAL GROWTH & INCOME Franklin Global Communications Fund Mutual European Fund Templeton Global Bond Fund GLOBAL INCOME Franklin Templeton Hard Currency Fund GROWTH Franklin Aggressive Growth Fund Franklin Biotechnology Discovery Fund Franklin Blue Chip Fund Franklin California Growth Fund Franklin Capital Growth Fund 1 Franklin DynaTech Fund Franklin Gold and Precious Metals Fund Franklin Growth Fund Franklin Large Cap Growth Fund Franklin Small-Mid Cap Growth Fund 2 Franklin Small Cap Growth Fund II 3 Franklin Technology Fund GROWTH & INCOME Franklin Balance Sheet Investment Fund 4 Franklin Convertible Securities Fund Franklin Equity Income Fund Franklin Income Fund Franklin Large Cap Value Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Small Cap Value Fund 5 Franklin Utilities Fund Mutual Beacon Fund Mutual Financial Services Fund Mutual Qualified Fund Mutual Shares Fund FUND ALLOCATOR SERIES Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund 6 Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 7 Franklin Short-Intermediate U.S. Government Securities Fund 6 Franklin Strategic Income Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 6 Franklin Federal Money Fund 6,8 Franklin Money Fund 6,8 TAX-FREE INCOME 9 Double Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund 10 Tax-Exempt Money Fund 6,8 STATE-SPECIFIC TAX-FREE INCOME 9 Alabama Arizona California 11 Colorado Connecticut Florida 11 Georgia Kentucky Louisiana Maryland Massachusetts 10 Michigan 10 Minnesota 10 Missouri New Jersey New York 11 North Carolina Ohio 10 Oregon Pennsylvania Tennessee Texas Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 12 1. Formerly Franklin Growth and Income Fund. Effective 5/1/02, the fund's name changed; investment goal and strategy remained the same. 2. Formerly Franklin Small Cap Growth Fund I. Effective 9/1/01, the fund's name changed and its investment criteria expanded. 3. The fund is closed to most new investors, with the exception of retirement plan accounts and wrap program accounts. Existing shareholders can continue adding to their account. 4. Effective 5/1/02, the fund is closed to all new investors. Existing shareholders, however, will be able to continue adding to their accounts through exchanges and purchases. In addition, retirement plans with an existing account in the fund will be allowed to open new participant accounts. 5. Effective 4/1/02, the fund expanded its investment universe to include companies with market capitalizations up to $2.5 billion. 6. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 7. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. 8. No assurance exists that the fund's $1.00 per share price will be maintained. 9. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 10. Portfolio of insured municipal securities. 11. These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and intermediate-term and money market portfolios (CA and NY). 12. The funds of the Franklin Templeton Variable Insurance Products Trust are generally only available as investment options in variable annuity or variable life insurance contracts. 05/02 [LOGO OMITTED] FRANKLIN TEMPLETON INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 ANNUAL REPORT FRANKLIN MULTI-INCOME TRUST INVESTMENT MANAGER Franklin Advisers, Inc. TRANSFER AGENT PFPC Inc. P.O. Box 8030 Boston, MA 02266-8030 INDENTURE TRUSTEE Fleet National Bank 150 Windsor Street Hartford, CT 06120 To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. MIT A2002 05/02 [GRAPHIC OMITTED] Printed on recycled paper -----END PRIVACY-ENHANCED MESSAGE-----