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Annual Report
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MARCH 31, 2002
FRANKLIN MULTI-INCOME TRUST
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FRANKLIN TEMPLETON
INVESTMENTS
<PAGE>
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
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Electronic delivery is a convenient alternative to receiving these reports
through the mail. Visit franklintempleton.com today, click on Account Services
and sign up.
<PAGE>
SHAREHOLDER LETTER
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
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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
<PAGE>
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
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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
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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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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:
<TABLE>
<CAPTION>
% OF % OF % OF
OUT- OUT- OUT-
STANDING % OF STANDING STANDING
TRUSTEES SHARES FOR SHARES VOTED WITHHELD SHARES SHARES
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
14
<PAGE>
FRANKLIN MULTI-INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------------------
2002 2001 2000 1999 1998
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
a Based on the last sale on the New York Stock Exchange.
See notes to financial statements.
15
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FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2002
<TABLE>
<CAPTION>
SHARES/
WARRANTS VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
------------
</TABLE>
16
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FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
<TABLE>
<CAPTION>
SHARES/
WARRANTS VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
17
<PAGE>
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT D VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
18
<PAGE>
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2002 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT D VALUE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
============
</TABLE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
FRANKLIN MULTI-INCOME TRUST
Financial Statements (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 2002 AND 2001
<TABLE>
<CAPTION>
2002 2001
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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)
===============================
</TABLE>
See notes to financial statements.
22
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<TABLE>
<CAPTION>
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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).
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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.
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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.
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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).
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</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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).
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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.
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**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.
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**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.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF
PORTFOLIOS IN FUND
LENGTH OF COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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.
</TABLE>
33
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<PAGE>
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
<PAGE>
[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
</TEXT>
</DOCUMENT>