-----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, GGgx8pinLvZ/YxnugpjTh0rGtWoXjPKPsnxgw/DCkT9pdbpnqSB0ABGezvyAmwtT YwV4rcU5shGjLZKTFmI3Pw== 0000854856-03-000003.txt : 20030527 0000854856-03-000003.hdr.sgml : 20030526 20030527140825 ACCESSION NUMBER: 0000854856-03-000003 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030527 EFFECTIVENESS DATE: 20030527 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: 03719715 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 multiincomen30da.txt ANNUAL REPORT [GRAPHIC OMITTED] MARCH 31, 2003 FRANKLIN MULTI-INCOME TRUST [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) 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 [PHOTO OMITTED] GLENN I. VOYLES, CFA PORTFOLIO MANAGER FRANKLIN MULTI-INCOME TRUST SHAREHOLDER LETTER - -------------------------------------------------------------------------------- YOUR TRUST'S GOAL: FRANKLIN MULTI-INCOME TRUST SEEKS TO PROVIDE HIGH, CURRENT INCOME CONSISTENT WITH PRESERVATION OF CAPITAL. - -------------------------------------------------------------------------------- Dear Shareholder: This annual report for Franklin Multi-Income Trust covers the fiscal year ended March 31, 2003. The 12 months under review saw subdued economic recovery, as high energy prices and the onset of war in Iraq partially mitigated the positive impact of low interest rates, a weaker dollar and rapid money supply growth. Historically low mortgage rates prompted record levels of refinancing, enabling many homeowners to take cash out of their homes and helping consumer spending remain a key support of the economy. In stark contrast to individual consumers, most businesses were reluctant to undertake spending projects. Many companies opted to repair stretched balance sheets rather than invest in growth opportunities. Despite the headwinds, the economy appeared to rebound from recessionary levels. Within this uneven economic environment, we sought attractive investment opportunities. Early in the fiscal year, utility stocks suffered severe weakness due to challenging industry 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 ....... 21 Notes to Financial Statements ....... 25 Independent Auditors' Report ........... 29 Tax Designation ............ 30 Board Members and Officers ............... 31 The dollar value, number of shares or principal amount, and complete legal titles of all portfolio holdings are listed in the Trust's Statement of Investments (SOI). The SOI begins on page 16. fundamentals. Since the Trust had been underweighted in utility stocks, we increased its exposure to a more neutral weighting, as we found valuations extremely attractive on a historical basis. We focused on utilities with large regulated businesses and a history of healthy dividend payments. Although utilities' near-term outlook remains challenging, at recent prices utility stocks should perform well over the long term, in our view. We were also actively involved in the high yield sector. When financial markets rallied from early-October lows, many of the Trust's more aggressive high yield investments performed extremely well. We sold a number of these bonds, including certain cable and wireless communications positions, during the market's strength and redeployed the proceeds into a variety of new investments. In general, market volatility created several situations where we were able to purchase bonds with strong credit profiles at prices we found attractive. For the year ended March 31, 2003, Franklin Multi-Income Trust's cumulative total return was -19.91% based on the change in net asset value and -23.67% based on the change in market price on the New York Stock Exchange, as shown in the Performance Summary on page 8. The returns comprised strong results from the portfolio's high yield positions, which were offset by continued utility stock weakness. INDUSTRY DISCUSSIONS ENERGY The energy industry continued to enjoy strong business fundamentals as low crude oil and natural gas inventories, cold winter weather and supply disruptions due to the Venezuelan strike forced prices significantly higher. While the higher prices [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS AS FOLLOWS: Portfolio Breakdown Based on Total Market Value 3/31/03 Corporate Bonds 53.6% Utilities Stocks 40.6% Misc. Equities & Preferred Stocks 4.4% Foreign Currency Denominated Bonds 0.5% Convertible Bonds 0.3% Cash & Equivalents 0.6% 2 can also be partially attributed to the "war premium" related to conflict with Iraq, we believe the industry's outlook should remain attractive following a resolution. Based on our favorable outlook, we identified several unique investment opportunities during the reporting period. We focused on the energy services sector, where we found valuations more attractive. Notable purchases included El Paso Energy Partners, Grant Prideco and Vintage Petroleum. El Paso Energy Partners should benefit from strong fundamentals for natural gas, since the company's pipeline fees are a function of natural gas prices. We anticipate increased demand for Grant Prideco's drill pipes as higher oil and natural gas prices prompt drilling activity to recover from depressed 2002 levels. Exploration and production company Vintage Petroleum offers a combination of solid domestic operations and upside potential from its Argentine operations. HOMEBUILDING During the year under review, the homebuilding industry remained strong as 2002 housing starts reached record levels. Historically low mortgage rates combined with healthy income growth to keep housing more affordable. In many parts of the country, monthly mortgage payments are no more than rent payments on apartments. Housing demand also benefited from favorable demographics and population growth. Forward indicators remain positive, with elevated levels of building permits and rising affordability indexes. Public homebuilders, which represent a small but growing percentage of the overall market, have a competitive advantage due to their better access to land and low capital cost. We sought to take advantage of the industry's favorable outlook by initiating a position in D.R. Horton, a diversified national homebuilder with a proven track record. TOP 10 HOLDINGS 3/31/03 COMPANY % OF TOTAL SECTOR/INDUSTRY MARKET (SECURITY TYPE) VALUE - --------------------------------- Dominion Resources Inc. 2.5% UTILITIES (STOCK) Exelon Corp. 2.4% UTILITIES (STOCK) Southern Co. 2.4% UTILITIES (STOCK) Entergy Corp. 2.3% UTILITIES (STOCK) FPL Group Inc. 2.2% UTILITIES (STOCK) Nortek Inc. 2.0% PRODUCER MANUFACTURING (BOND) Host Marriott LP 2.0% FINANCE (BOND) DTE Energy Co. 1.9% UTILITIES (STOCK) Alliance Imaging Inc. 1.9% HEALTH SERVICES (BOND) Station Casinos Inc. 1.7% CONSUMER SERVICES (BOND) 3 DIVIDEND DISTRIBUTIONS 4/1/02-3/31/03 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 3.5 cents January 3.5 cents February 3.5 cents March 3.5 cents - ----------------------------- TOTAL 58.8 CENTS INDUSTRIALS Industrials represent a diverse mix of businesses, ranging from construction equipment to business services. Overall, the industrial sector bounced along the economy's cycle trough, with orders and shipments flat. We prefer investing in business niches that expose our shareholders to less commodity risk and are relatively immune to foreign competition. With this in mind, we initiated positions in Cummins, Rexnord and Legrand during the 12 months under review. Cummins is one of the largest independent diesel engine manufacturers. Truck manufacturers that use these engines tend to lead the business cycle. Such companies were one of the first groups to be negatively impacted at the recession's early stages, and we expect they should be among the first to benefit from an improving economy. Rexnord occupies an attractive niche as a producer of bottling and conveyer belt equipment. This equipment suffers a high degree of wear and tear, giving Rexnord high replacement rates for its products. We believe Legrand should be able to generate consistently strong cash flow due to its high profit margins and modest capital requirements. AUTOMOTIVE The automotive industry posted strong results in 2002, surprising many industry analysts with its resiliency in the face of a challenging economy. Several factors enabled the industry to perform so well. Aggressive incentives such as zero percent financing helped maintain demand despite general economic headwinds. Solid income growth and favorable demographics also contributed to robust new car sales. Combined with low interest rates, these factors should support, in our opinion, healthy sales levels going forward. In particular, we are optimistic that Ford's recent internal restructuring actions will result in improved credit measures. With this in mind, we took the opportunity to increase our holdings during the period. We also initiated a position in TRW Automotive, one of the automotive 4 WHAT IS A MERCHANT POWER PLANT? A MERCHANT POWER PLANT PRODUCES POWER AS A COMMODITY, SO ITS INCOME STREAM DEPENDS ON THE MARKET PRICE. IN CONTRAST, TRADITIONAL POWER PLANTS GENERALLY RELY ON PREDETERMINED RATES OF RETURN, USUALLY SET BY A REGULATORY BODY, TO GENERATE INCOME. industry's largest global suppliers of vehicle parts. TRW Automotive should benefit from increased demand for safety features and technological advances in vehicle braking systems. UTILITIES Electric utilities exhibited significant share price volatility during the 12 months under review, a trend begun in early 2002. The fluctuations have been largely driven by concerns over the sector's credit fundamentals, as utilities have generally increased their debt over the past several years by spending on opportunities in unregulated businesses such as energy trading and merchant power plants. Although high spending levels have strained balance sheets, investments made outside the regulated franchises have failed to produce meaningful returns thus far. We expect continued volatility for this sector as companies focus on strengthening their balance sheets through equity issuances and reduced capital spending. The current, low interest rate environment seems ideal for those utility companies that maintained their financial discipline. We focused on companies with strong balance sheets and a high percentage of overall earnings coming from regulated operations, such as Ameren, Southern Co. and Energy East. We sought to find companies that are substantially improving their cash flow positions in an effort to strengthen their balance sheets, such as Pinnacle West Capital. Although utilities' overall credit fundamentals remained relatively weak during this challenging period, we think the sector is making strides at improving its financial situation, and valuation opportunities have arisen on several occasions, enabling us to increase the Trust's exposure. WHAT'S AHEAD The war in Iraq continues to create uncertainties for the financial markets and the economy. Higher energy costs are a serious issue, as they act as a tax on consumers and businesses. Despite 5 many negative undercurrents facing the economy, we remain cautiously optimistic. Historically low interest rates and strong money growth offer a record amount of economic stimulus. Proposed tax cuts could further support consumer spending. When the Iraq situation is resolved, we believe the economy should be able to return to higher growth rates. However, it is important to note that the Trust is not positioned with rapid economic growth in mind. In fact, a slow growth environment may be preferable, as it could keep companies focused on paying down debt and improving balance sheets -- factors that generally lead to strong performance for high yield bonds. Default rates reached peak levels in 2002 and many major indicators forecast the declining default trend to continue in the remainder of 2003. High yield bond valuations were attractive on a historical basis as measured by the Credit Suisse First Boston (CSFB) High Yield Index. 1 Utility stocks also demonstrated attractive yields during the 12-month period, yielding as much as 125% of the 10-year Treasury's yield, compared with their 90% historical average. 2 Overall, based on attractive valuations and expectations of a gradually improving economy in 2003, we hold a favorable outlook for the Trust. 1. Source: The CSFB High Yield Index is a trader-priced portfolio constructed to mirror the high yield debt market. 2. Source: Standard & Poor's Micropal. The S&P Utilities Index is a market capitalization-weighted index that includes utility stocks in the Standard & Poor's 500 Composite Index. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. 6 We thank you for your continued investment in Franklin Multi-Income Trust and welcome your comments. Sincerely, /S/ CHRISTOPHER J. MOLUMPHY, CFA Christopher J. Molumphy, CFA Senior Portfolio Manager /S/ GLENN I. VOYLES, CFA Glenn I. Voyles, CFA Portfolio Manager Franklin Multi-Income Trust This discussion reflects our analysis, opinions and portfolio holdings as of March 31, 2003, the end of the reporting period. Our strategies and the Trust's portfolio composition will change depending on market and economic conditions. These opinions may not be relied upon as investment advice or an offer for a particular security. The information is not a complete analysis of every aspect of any market, country, industry, security or the Trust. Statements of fact are from sources considered reliable, but the advisor makes no representation or warranty as to their completeness or accuracy. Although historical performance is no guarantee of future results, these insights may help you understand our investment management philosophy. 7 PERFORMANCE SUMMARY AS OF 3/31/03 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. PRICE AND DISTRIBUTION INFORMATION CHANGE 3/31/03 3/31/02 - --------------------------------------------------------------- Net Asset Value (NAV) -$2.30 $6.41 $8.71 Market Price (NYSE) -$2.60 $6.10 $8.70 DISTRIBUTIONS (4/1/02-3/31/03) Dividend Income $0.588 PERFORMANCE 1-YEAR 5-YEAR 10-YEAR - --------------------------------------------------------------- Cumulative Total Return 1 Based on change in NAV -19.91% -14.86% +61.13% Based on change in market price -23.67% -11.73% +64.20% Average Annual Total Return 1 Based on change in NAV -19.91% -3.17% +4.89% Based on change in market price -23.67% -2.46% +5.08% Distribution Rate 2 6.89% 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 3.5 cent per share March dividend and the NYSE closing price of $6.10 on 3/31/03. Ongoing market volatility can significantly affect short-term performance; more recent returns may differ from those shown. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, currency volatility, economic instability and political developments 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 more current performance, 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 9223, Chelsea, MA 02150-9223, 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 up to you whether you wish to buy additional shares with voluntary 10 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 PFPC Inc. and sent to PFPC Inc., Attn: Franklin Multi-Income Trust, P.O. Box 9223, Chelsea, MA 02150-9223. 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 any brokerage commissions incurred. The Plan Agent will deduct a $5.00 service fee from each of your voluntary cash payments. 11 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 10, 2002, 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 - ----------------------------------------------------------------------------- Frank H. Abbott, III 4,932,264.168 84.203% 98.116% 94,717.648 1.617% 1.884% Harris J. Ashton 4,936,914.168 84.282% 98.208% 90,067.648 1.538% 1.792% Gordon S. Macklin 4,921,441.435 84.018% 97.901% 105,540.381 1.802% 2.099% 14 FRANKLIN MULTI-INCOME TRUST Financial Highlights
YEAR ENDED MARCH 31, -------------------------------------------------- 2003 2002 2001 2000 1999 -------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ....................... $8.71 $9.80 $8.97 $ 10.04 $ 11.98 -------------------------------------------------- Income from investment operations: Net investment income ................................... .51 .63 .66 .71 .76 Net realized and unrealized gains (losses) .............. (2.25) (1.05) .84 (.84) (1.70) -------------------------------------------------- Total from investment operations ......................... (1.74) (.42) 1.50 (.13) (.94) -------------------------------------------------- Less distributions from: Net investment income ................................... (.57) (.67) (.67) (.70) (.77) Net realized gains ...................................... -- -- -- (.24) (.23) -------------------------------------------------- Total distributions ...................................... (.57) (.67) (.67) (.94) (1.00) -------------------------------------------------- Net asset value, end of year ............................. $6.40 $8.71 $9.80 $ 8.97 $ 10.04 ================================================== Market value, end of yeara ............................... $6.10 $8.70 $8.62 $ 7.00 $ 9.00 ================================================== Total return (based on market value per share) ........... (23.67)% 9.23% 33.54% (12.29)% (9.58)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) .......................... $37,511 $51,047 $57,412 $52,559 $58,827 Ratios to average net assets: Expenses ................................................ 4.47% 3.45% 3.23% 3.30% 3.07% Net investment income ................................... 7.52% 6.97% 6.88% 7.33% 6.87% Portfolio turnover rate .................................. 48.45% 18.27% 26.72% 30.42% 24.31% Total debt outstanding at end of year (000's) ............ $14,000 $16,000 $16,000 $16,000 $16,000 Asset coverage per $1,000 of debt ........................ $ 2,679 $ 3,190 $ 3,588 $ 3,285 $ 3,677 Average amount of notes per share during the year ........ $2.54 $2.73 $2.73 $2.73 $2.73
aBased 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, 2003
SHARES/ WARRANTS VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS 57.4% COMMUNICATIONS 2.0% BellSouth Corp. .............................................................. 34,000 $ 736,780 aMcleodUSA Inc., wts., 4/16/07 ................................................ 3,884 660 aMetrocall Holdings Inc. ...................................................... 924 1,848 ----------- 739,288 ----------- CONSUMER SERVICES .1% Marriott International Inc., A ............................................... 1,052 33,464 ----------- ELECTRONIC TECHNOLOGY aLoral Orion Network Systems Ltd., wts., 1/15/07 .............................. 1,000 10 aLoral Space & Communications Ltd., wts., 12/27/06 ............................ 4,188 209 ----------- 219 ----------- RETAIL TRADE aStage Stores Inc. ............................................................ 275 5,825 ----------- TRANSPORTATION aContinental Airlines Inc., B ................................................. 357 1,828 ----------- UTILITIES 55.3% Ameren Corp. ................................................................. 20,000 781,000 American Electric Power Co. Inc. ............................................. 33,800 772,330 Aquila Inc. .................................................................. 40,820 84,906 Atmos Energy Corp. ........................................................... 35,000 744,100 CenterPoint Energy Inc. ...................................................... 55,400 390,570 Cinergy Corp. ................................................................ 24,500 824,425 CMS Energy Corp. ............................................................. 24,000 105,840 Dominion Resources Inc. ...................................................... 23,400 1,295,658 DPL Inc. ..................................................................... 25,000 311,500 DTE Energy Co. ............................................................... 25,000 966,250 Duke Energy Corp. ............................................................ 35,900 521,986 Energy East Corp. ............................................................ 30,000 534,000 Entergy Corp. ................................................................ 24,000 1,155,600 Exelon Corp. ................................................................. 24,500 1,235,045 FirstEnergy Corp. ............................................................ 27,500 866,250 FPL Group Inc. ............................................................... 19,000 1,119,670 Nicor Inc. ................................................................... 29,000 792,280 NiSource Inc. ................................................................ 19,000 345,800 NSTAR ........................................................................ 15,500 620,310 ONEOK Inc. ................................................................... 40,200 737,268 Pepco Holdings Inc. .......................................................... 20,500 356,700 Pinnacle West Capital Corp. .................................................. 24,000 797,760 Progress Energy Inc. ......................................................... 21,000 822,150 Public Service Enterprise Group Inc. ......................................... 22,000 807,180 Puget Energy Inc. ............................................................ 37,000 788,470 Questar Corp. ................................................................ 12,500 369,625 SCANA Corp. .................................................................. 12,621 377,620 Sempra Energy ................................................................ 26,000 648,960
16 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
SHARES/ WARRANTS VALUE - --------------------------------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS (CONT.) UTILITIES (CONT.) Southern Co. ................................................................. 43,000 $1,222,920 TXU Corp. .................................................................... 20,400 364,140 ----------- 20,760,313 ----------- TOTAL COMMON STOCKS AND WARRANTS (COST $21,486,775) .......................... 21,540,937 ----------- PREFERRED STOCKS 1.4% COMMUNICATIONS aMetrocall Holdings Inc., 15.00%, pfd., A ..................................... 797 2,391 ----------- CONSUMER SERVICES 1.4% Sinclair Capital, 11.625%, pfd. .............................................. 5,000 531,250 ----------- TOTAL PREFERRED STOCKS (COST $501,714) ....................................... 533,641 ----------- CONVERTIBLE PREFERRED STOCKS 2.5% COMMUNICATIONS aMcleodUSA Inc., 2.50%, cvt. pfd. ............................................. 1,753 4,896 ----------- CONSUMER DURABLES 1.5% Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ............................ 15,300 545,292 ----------- FINANCE .4% Host Marriott Corp., 6.75%, cvt. pfd. ........................................ 4,400 146,437 ----------- UTILITIES .6% CMS Energy Trust I, 7.75%, cvt. pfd. ......................................... 8,000 227,296 ----------- TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,563,539) ......................... 923,921 ----------- PRINCIPAL AMOUNT D ----------- BONDS 73.7% COMMERCIAL SERVICES 3.3% Johnsondiversey Inc., senior sub. note, 9.625%, 5/15/12 .................... $ 200,000 216,000 bKey3Media Group Inc., senior sub. note, 11.25%, 6/15/11 .................... 1,000,000 20,000 Quebecor Media Inc., senior note, 11.125%, 7/15/11 (Canada) ................ 500,000 545,000 William Carter, senior sub. note, 10.875%, 8/15/11 ......................... 400,000 447,000 ----------- 1,228,000 ----------- COMMUNICATIONS 6.6% Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ............ 500,000 477,500 Millicom International Cellular SA, senior note, 13.50%, 6/01/06 (Luxembourg) 1,000,000 695,000 Nextel Communications Inc., senior note, 9.375%, 11/15/09 .................. 500,000 527,500 US West Communications Inc., 6.875%, 9/15/33 ............................... 500,000 425,000 Voicestream Wireless Corp., senior note, 10.375%, 11/15/09 ................. 312,000 346,320 bNextlink Communications Inc., senior note, 9.625%, 10/01/07 500,000 3,125 bNextlink Communications Inc., senior note, 9.00%, 3/15/08 500,000 3,125 ----------- 2,477,570 -----------
17 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT D VALUE - --------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER DURABLES 1.4% D.R. Horton Inc., senior note, 8.50%, 4/15/12 .............................. $ 500,000 $ 531,250 ----------- CONSUMER NON-DURABLES 2.8% Dimon Inc., senior note, 9.625%, 10/15/11 .................................. 500,000 550,000 Revlon Consumer Products Corp., senior note, 8.125%, 2/01/06 ............... 500,000 302,500 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 .......... 500,000 217,500 ----------- 1,070,000 ----------- CONSUMER SERVICES 17.9% bAdelphia Communications Corp., senior note, 10.875%, 10/01/10 .............. 1,000,000 410,000 CanWest Media Inc., senior sub. note, 10.625%, 5/15/11 (Canada) ............ 500,000 553,750 Chancellor Media Corp., senior note, 8.00%, 11/01/08 ....................... 500,000 566,875 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ..................................... 1,000,000 410,000 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) ........ 250,000 187,500 DIRECTV Holdings/Finance, senior note, 144A, 8.375%, 3/15/13 ............... 500,000 553,750 EchoStar DBS Corp., senior note, 10.375%, 10/01/07 ......................... 500,000 552,500 Hollywood Park, senior sub. note, B, 9.25%, 2/15/07 ........................ 700,000 610,750 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 .......... 700,000 742,000 Host Marriott LP, senior note, 9.50%, 1/15/07 .............................. 500,000 500,625 Host Marriott LP, senior note, 9.25%, 10/01/07 ............................. 500,000 500,000 Premier Parks Inc., senior disc. note, zero cpn. to 4/01/03, 10.00% thereafter, 4/01/08 ....................................................... 500,000 489,375 Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 .................... 800,000 882,000 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 (United Kingdom) ................................ 500,000 85,000 Yell Finance BV, senior note, 10.75%, 8/01/11 (United Kingdom) ............. 600,000 669,000 ----------- 7,713,125 ----------- DISTRIBUTION SERVICES bAmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ........... 250,000 125 ----------- ELECTRONIC TECHNOLOGY 1.1% Solectron Corp., senior note, 9.625%, 2/15/09 .............................. 400,000 420,000 ----------- ENERGY MINERALS 2.2% Peabody Energy Corp., senior note, 144A, 6.875%, 3/15/13 ................... 300,000 305,250 Vintage Petroleum, senior sub. note, 7.875%, 5/15/11 ....................... 500,000 507,500 ----------- 812,750 ----------- HEALTH SERVICES 4.4% Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 .................. 1,000,000 960,000 bMagellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ............ 1,000,000 265,000 Ventas Realty LP/Capital Corp., senior note, 9.00%, 5/01/12 ................ 400,000 430,000 ----------- 1,655,000 -----------
18 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT D VALUE - --------------------------------------------------------------------------------------------------------- BONDS (CONT.) INDUSTRIAL SERVICES 7.0% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ........... $ 500,000 $ 511,875 El Paso Energy Partners, senior sub. note, 144A, 10.625%, 12/01/12 ......... 500,000 555,000 Grant Prideco Inc., senior note, 9.00%, 12/15/09 ........................... 200,000 214,500 Universal Compression Inc., senior disc. note, 9.875%, 2/15/08 ............. 500,000 527,500 URS Corp., senior sub. note, 12.25%, 5/01/09 ............................... 1,000,000 815,000 ----------- 2,623,875 ----------- NON-ENERGY MINERALS 3.2% Compass Minerals Group, senior sub. note, 10.00%, 8/15/11 .................. 600,000 666,000 Louisiana Pacific Corp., senior sub. note, 10.875%, 11/15/08 ............... 200,000 221,000 Steel Dynamics Inc., senior note, 9.50%, 3/15/09 ........................... 300,000 307,500 ----------- 1,194,500 ----------- PROCESS INDUSTRIES 9.2% Consolidated Container Co. LLC, senior disc. note, 10.125%, 7/15/09 ........ 1,000,000 435,000 Equistar Chemicals LP, senior note, 10.125%, 9/01/08 ....................... 200,000 194,000 FiberMark Inc., senior note, 10.75%, 4/15/11 ............................... 500,000 487,500 Graham Packaging Co., senior disc. note, B, 10.75%, 1/15/09 ................ 200,000 201,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 .................. 200,000 194,500 Huntsman ICI Chemicals, senior disc. note, zero cpn., 12/31/09 ............. 2,000,000 540,000 MDP Acquisitions PLC, senior note, 144A, 9.625%, 10/01/12 (Irish Republic) . 300,000 317,625 OM Group Inc., senior sub. note, 9.25%, 12/15/11 ........................... 200,000 157,000 bPindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/03 (Indonesia) 1,000,000 200,000 Riverwood International, senior sub. note, 10.875%, 4/01/08 ................ 500,000 516,250 United Industries Corp., senior sub. note, 144A, 9.875%, 4/01/09 ........... 200,000 209,500 ----------- 3,452,375 ----------- PRODUCER MANUFACTURING 7.0% Cummins Inc., senior note, 144A, 9.50%, 12/01/10 ........................... 100,000 103,500 Hexcel Corp., 144A, 9.875%, 10/01/08 ....................................... 100,000 104,750 Legrand SA, senior note, 144A, 10.50%, 2/15/13 (France) .................... 500,000 532,500 NMHG Holding Co., 10.00%, 5/15/09 .......................................... 400,000 428,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 ............................... 750,000 778,125 Nortek Inc., senior note, B, 8.875%, 8/01/08 ............................... 250,000 260,000 Rexnord Corp., senior sub. note, 144A, 10.125%, 12/15/12 ................... 100,000 106,750 TRW Automotive Inc., senior note, 144A, 9.375%, 2/15/13 .................... 200,000 201,000 TRW Automotive Inc., senior note, 144A, 11.00%, 2/15/13 .................... 100,000 100,250 ----------- 2,614,875 ----------- RETAIL TRADE 1.0% Rite Aid Corp., 144A, 6.125%, 12/15/08 ..................................... 500,000 395,000 -----------
19 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2003 (CONT.)
PRINCIPAL AMOUNT D VALUE - --------------------------------------------------------------------------------------------------------- BONDS (CONT.) UTILITIES 3.9% AES Corp., senior note, 9.375%, 9/15/10 .................................... $ 400,000 $ 338,000 Calpine Corp., senior note, 8.625%, 8/15/10 ................................ 1,000,000 560,000 Dynegy Inc., senior note, 8.75%, 2/15/12 ................................... 400,000 286,000 ESCOM, E168, secured note, 11.00%, 6/01/08 (South Africa) .................. 2,175,000 ZAR 278,749 ------------ 1,462,749 ------------ TOTAL BONDS (COST $33,920,538) ............................................. 27,651,194 ------------ CONVERTIBLE BOND (COST $147,142) .4% ELECTRONIC TECHNOLOGY Nortel Networks Corp., cvt., senior note, 4.25%, 9/01/08 ................... 200,000 148,000 ------------ TOTAL LONG TERM INVESTMENTS (COST $57,619,708) ............................. 50,797,693 ------------ SHARES ----------- SHORT TERM INVESTMENT (COST $293,519) .8% cFranklin Institutional Fiduciary Trust Money Market Portfolio .............. 293,519 293,519 ------------ TOTAL INVESTMENTS (COST $57,913,227) 136.2% ................................ 51,091,212 OTHER ASSETS, LESS LIABILITIES (36.2)% ..................................... (13,580,549) ------------ NET ASSETS 100.0% .......................................................... $37,510,663 ============
CURRENCY ABBREVIATIONS: ZAR - South African Rand aNon-income producing bSee Note 8 regarding defaulted securities. cSee Note 7 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio. dThe principal amount is stated in U.S. dollars unless otherwise indicated. See notes to financial statements. 20 FRANKLIN MULTI-INCOME TRUST Financial Statements STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2003
Assets: Investments in securities: Cost ...................................................................................... $57,913,227 ============ Value ..................................................................................... 51,091,212 Receivables: Dividends and interest .................................................................... 801,489 Note issuance costs (Note 3) ............................................................... 24,481 ------------ Total assets .......................................................................... 51,917,182 ------------ Liabilities: Payables: Investment securities purchased ........................................................... 86,094 Affiliates ................................................................................ 35,986 Note (Note 3) ............................................................................. 14,000,000 Accrued interest (Note 3) ................................................................. 39,375 Distributions to shareholders .............................................................. 205,016 Other liabilities .......................................................................... 40,048 ------------ Total liabilities ..................................................................... 14,406,519 ------------ Net assets, at value ................................................................. $37,510,663 ============ Net assets consist of: Undistributed net investment income ........................................................ $ (661,039) Net unrealized appreciation (depreciation) ................................................. (6,821,290) Accumulated net realized gain (loss) ....................................................... (8,790,630) Capital shares ............................................................................. 53,783,622 ------------ Net assets, at value ................................................................. $37,510,663 ============ Net asset value per share ($37,510,663 (DIVIDE) 5,857,600 shares outstanding) ............... $6.40 ============
See notes to financial statements. 21 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 2003
Investment income: Dividends .................................................................................. $ 1,303,421 Interest ................................................................................... 3,496,355 ------------ Total investment income ............................................................... 4,799,776 ------------ Expenses: Management fees (Note 4) ................................................................... 461,150 Transfer agent fees ........................................................................ 24,628 Custodian fees ............................................................................. 810 Reports to shareholders .................................................................... 23,569 Registration and filing fees ............................................................... 625 Professional fees .......................................................................... 40,842 Trustees' fees and expenses ................................................................ 5,712 Amortization of note issuance costs (Note 3) ............................................... 22,711 Note prepayment fee (Note 3) ............................................................... 178,852 Other ...................................................................................... 29,675 ------------ Expenses before interest expense ...................................................... 788,574 Interest expense (Note 3) ............................................................. 1,000,500 ------------ Total expenses ....................................................................... 1,789,074 ------------ Net investment income ............................................................... 3,010,702 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ............................................................................... (8,365,882) Foreign currency transactions ............................................................. 1,324 ------------ Net realized gain (loss) .............................................................. (8,364,558) Net unrealized appreciation (depreciation) on: Investments ............................................................................... (4,861,612) Translation of assets and liabilities denominated in foreign currencies ................... 629 ------------ Net unrealized appreciation (depreciation) ............................................ (4,860,983) ------------ Net realized and unrealized gain (loss) ..................................................... (13,225,541) ------------ Net increase (decrease) in net assets resulting from operations ............................. $(10,214,839) ============
See notes to financial statements. 22 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
2003 2002 ------------------------- Increase (decrease) in net assets: Operations: Net investment income ........................................................ $ 3,010,702 $ 3,699,076 Net realized gain (loss) from investments and foreign currency transactions .. (8,364,558) 11,744 Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies .................... (4,860,983) (6,139,904) -------------------------- Net increase (decrease) in net assets resulting from operations .......... (10,214,839) (2,429,084) Distributions to shareholders from net investment income ...................... (3,321,259) (3,936,307) -------------------------- Net increase (decrease) in net assets .................................... (13,536,098) (6,365,391) Net assets: Beginning of year ............................................................. 51,046,761 57,412,152 -------------------------- End of year ................................................................... $ 37,510,663 $51,046,761 ========================== Undistributed net investment income included in net assets: End of year ................................................................... $ (661,039) $ (398,831) ==========================
See notes to financial statements. 23 FRANKLIN MULTI-INCOME TRUST Financial Statements (CONTINUED) STATEMENT OF CASH FLOWS FOR THE YEAR ENDED MARCH 31, 2003
Cash flow from operating activities: Dividends and interest received ........................................................... $ 4,657,532 Operating expenses paid ................................................................... (598,229) Interest expense paid ..................................................................... (1,009,125) ------------ Cash provided - operations ............................................................... 3,050,178 ============ Cash flow from investing activities: Investment purchases ...................................................................... (47,342,757) Investment sales and maturities ........................................................... 49,896,806 ------------ Cash provided - investments .............................................................. 2,554,049 ============ Cash flow from financing activities: Prepayment of Note ........................................................................ (2,178,852) Distributions to shareholders ............................................................. (3,444,269) ------------ Cash used - financing .................................................................... (5,623,121) ============ Net change in cash ......................................................................... (18,894) Cash at beginning of year .................................................................. 18,894 ------------ Cash at end of year ........................................................................ $ -- ============ RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR THE YEAR ENDED MARCH 31, 2003 Net investment income ...................................................................... $ 3,010,702 Amortization income ....................................................................... (484,270) Amortization of note issuance costs ....................................................... 22,711 Decrease in dividends and interest receivable ............................................. 342,026 Decrease in other liabilities ............................................................. (19,843) Note prepayment fee ....................................................................... 178,852 ------------ Cash provided - operations ................................................................. $ 3,050,178 ============
See notes to financial statements. 24 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 Note) 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. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS The Fund may purchase securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities. C. 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. D. 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. E. 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. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. Dividend income and distributions to shareholders are recorded on the ex-dividend date. 25 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) F. 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. 2. SHARES OF BENEFICIAL INTEREST At March 31, 2003, there were an unlimited number of shares authorized ($0.01 par value). During the year ended March 31, 2003, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. SENIOR FIXED-RATE NOTE On August 16, 1999, the Fund issued $16 million principal amount of a new class of five-year senior notes (the Note). The Note is a general unsecured obligation of the Fund and ranks senior to Trust shares and all existing or future unsecured indebtedness of the Fund. The Note bears interest, payable semi-annually, at the rate of 6.75% per year, to maturity on September 15, 2004. The Note was issued in a private placement, and is not available for resale; therefore, no market value can be obtained for the Note. 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 Note of at least 300%. The Fund has met these requirements during the year ended March 31, 2003. The issuance costs of $96,069 incurred by the Fund are deferred and amortized on a straight line basis over the term of the Note. During the year ended March 31, 2003, the Fund retired $2,000,000 of principal amount of its Note for $2,178,852. The Fund paid a Note Prepayment fee of $178,852 as required by the Note agreement. The Note Prepayment fee is disclosed in the accompanying Statement of Operations. 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 Note. 26 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 4. TRANSACTIONS WITH AFFILIATES (CONT.) 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, 2003, the Fund had tax basis capital losses of $5,262,307 which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2008 .............................. $ 24,985 2010 .............................. 150,106 2011 .............................. 5,087,216 ---------- $5,262,307 ========== At March 31, 2003, the Fund has deferred capital losses and deferred currency losses occurring subsequent to October 31, 2002 of $3,159,362 and $183, respectively. For tax purposes, such losses will be reflected in the year ending March 31, 2004. 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 gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions and bond discounts and premiums. The tax character of distributions paid during the years ended March 31, 2003 and 2002, was as follows: 2003 2002 --------------------- Distributions paid from: Ordinary income .................. $3,321,259 $3,936,307 Long-term capital gain ........... -- -- --------------------- $3,321,259 $3,936,307 ===================== At March 31, 2003, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long-term capital gains for income tax purposes were as follows: Cost of investments ................................ $ 58,456,904 ============= Unrealized appreciation ............................ $ 4,228,671 Unrealized depreciation ............................ (11,594,363) ------------- Net unrealized appreciation (depreciation) ......... $ (7,365,692) ============= Undistributed ordinary income ...................... $ 28,211 Undistributed long-term capital gains .............. -- ------------- Distributable earnings ............................. $ 28,211 ============= 27 FRANKLIN MULTI-INCOME TRUST Notes to Financial Statements (CONTINUED) 6. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended March 31, 2003 aggregated $26,074,722 and $27,575,737, respectively. 7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management fees paid by the Sweep Money Fund. The Fund earned $18,124 of dividend income from investment in the Sweep Money Fund for the year ended March 31, 2003. 8. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 55.51% 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, 2003, the Fund held defaulted securities with a value aggregating $901,375 representing 2.4% 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 those bonds for which the income is deemed uncollectible and provides an estimate for losses on interest receivable. 9. OTHER CONSIDERATIONS Advisers, as the Fund's Manager, may serve as a member of various bondholders' steering committees, on credit committees, or may represent the Fund in certain corporate restructuring negotiations. Currently the Manager serves in one or more of these capacities for Adelphia Communications Corp., Key3Media Group Inc., and Magellan Health Services 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. 28 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, of 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, 2003, 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 audits 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California April 29, 2003 29 FRANKLIN MULTI-INCOME TRUST Tax Designation (unaudited) Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 29.16% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended March 31, 2003. 30 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 the 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 (82) Trustee Since 1989 107 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 (70) Trustee Since 1989 135 Director, Bar-S Foods (meat packing company). One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers) (until 1998). - ---------------------------------------------------------------------------------------------------------------------------------- ROBERT F. CARLSON (75) 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 (70) Trustee Since 1989 136 None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch. - ---------------------------------------------------------------------------------------------------------------------------------- FRANK W.T. LAHAYE (73) Trustee Since 1989 106 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). - ----------------------------------------------------------------------------------------------------------------------------------
31
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 (74) Trustee Since 1992 135 Director, Martek Biosciences Corporation; One Franklin Parkway WorldCom, Inc. (communications services); San Mateo, CA 94403-1906 MedImmune, Inc. (biotechnology); Over- stock.com (Internet services); and Spacehab, Inc. (aerospace services). PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Deputy Chairman, 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 (54) Trustee, Trustee and 8 None One Franklin Parkway President and President since San Mateo, CA 94403-1906 Chief Executive 1993 and Chief Officer - Executive Investment Officer - Management Investment Management since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; and officer of other subsidiaries of Franklin Resources, Inc. and of 5 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- **CHARLES B. JOHNSON (70) Trustee and Trustee since 135 None One Franklin Parkway Chairman of 1989 and San Mateo, CA 94403-1906 the Board Chairman of the Board since 1993 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 some of the other subsidiaries of Franklin Resources, Inc.; and officer of 45 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- **RUPERT H. JOHNSON, JR. (62)Trustee and Trustee since 117 None One Franklin Parkway Senior Vice 1989 and San Mateo, CA 94403-1906 President Senior Vice President sinc 1992 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 some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 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 (58) 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 48 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- MARTIN L. FLANAGAN (42) Vice President Since 1995 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Chief Financial 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; 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; and officer and/or director of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- JIMMY D. GAMBILL (55) Senior Vice Since 2000 Not Applicable None 500 East Broward Blvd. President and Suite 2100 Chief Executive Fort Lauderdale, FL Officer - 33394-3091 Finance and Administration PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 50 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- DAVID P. GOSS (55) 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.; Officer and director of one of the subsidiaries of Franklin Resources, Inc.; officer of 50 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). - ----------------------------------------------------------------------------------------------------------------------------------
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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 - ---------------------------------------------------------------------------------------------------------------------------------- BARBARA J. GREEN (55) 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.; Senior Vice President, Templeton Worldwide, Inc.; officer of one of the other subsidiaries of Franklin Resources, Inc. and of 50 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). - ---------------------------------------------------------------------------------------------------------------------------------- GREGORY E. JOHNSON (41) Vice President Since 1989 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Resources, Inc.; Chairman of the Board and Director, Franklin Templeton Distributors, Inc.; President, Franklin Agency, Inc.; Vice President and Director, 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. - ---------------------------------------------------------------------------------------------------------------------------------- KIMBERLEY MONASTERIO (39) Treasurer and Treasurer since Not Applicable None One Franklin Parkway Chief Financial 2000 and Chief San Mateo, CA 94403-1906 Officer Financial Officer since 2002 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; and officer of 49 of the investment companies in Franklin Templeton Investments. - ---------------------------------------------------------------------------------------------------------------------------------- MURRAY L. SIMPSON (65) Vice President Since 2002 Not Applicable None One Franklin Parkway and Secretary San Mateo, CA 94403-1906 PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer of 50 of the investment companies in Franklin Templeton Investments; and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999). - ---------------------------------------------------------------------------------------------------------------------------------- *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 Trust under the federal securities laws due to his position as Executive Vice President of Franklin Advisers, Inc., which is the Trust's adviser. Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father and uncle, respectively, of Gregory E. Johnson.
34 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 Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton International (Ex EM) 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 Capital Growth Fund 1 Franklin DynaTech Fund Franklin Flex Cap Growth Fund 2 Franklin Gold and Precious Metals Fund Franklin Growth Fund Franklin Large Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Technology Fund Franklin U.S. Long-Short Fund 3 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 MicroCap Value Fund 4 Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Rising Dividends Fund Franklin Small Cap Value Fund 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 5 Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 6 Franklin Short-Intermediate U.S. Government Securities Fund 5 Franklin Strategic Income Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 5 Franklin Federal Money Fund 5,7 Franklin Money Fund 5,7 TAX-FREE INCOME 8 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 9 Tax-Exempt Money Fund 5,7 STATE-SPECIFIC TAX-FREE INCOME 8 Alabama Arizona California 10 Colorado Connecticut Florida 10 Georgia Kentucky Louisiana Maryland Massachusetts 9 Michigan 9 Minnesota 9 Missouri New Jersey New York 10 North Carolina Ohio 9 Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 11 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 California Growth Fund. Effective 9/1/02, the fund's name changed and its investment criteria was modified to invest a majority of its net assets in California companies, as opposed to at least 80% of net assets. 3. Upon reaching approximately $350 million in assets, the fund will close to all investors. 4. The fund is only open to existing shareholders as well as select retirement plans. 5. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 6. 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. 7. No assurance exists that the fund's $1.00 per share price will be maintained. It is possible to lose money by investing in the fund. 8. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 9. Portfolio of insured municipal securities. 10. 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). 11. 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. 12/02 [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) 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 43027 Providence, RI 02940-3027 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. [LOGO OMITTED] Printed on recycled paper MIT A2003 05/03 -----END PRIVACY-ENHANCED MESSAGE-----