-----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, LGN86ibr39zE4cpZxFWDuUXv9g0aH3YRlQPR22XfNWg4/ol/zmISDhZumxoE4+YM tL81rioqA3RTxxI7eyOtzQ== 0000854856-04-000005.txt : 20040604 0000854856-04-000005.hdr.sgml : 20040604 20040604145122 ACCESSION NUMBER: 0000854856-04-000005 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040604 EFFECTIVENESS DATE: 20040604 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05873 FILM NUMBER: 04849620 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-CSR 1 fmitannualncsr.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-05813 --------- Franklin Multi-Income Trust --------------------------- (Exact name of registrant as specified in charter) One Franklin Parkway, San Mateo, CA 94403-1906 (Address of principal executive offices) (Zip code) Murray L. Simpson, One Franklin Parkway, San Mateo, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (650) 312-2000 -------------- Date of fiscal year end: 3/31 ---- Date of reporting period: 3/31/04 ------- ITEM 1. REPORTS TO STOCKHOLDERS. MARCH 31, 2004 [GRAPHIC OMITTED] ANNUAL REPORT AND SHAREHOLDER INFORMATION INCOME Franklin Multi-Income Trust [GRAPHIC OMITTED] [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) INVESTMENTS FRANKLIN o Templeton o Mutual Series Franklin Templeton Investments GAIN FROM OUR PERSPECTIVE Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups--Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a driving force in fixed income investing around the globe. They also bring expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Founded in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. TRUE DIVERSIFICATION Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable account services that have helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS Not part of the annual report Contents ANNUAL REPORT Franklin Multi-Income Trust ..................... 1 Performance Summary ............................. 5 Annual Shareholders' Meeting .................... 6 Dividend Reinvestment and Cash Purchase Plan .......................... 7 Financial Highlights and Statement of Investments ........................ 10 Financial Statements ............................ 16 Notes to Financial Statements ................... 20 Independent Auditors' Report .................... 26 Tax Designation ................................. 27 Board Members and Officers ...................... 28 Proxy Voting Policies and Procedures ............ 33 Annual Report Franklin Multi-Income Trust YOUR FUND'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 (the Fund's) annual report, which covers the fiscal year ended March 31, 2004. PERFORMANCE OVERVIEW During the fiscal year under review, the Fund's cumulative total returns were +39.09% based on change in net asset value and +32.84% based on change in market price on the New York Stock Exchange. For comparison, the Credit Suisse First Boston (CSFB) High Yield Index returned 22.86%, while utilities stocks, as measured by the Standard & Poor's (S&P) Utilities Index, returned 37.06%, for the year ended March 31, 2004. 1 You can find the Fund's performance data in the Performance Summary on page 5. 1. Source: Credit Suisse First Boston; Standard &Poor's Micropal. The CSFB High Yield Index is a trader-priced portfolio constructed to mirror the high yield debt market. The S&P Utilities Index is a market capitalization-weighted index that includes utility stocks in the Standard & Poor's 500 Composite Index. The indexes are unmanaged and include reinvested distributions. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 11. Annual Report | 1 [GRAPHIC OMITTED] EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS: PORTFOLIO BREAKDOWN Corporate Bonds 52.0% Utilities Common Stocks 40.0% Misc. Common & Preferred Stocks 3.6% Convertible Bonds 0.7% Foreign Currency Denominated Bonds 0.6% Cash & Other Net Assets 3.1% *The calculation of percentages is based on total net assets plus long-term debt issued by the Fund. ECONOMIC AND MARKET OVERVIEW During the 12 months under review, many factors impacted the U.S. economy and financial markets. Although the uneven economic recovery and continuing geopolitical instability created an uncertain environment, signs that the economic recovery was gaining traction helped to drive up most financial markets. Third quarter 2003 gross domestic product (GDP) grew an annualized 8.2%, its strongest pace in nearly 20 years, while fourth quarter GDP grew 4.1% annualized and first quarter 2004 GDP rose an estimated 4.2% annualized. Although 10-year Treasury yields were volatile during the spring and summer, they ended the Fund's fiscal year nearly unchanged at 3.86% on March 31, 2004, compared with 3.83% at the beginning of the period. The U.S. trade deficit continued to increase, which contributed to a decline in the U.S. dollar versus the euro and other major currencies. Consumer spending remained healthy, as low mortgage rates helped the housing market. Business spending rebounded during the period, particularly for equipment and software, which also contributed to the strong pace of economic growth. High yield bonds performed well as the economic recovery contributed to expectations of improving operating results, better credit fundamentals and a declining default rate. As investors gained comfort with the outlook for high yield bonds, the yield spread over comparable Treasury bonds narrowed from 8.3 percentage points to 5.0 percentage points. 2 Utility stocks' strong performance was partly driven by the rebound in prices for some recently troubled companies, as non-dividend paying utilities represented four of the index's top five best-performing utilities stocks during the period. Largely as a result, many dividend-paying utility stocks, in which the Fund invests, generated lower returns than the overall index. INVESTMENT STRATEGY We invest primarily in two asset classes: high yield bonds and utility stocks. Within the high yield portion of the portfolio, we use fundamental research to invest in a diversified portfolio of bonds. Within the utility portion of the portfolio, we focus on companies with attractive dividend yields and a history of increasing their dividends. 2. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. 2 | Annual Report MANAGER'S DISCUSSION During the Fund's fiscal year, returns for the Fund's high yield bonds and utility stocks were comparable, so the asset weightings did not play a significant role in the portfolio's overall return. HIGH YIELD CORPORATE BONDS Within the portfolio's high yield corporate bonds, the Fund benefited from relatively aggressive positioning. As signs of economic recovery grew more pronounced, investors seemed more comfortable with risk, and lower-rated bonds experienced greater returns than higher-rated bonds within the high yield spectrum. The Fund began the fiscal year with a larger position in such lower-rated bonds relative to the CSFB High Yield Index, as we believed they were attractively priced and could benefit disproportionately from the expected economic recovery. In addition, using our bottom-up research, we benefited from industry and company credit selection as we followed our investment strategy. Fund holdings in cable and satellite television, as well as the retail sector underweighting, boosted the Fund's returns relative to the index. 3 For example, the Fund began the fiscal year with an overweighted position in the cable and satellite television sector relative to the index, which ranked among the top-performing high yield sectors. In particular, Charter Communications bond prices rose as the company refinanced debt to extend maturities. Telewest Communications and Adelphia Communications bonds also appreciated during the period as investors seemed to gain confidence in these companies' ultimate value. The retail sector, on the other hand, generated lower returns than the index, and the Fund benefited from its relatively underweighted position. Conversely, Fund positions in telecommunications and utilities constrained performance versus the index. 4 The Fund had lower exposure to those sectors than the index; however, these sectors outperformed the index for the period, which hindered the Fund's relative return. We generally limit our high yield utility bond exposure given the Fund's significant position in utility stocks. Within telecommunications, we had difficulty finding attractive investments during the reporting period largely due to the many defaults over the past several years. TOP 10 HOLDINGS 3/31/04 - --------------------------------------------------- COMPANY SECTOR/INDUSTRY % OF TOTAL (SECURITY TYPE) MARKET VALUE - --------------------------------------------------- Exelon Corp. 2.7% UTILITIES (STOCK) - --------------------------------------------------- Dominion Resources Inc. 2.4% UTILITIES (STOCK) - --------------------------------------------------- Entergy Corp. 2.3% UTILITIES (STOCK) - --------------------------------------------------- Southern Co. 2.1% UTILITIES (STOCK) - --------------------------------------------------- FPL Group Inc. 2.0% UTILITIES (STOCK) - --------------------------------------------------- NiSource Inc. 1.9% UTILITIES (STOCK) - --------------------------------------------------- American Electric Power Co. Inc. 1.8% UTILITIES (STOCK) - --------------------------------------------------- FirstEnergy Corp. 1.7% UTILITIES (STOCK) - --------------------------------------------------- Nicor Inc. 1.6% UTILITIES (STOCK) - --------------------------------------------------- Cinergy Corp. 1.6% UTILITIES (STOCK) - --------------------------------------------------- 3. Cable and satellite television companies are part of consumer services in the SOI. 4. Telecommunication companies are part of communications in the SOI. Annual Report | 3 DIVIDEND DISTRIBUTIONS 4/1/03-3/31/04 - --------------------------------------------- MONTH DIVIDEND PER SHARE - --------------------------------------------- April 3.50 cents May 3.50 cents June 3.50 cents July 3.50 cents August 3.50 cents September 3.50 cents October 3.50 cents November 3.50 cents December 3.50 cents January 3.50 cents February 3.50 cents March 3.50 cents - --------------------------------------------- TOTAL 42.00 CENTS UTILITY STOCKS During the 12 months under review, the Fund's utility exposure was in the lower half of its normal investment range. Utilities have experienced a remarkable recovery from the difficulties encountered during 2001 and 2002, which included the California energy crisis and the Enron bankruptcy. Electric utilities generally reduced capital spending in non-regulated ventures and focused on their core, regulated franchises. Largely as a result, many investors' previous credit concerns related to utilities appeared to dissipate during the reporting period. Given the industry's recent financial recovery, we believed valuations of dividend-paying utilities had become expensive, and we found it difficult to uncover many attractive investments. Within the utility stock portion of the Fund's portfolio, we focused on those companies with consistent dividends, quality management and regulated assets. Thank you for your participation in Franklin Multi-Income Trust. We look forward to serving you in the future. Sincerely, [PHOTO OMITTED] /S/Christopher J. Molumphy, CFA Senior Portfolio Manager [PHOTO OMITTED] /S/Glenn I. Voyles, CFA Portfolio Manager Franklin Multi-Income Trust THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF MARCH 31, 2004, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE DEPENDING ON FACTORS SUCH AS 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 FUND. 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. 4 | Annual Report Performance Summary as of 3/31/04 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses. Capital gain distributions are net profits realized from the sale of portfolio securities. Total return reflects the Fund's dividend income, capital gain distributions, if any, and any unrealized gains or losses. All total returns include reinvested distributions according to the terms specified in the Fund'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 3/31/04 3/31/03 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$2.02 $8.42 $6.40 Market Price (NYSE) +$1.55 $7.65 $6.10 DISTRIBUTIONS (4/1/03-3/31/04) Dividend Income $0.4200 PERFORMANCE - ------------------------------------------------------------------------------ 1-YEAR 5-YEAR 10-YEAR - ------------------------------------------------------------------------------ Cumulative Total Return 1 Based on change in NAV +39.09% +27.74% +122.58% Based on change in market price +32.84% +29.65% +109.45% Average Annual Total Return 1 Based on change in NAV +39.09% +5.02% +8.33% Based on change in market price +32.84% +5.33% +7.67% - ------------------------------------------------------------------------------ Distribution Rate 2 5.49% PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE. ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. FOR MOST RECENT MONTH-END PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT 1-800/342-5236. ENDNOTES SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND LESSER LIQUIDITY. 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 Fund's 3.50 cent per share March dividend and the NYSE closing price of $7.65 on 3/31/04. Annual Report | Past performance does not guarantee future results. | 5 Annual Shareholders' Meeting SEPTEMBER 9, 2003 At an annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund") held on September 9, 2003, shareholders approved the following: 1. Regarding the proposal to elect nominees for Trustees:
- --------------------------------------------------------------------------------------------------------- % OF % OF SHARES % OF OUTSTANDING WITHHELD OR % OF OUTSTANDING TRUSTEES FOR VOTED SHARES ABSTAIN VOTED SHARES - --------------------------------------------------------------------------------------------------------- Robert F. Carlson 4,812,813.6750 96.08% 82.16% 196,466.6360 3.92% 3.35% Joseph Fortunato 4,817,240.5950 96.17% 82.24% 192,039.7160 3.83% 3.28% Frank W. T. Lahaye 4,824,640.5950 96.31% 82.37% 184,636.7160 3.69% 3.15%
6 | Annual Report 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 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 TRUSTS 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. Annual Report | 7 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. The automatic reinvestment of dividends and capital gain distributions does not relieve you of any taxes which may be payable on dividends or distributions. In connection with the reinvestment of dividends and capital gain distributions, shareholders generally will be treated as having received a distribution equal to the cash distribution that would have been paid. The Trust does not issue new shares in connection with the Plan. All investments are in full and fractional shares, carried to three decimal places. If the market price exceeds the net asset value you will receive shares at a price greater than net asset value per share in connection with purchases through the Plan. You will receive a monthly account statement from the Plan Agent, showing total dividends and capital gain distributions, date of investment, shares acquired and price per share, and total shares of record held by you and by the Plan Agent for you. You are entitled to vote all shares of record, including shares purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will include all such shares. As long as you participate in the Plan, the Plan Agent will hold the shares it has acquired for you in safekeeping, in its name or in the name of its nominee. This convenience provides added protection against loss, theft or inadvertent destruction of certificates. However, you may request that a certificate representing your Plan shares be issued to you. You may withdraw from the Plan at any time, without penalty, by notifying the Plan Agent in writing at the address above. If you withdraw from the Plan, you may specify either: (a) that 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. 8 | Annual Report 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. Annual Report | 9
Franklin Multi-Income Trust FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------------------------------------------------------- YEAR ENDED MARCH 31, - -------------------------------------------------------------------------------------------------------------------------------- 2004 2003 2002 2001 2000 PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ................................. $6.40 $8.71 $9.80 $8.97 $10.04 -------------------------------------------------------- Income from investment operations: Net investment income ............................................. .44 .51 .63 .66 .71 Net realized and unrealized gains (losses) ........................ 2.00 (2.25) (1.05) .84 (.84) -------------------------------------------------------- Total from investment operations ................................... 2.44 (1.74) (.42) 1.50 (.13) -------------------------------------------------------- Less distributions from: Net investment income ............................................. (.42) (.57) (.67) (.67) (.70) Net realized gains ................................................ -- -- -- -- (.24) ======================================================== Total distributions ................................................ (.42) (.57) (.67) (.67) (.94) -------------------------------------------------------- Net asset value, end of year ....................................... $8.42 $6.40 $8.71 $9.80 $ 8.97 ======================================================== Market value, end of year a ........................................ $7.65 $6.10 $8.70 $8.62 $ 7.00 ======================================================== Total return (based on market value per share) ..................... 32.84% (23.67)% 9.23% 33.54% (12.29)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) .................................... $49,322 $37,511 $51,047 $57,412 $52,559 Ratios to average net assets: Expenses .......................................................... 3.49% 4.47% 3.45% 3.23% 3.30% Net investment income ............................................. 5.71% 7.52% 6.97% 6.88% 7.33% Portfolio turnover rate ............................................ 45.82% 48.45% 18.27% 26.72% 30.42% Total debt outstanding at end of year (000's) ...................... $14,000 $14,000 $16,000 $16,000 $16,000 Asset coverage per $1,000 of debt .................................. $ 3,523 $ 2,679 $ 3,190 $ 3,588 $ 3,285 Average amount of notes per share during the year .................. $2.39 $2.54 $2.73 $2.73 $2.73
a Based on the last sale on the New York Stock Exchange. 10 | See notes to financial statements. | Annual Report
Franklin Multi-Income Trust STATEMENT OF INVESTMENTS, MARCH 31, 2004 - ------------------------------------------------------------------------------------------------------------------------------ SHARES/WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS AND WARRANTS 52.4% Communications .9% a Metrocall Holdings Inc. .................................................... 4,620 $ 321,875 Millicom International Cellular SA (Luxembourg) ............................ 3,721 81,861 a XO Communications Inc. ..................................................... 975 4,856 a XO Communications Inc., wts., A, 1/16/10 ................................... 1,949 4,093 a XO Communications Inc., wts., B, 1/16/10 ................................... 1,462 2,412 a XO Communications Inc., wts., C, 1/16/10 ................................... 1,462 1,681 -------------- 416,778 -------------- Consumer Services .1% Marriott International Inc., A ............................................. 1,052 44,763 -------------- Electronic Technology a Loral Space & Communications Ltd., wts., 12/27/06 .......................... 4,188 -- a Loral Space & Communications Ltd., wts., 1/15/07 ........................... 1,000 10 -------------- 10 -------------- Transportation a Continental Airlines Inc., B ............................................... 357 4,473 -------------- Utilities 51.4% Alliant Energy Corp. ....................................................... 15,000 390,900 Ameren Corp. ............................................................... 20,000 921,800 American Electric Power Co. Inc. ........................................... 33,800 1,112,696 Atmos Energy Corp. ......................................................... 35,000 894,950 Cinergy Corp. .............................................................. 24,500 1,001,805 Dominion Resources Inc. .................................................... 23,400 1,504,620 DTE Energy Co. ............................................................. 20,000 823,000 Edison International ....................................................... 40,000 971,600 Energy East Corp. .......................................................... 30,000 760,800 Entergy Corp. .............................................................. 24,000 1,428,000 Exelon Corp. ............................................................... 24,500 1,687,315 FirstEnergy Corp. .......................................................... 27,500 1,074,700 FPL Group Inc. ............................................................. 19,000 1,270,150 Nicor Inc. ................................................................. 29,000 1,021,670 NiSource Inc. .............................................................. 57,000 1,211,250 NSTAR ...................................................................... 15,500 786,160 ONEOK Inc. ................................................................. 40,200 906,510 Pepco Holdings Inc. ........................................................ 20,500 419,020 Pinnacle West Capital Corp. ................................................ 24,000 944,400 PPL Corp. .................................................................. 11,700 533,520 Progress Energy Inc. ....................................................... 21,000 988,680 Public Service Enterprise Group Inc. ....................................... 15,000 704,700 Puget Energy Inc. .......................................................... 37,000 827,690 SCANA Corp. ................................................................ 12,621 446,152 Sempra Energy .............................................................. 26,000 826,800 Southern Co. ............................................................... 43,000 1,311,500 TXU Corp. .................................................................. 20,400 584,664 -------------- 25,355,052 -------------- TOTAL COMMON STOCKS AND WARRANTS (COST $19,641,048) ........................ 25,821,076 --------------
Annual Report | 11 Franklin Multi-Income Trust STATEMENT OF INVESTMENTS, MARCH 31, 2004 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------ SHARES/WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCKS 1.3% Communications Metrocall Holdings Inc., 15.00%, pfd., A ................................... 195 $ 2,732 -------------- Utilities 1.3% a Heco Capital Trust III, 6.50%, pfd. ........................................ 25,000 640,750 -------------- TOTAL PREFERRED STOCKS (COST $625,420) ..................................... 643,482 -------------- CONVERTIBLE PREFERRED STOCKS 2.4% Consumer Durables 1.7% Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. .......................... 15,300 811,665 -------------- Utilities .7% CMS Energy Trust I, 7.75%, cvt. pfd. ....................................... 8,000 345,808 -------------- TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,023,846) ....................... 1,157,473 -------------- ----------------- PRINCIPAL AMOUNT C ----------------- BONDS 67.5% Commercial Services .5% Johnsondiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ................. $ 200,000 219,000 b Key3Media Group Inc., senior sub. note, 11.25%, 6/15/11 .................... 1,000,000 12,500 -------------- 231,500 -------------- COMMUNICATIONS 6.1% Centennial Communications Corp., senior note, 144A, 8.125%, 2/01/14 ........ 300,000 278,250 Dobson Communications Corp., senior note, 8.875%, 10/01/13 ................. 400,000 316,000 Millicom International Cellular SA, senior note, 144A, 10.00%, 12/01/13 (Luxembourg) ...................................................... 500,000 522,500 Nextel Communications Inc., senior note, 7.375%, 8/01/15 ................... 600,000 652,500 Time Warner Telecom Inc., senior note, 144A, 9.25%, 2/15/14 ................ 300,000 304,500 Time Warner Telecom Inc., senior note, 10.125%, 2/01/11 .................... 300,000 278,250 Triton PCS Inc., senior note, 8.50%, 6/01/13 ............................... 200,000 214,000 US West Communications Inc., 6.875%, 9/15/33 ............................... 500,000 445,000 -------------- 3,011,000 -------------- Consumer Durables 3.3% D.R. Horton Inc., senior note, 8.50%, 4/15/12 .............................. 500,000 583,750 General Motors, 8.25%, 7/15/23 ............................................. 400,000 447,611 Simmons Co., senior sub. note, 144A, 7.875%, 1/15/14 ....................... 400,000 403,000 True Temper Sports Inc., senior sub. note, 144A, 8.375%, 9/15/11 ........... 200,000 205,000 -------------- 1,639,361 -------------- Consumer Non-Durables 1.0% Smithfield Foods Inc., senior note, 7.75%, 5/15/13 ......................... 200,000 221,000 William Carter, senior sub. note, 10.875%, 8/15/11 ......................... 242,000 282,535 -------------- 503,535 -------------- Consumer Services 15.6% b Adelphia Communications Corp., senior note, 10.875%, 10/01/10 .............. 1,000,000 975,000 Cablevision Systems Corp., senior note, 144A, 8.00%, 4/15/12 ............... 600,000 601,500 CanWest Media Inc., senior sub. note, 10.625%, 5/15/11 (Canada) ............ 500,000 570,000 Charter Communications Holdings II, senior note, 144A, 10.25%, 9/15/10 ..... 600,000 621,000 Dex Media West LLC, senior sub. note, 144A, 9.875%, 8/15/13 ................ 500,000 557,500
12 | Annual Report Franklin Multi-Income Trust STATEMENT OF INVESTMENTS, MARCH 31, 2004 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT C VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) Consumer Services (cont.) DIRECTV Holdings/Finance, senior note, 8.375%, 3/15/13 ..................... $ 500,000 $ 572,500 Hollywood Park, senior sub. note, B, 9.25%, 2/15/07 ........................ 35,000 36,006 Nexstar Finance Inc., senior sub. note, 144A, 7.00%, 1/15/14 ............... 600,000 597,000 Park Place Entertainment Corp., senior sub. note, 7.875%, 3/15/10 .......... 500,000 560,000 Pinnacle Entertainment, senior sub. note, 8.75%, 10/01/13 .................. 100,000 102,250 Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 .................. 200,000 227,000 Royal Caribbean Cruises Ltd., senior note, 6.875%, 12/01/13 ................ 400,000 423,000 Six Flags Inc., senior note, 9.50%, 2/01/09 ................................ 600,000 636,000 Station Casinos, 6.875%, 3/01/16 ........................................... 600,000 619,500 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 (United Kingdom) ................................................... 500,000 260,000 Young Broadcasting Inc., senior sub. note, 144A, 8.75%, 1/15/14 ............ 300,000 310,500 -------------- 7,668,756 -------------- Distribution Services b AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ........... 250,000 -- -------------- Electronic Technology 5.7% Communications & Power Industries, senior sub. note, 144A, 8.00%, 2/01/12 .................................................................... 500,000 510,625 Flextronics International Ltd., senior sub. note, 6.50%, 5/15/13 (Singapore) ................................................................ 600,000 634,500 Inmarsat Finance PLC, senior note, 144A, 7.625%, 6/30/12 (United Kingdom) ........................................................... 200,000 209,500 Invensys PLC, 144A, 9.875%, 3/15/11 (United Kingdom) ....................... 400,000 412,000 New Asat Finance Ltd., senior note, 144A, 9.25%, 2/01/11 ................... 500,000 538,750 Vought Aircraft Industries Inc., senior note, 144A, 8.00%, 7/15/11 ......... 500,000 520,000 -------------- 2,825,375 -------------- Energy Minerals 2.6% Arch Western Finance, senior note, 144A, 6.75%, 7/01/13 .................... 400,000 428,000 Peabody Energy Corp., senior note, B, 6.875%, 3/15/13 ...................... 300,000 325,500 Vintage Petroleum, senior sub. note, 7.875%, 5/15/11 ....................... 500,000 540,000 -------------- 1,293,500 -------------- Government Bonds .7% Eskom, 11.00%, 6/01/08 (South Africa) ...................................... 2,175,000 ZAR 357,180 -------------- Health Services 1.1% Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 ....................... 600,000 544,500 -------------- Health Technology 1.0% Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 .................. 500,000 501,250 -------------- Industrial Services 5.1% Allied Waste North America Inc., senior note, 7.875%, 4/15/13 .............. 500,000 548,750 Grant Prideco Escrow, senior note, 9.00%, 12/15/09 ......................... 200,000 227,000 Gulfterra Energy Partners, senior sub. note, 10.625%, 12/01/12 ............. 340,000 428,400 Hanover Equipment Trust 01, senior secured note, B, 8.75%, 9/01/11 ......... 600,000 654,000 URS Corp., senior sub. note, 12.25%, 5/01/09 ............................... 600,000 642,000 -------------- 2,500,150 --------------
Annual Report | 13
Franklin Multi-Income Trust STATEMENT OF INVESTMENTS, MARCH 31, 2004 (CONTINUED) - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT C VALUE BONDS (CONT.) Non-Energy Minerals 1.3% Ispat Inland Ulc., 144A, 9.75%, 4/01/14 .................................... $ 600,000 $ 627,000 -------------- Process Industries 9.2% Equistar Chemicals LP, senior note, 10.625%, 5/01/11 ....................... 300,000 324,750 b FiberMark Inc., senior note, 10.75%, 4/15/11 ............................... 500,000 285,000 Georgia-Pacific Corp., senior note, 144A, 8.00%, 1/15/24 ................... 600,000 636,000 Graham Packaging Co., senior disc. note, B, 10.75%, 1/15/09 ................ 200,000 207,500 Graham Packaging Co., senior sub. note, 144A, 8.75%, 1/15/08 ............... 200,000 206,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 .................. 200,000 206,000 Huntsman ICI Holdings LLC, senior disc. note, zero cpn., 12/31/09 .......... 1,500,000 697,500 IMC Global Inc., 10.875%, 8/01/13 .......................................... 600,000 754,500 MDP Acquisitions PLC, senior note, 9.625%, 10/01/12 (Irish Republic) ........................................................... 300,000 340,500 Nalco Co., senior sub. note, 144A, 8.875%, 11/15/13 ........................ 400,000 419,000 b Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/02 (Indonesia) ................................................................ 1,000,000 262,500 United Industries Corp., senior sub. note, 9.875%, 4/01/09 ................. 200,000 210,876 -------------- 4,550,126 -------------- Producer Manufacturing 5.4% Case New Holland Inc., senior note, 144A, 9.25%, 8/01/11 ................... 600,000 681,000 Fimep SA, senior note, 10.50%, 2/15/13 (France) ............................ 500,000 597,500 NMHG Holding Co., senior note, 10.00%, 5/15/09 ............................. 400,000 442,000 Norcraft Cos. LP, senior sub. note, 144A, 9.00%, 11/01/11 .................. 200,000 214,000 TRW Automotive Inc., senior note, 9.375%, 2/15/13 .......................... 272,000 314,160 Westinghouse Air Brake, senior note, 6.875%, 7/31/13 ....................... 400,000 428,000 -------------- 2,676,660 -------------- Real Estate Investment Trusts 3.4% Corrections Corp. of America, senior note, 7.50%, 5/01/11 .................. 400,000 423,500 Corrections Corp. of America, senior note, 144A, 7.50%, 5/01/11 ............ 200,000 211,750 Host Marriott LP, senior note, 9.25%, 10/01/07 ............................. 500,000 562,500 Ventas Realty LP/Capital Corp., senior note, 9.00%, 5/01/12 ................ 400,000 464,000 -------------- 1,661,750 -------------- Retail Trade .9% Rite Aid Corp., senior note, 144A, 6.125%, 12/15/08 ........................ 500,000 467,500 -------------- Transportation 1.6% Great Lakes Dredge & Dock, senior sub. note, 144A, 7.75%, 12/15/13 ......... 100,000 101,500 Laidlaw International Inc., senior note, 144A, 10.75%, 6/15/11 ............. 600,000 675,000 -------------- 776,500 -------------- Utilities 3.0% AES Corp., senior note, 9.375%, 9/15/10 .................................... 400,000 438,000 Calpine Corp., senior secured note, 144A, 8.75%, 7/15/13 ................... 600,000 552,000 Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 .......................... 500,000 475,000 -------------- 1,465,000 -------------- TOTAL BONDS (COST $33,573,443) ............................................... 33,300,643 --------------
14 | Annual Report
Franklin Multi-Income Trust STATEMENT OF INVESTMENTS, MARCH 31, 2004 (CONTINUED) - --------------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT C VALUE - --------------------------------------------------------------------------------------------------------------------------- CONVERTIBLE BOND (COST $315,618) .8% Electronic Technology Nortel Networks Corp., senior note, cvt., 4.25%, 9/01/08 (Canada) .......... $ 400,000 $ 408,500 -------------- TOTAL LONG TERM INVESTMENTS (COST $55,179,375) ............................... 61,331,174 -------------- ---------------- SHARES ---------------- SHORT TERM INVESTMENT (COST $860,204) 1.7% d Franklin Institutional Fiduciary Trust Money Market Portfolio ................ 860,204 860,204 -------------- TOTAL INVESTMENTS (COST $56,039,579) 126.1% .................................. 62,191,378 OTHER ASSETS, LESS LIABILITIES (26.1)% ....................................... (12,869,197) -------------- NET ASSETS 100.0% ............................................................ $ 49,322,181 ============== CURRENCY ABBREVIATION | ZAR - South African Rand a Non-income producing. b The fund discontinues accruing income on defaulted securities. See Note 8. c The principal amount is stated in U.S. dollars unless otherwise indicated. d See Note 7 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio.
Annual Report | See notes to financial statements. | 15 Franklin Multi-Income Trust FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES March 31, 2004 Assets: Investments in securities: Cost ....................................................... $ 56,039,579 ============== Value ...................................................... 62,191,378 Receivables: Investment securities sold ................................. 1,352,036 Dividends and interest ..................................... 693,547 Note issuance costs (Note 3) ................................ 10,109 -------------- Total assets ........................................... 64,247,070 -------------- Liabilities: Payables: Investment securities purchased ............................ 600,000 Affiliates ................................................. 44,719 Note (Note 3) .............................................. 14,000,000 Accrued interest (Note 3) .................................. 39,375 Distributions to shareholders ............................... 205,016 Other liabilities ........................................... 35,779 -------------- Total liabilities ...................................... 14,924,889 -------------- Net assets, at value .................................. $ 49,322,181 ============== Net assets consist of: Distributions in excess of net investment income ............ $ (523,205) Net unrealized appreciation (depreciation) .................. 6,152,403 Accumulated net realized gain (loss) ........................ (10,090,639) Capital shares .............................................. 53,783,622 -------------- Net assets, at value .................................. $ 49,322,181 ============== Net asset value per share ($49,322,181 / 5,857,600 shares outstanding) .......................................... $8.42 ============== 16 | See notes to financial statements. | Annual Report Franklin Multi-Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the year ended March 31, 2004 Investment income: Dividends ..................................................... $ 1,212,860 Interest ...................................................... 2,934,495 ------------ Total investment income .................................. 4,147,355 ------------ Expenses: Management fees (Note 4) ...................................... 500,040 Transfer agent fees ........................................... 32,397 Custodian fees ................................................ 1,067 Reports to shareholders ....................................... 29,566 Registration and filing fees .................................. 350 Professional fees ............................................. 37,335 Trustees' fees and expenses ................................... 5,651 Amortization of note issuance costs (Note 3) .................. 14,372 Other ......................................................... 7,039 ------------ Expenses before interest expense .......................... 627,817 Interest expense (Note 3) ................................. 945,000 ------------ Total expenses ........................................... 1,572,817 ------------ Net investment income ................................... 2,574,538 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments .................................................. (1,278,531) Foreign currency transactions ................................ 2,010 ------------ Net realized gain (loss) ................................ (1,276,521) Net unrealized appreciation (depreciation) on: Investments .................................................. 12,973,815 Translation of assets and liabilities denominated in foreign currencies ........................... (122) ------------ Net unrealized appreciation (depreciation) .............. 12,973,693 ------------ Net realized and unrealized gain (loss) ........................ 11,697,172 ------------ Net increase (decrease) in net assets resulting from operations ..................................... $ 14,271,710 ============ Annual Report | See notes to financial statements. | 17 Franklin Multi-Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the years ended March 31, 2004 and 2003 ------------------------------ 2004 2003 ------------------------------ Increase (decrease) in net assets: Operations: Net investment income .......................... $ 2,574,538 $ 3,010,702 Net realized gain (loss) from investments and foreign currency transactions ............... (1,276,521) (8,364,558) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ................................... 12,973,693 (4,860,983) ------------------------------ Net increase (decrease) in net assets resulting from operations ..... 14,271,710 (10,214,839) Distributions to shareholders from net investment income .............................. (2,460,192) (3,321,259) ------------------------------ Net increase (decrease) in net assets ...... 11,811,518 (13,536,098) Net assets: Beginning of year ............................... 37,510,663 51,046,761 ------------------------------ End of year ..................................... $ 49,322,181 $ 37,510,663 ============================== Distributions in excess of net investment income included in net assets: End of year ..................................... $ (523,205) $ (661,039) ============================== 18 | See notes to financial statements. | Annual Report Franklin Multi-Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF CASH FLOWS for the year ended March 31, 2004 Cash flow from operating activities: Dividends and interest received .................. $ 3,948,945 Operating expenses paid .......................... (608,981) Interest expense paid ............................ (945,000) ------------- Cash provided - operations ....................... 2,394,964 ============= Cash flow from investing activities: Investment purchases ............................. (46,918,442) Investment sales and maturities .................. 46,983,670 ------------- Cash provided - investments ...................... 65,228 ============= Cash flow from financing activities: Distributions to shareholders .................... (2,460,192) ------------- Cash used - financing ........................... (2,460,192) ============= Net change in cash ................................ -- Cash at beginning of year ......................... -- ------------- Cash at end of year ............................... $ -- ============= RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR THE YEAR ENDED MARCH 31, 2004 Net investment income ............................. $ 2,574,538 Amortization income .............................. (306,352) Amortization of note issuance costs .............. 14,372 Decrease in dividends and interest receivable .... 107,942 Increase in other liabilities .................... 4,464 ------------- Cash provided - operations ........................ $ 2,394,964 ============= Annual Report | See notes to financial statements. | 19 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 last reported sales price. Securities listed or traded on NASDAQ are valued at their official closing 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. Debt securities are valued by independent pricing services or market makers under procedures approved by the Board of Trustees. Foreign securities are valued at the close of trading of the foreign exchange or the NYSE, whichever is earlier. If events occur that materially affect the values of securities after the prices or foreign exchange rates are determined but prior to 4:00 PM ET or the close of trading on the NYSE, or if market quotations are deemed not readily available or reliable, the securities will be valued at fair value as determined following procedures approved by the Board of Trustees. Investments in open-end mutual funds are valued at the closing net asset value. 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. 20 | Annual Report Franklin Multi-Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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. 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. 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. F. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified against certain liability arising out of the performance of their duties to the Funds. Additionally, in the normal course of business, the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. 2. SHARES OF BENEFICIAL INTEREST At March 31, 2004, there were an unlimited number of shares authorized ($0.01 par value). During the year ended March 31, 2004, 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). On September 6, 2002, the Fund retired $2 million of the Note's principal amount, leaving a remaining $14 million outstanding. 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. Annual Report | 21 Franklin Multi-Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. SENIOR FIXED-RATE NOTE (CONTINUED) 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, 2004. The issuance costs of $96,069 incurred by the Fund are deferred and amortized on an interest method basis over the term of the Note. 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. 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, 2004, the Fund has tax basis capital losses of $9,610,384 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 2012 ..................................................... 4,348,077 ------------ $ 9,610,384 ============ At March 31, 2004, the Fund had deferred capital losses occurring subsequent to October 31, 2003 of $111,477. For tax purposes, such losses will be reflected in the year ending March 31, 2005. 22 | Annual Report Franklin Multi-Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. INCOME TAXES (CONTINUED) The tax character of distributions paid during the years ended March 31, 2004 and 2003, was as follows: ------------------------------------------- 2004 2003 ------------------------------------------- Distributions paid from - -ordinary income ............... $2,460,192 $3,321,259 At March 31, 2004, the cost of investments, net unrealized appreciation (depreciation), and undistributed ordinary income for income tax purposes were as follows: Cost of investments ........................................ $56,596,546 =========== Unrealized appreciation .................................... $ 9,520,069 Unrealized depreciation .................................... (3,925,237) ---------- Net unrealized appreciation (depreciation) ................. $ 5,594,832 =========== Distributable earnings - undistributed ordinary income ..... $ 80,657 =========== 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 wash sales, 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, 2004 aggregated $26,536,431 and $28,048,558, 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 $6,498 of dividend income from investment in the Sweep Money Fund for the year ended March 31, 2004. 8. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 55.05% 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. Annual Report | 23 Franklin Multi-Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. CREDIT RISK AND DEFAULTED SECURITIES (CONTINUED) The Fund held defaulted and/or other securities for which the income has been deemed uncollectible. The Fund discontinues accruing income on these securities and provides an estimate for losses on interest receivable. At March 31, 2004, the value of these securities was $1,535,000 representing 3.1% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. 9. REGULATORY MATTERS MASSACHUSETTS ADMINISTRATIVE PROCEEDING On February 4, 2004, the Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts filed an administrative complaint against Franklin Resources, Inc. and certain of its subsidiaries (the "Company") claiming violations of the Massachusetts Uniform Securities Act ("Massachusetts Act") with respect to an alleged arrangement to permit market timing (the "Mass. Proceeding"). On February 14, 2004, the Company filed an answer denying all violations of the Massachusetts Act. GOVERNMENTAL INVESTIGATIONS As part of ongoing investigations by the U.S. Securities and Exchange Commission (SEC), the U.S. Attorney for the Northern District of California, the New York Attorney General, the California Attorney General, the U.S. Attorney for the District of Massachusetts, the Florida Department of Financial Services and the Commissioner of Securities, the West Virginia Attorney General and the Vermont Department of Banking, Insurance, Securities, and Health Care Administration, relating to certain practices in the mutual fund industry, including late trading, market timing and payments to securities dealers who sell Fund shares, the Company, as well as certain current or former executives and employees of the Company, have received requests for information and/or subpoenas to testify or produce documents. The Company and its current employees are providing documents and information in response to these requests and subpoenas. In addition, the Company has responded to requests for similar kinds of information from regulatory authorities in some of the foreign countries where the Company conducts its global asset management business. The staff of the SEC has informed the Company that it intends to recommend that the SEC authorize a civil injunctive action against the Fund's investment manager. The SEC's investigation is focused on the activities that are the subject of the Mass. Proceeding described above and other instances of alleged market timing by a limited number of third parties that ended in 2000. The Company currently believes that the charges the SEC staff is contemplating are unwarranted. There are discussions underway with the SEC staff in an effort to resolve the issues raised in their investigation. 24 | Annual Report Franklin Multi-Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) 9. REGULATORY MATTERS (CONTINUED) GOVERNMENTAL INVESTIGATIONS (CONTINUED) In response to requests for information and subpoenas from the SEC and the California Attorney General, the Company has provided documents and testimony has been taken relating to payments to security dealers who sell Fund shares. Effective November 28, 2003, the Company determined not to direct any further brokerage commissions where the allocation is based, not only on best execution, but also on the sale of Fund shares. OTHER LEGAL PROCEEDINGS The Fund, in addition to other entities within Franklin Templeton Investments, including the Company and certain of its subsidiaries, other funds, and current and former officers, employees, and directors have been named in multiple lawsuits in different federal courts in Nevada, California, Illinois, New York, New Jersey, and Florida, alleging violations of various federal securities laws and seeking, among other things, monetary damages and costs. Specifically, the lawsuits claim breach of duty with respect to alleged arrangements to permit market timing and/or late trading activity, or breach of duty with respect to the valuation of the portfolio securities of certain funds managed by Company subsidiaries, resulting in alleged market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the Mass. Proceeding detailed above. The lawsuits are styled as class actions or derivative actions. In addition, the Company and its subsidiaries, as well as certain current and former officers, employees, and directors have been named in multiple lawsuits alleging violations of various securities laws and pendent state law claims relating to the disclosure of directed brokerage payments and payment of allegedly excessive commissions and advisory fees. These lawsuits are styled as class actions and derivative actions. Management strongly believes that the claims made in each of these lawsuits are without merit and intends to vigorously defend against them. The Company cannot predict with certainty the eventual outcome of the foregoing Mass. Proceeding, other governmental investigations or class actions or other lawsuits. The impact, if any, of these matters on the Fund is uncertain at this time. If it is determined that the Company bears responsibility for any unlawful or inappropriate conduct that caused losses to the Fund, it is committed to making the Fund or its shareholders whole, as appropriate. Annual Report | 25 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, 2004, 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, 2004 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California May 11, 2004 26 | Annual Report Franklin Multi-Income Trust TAX DESIGNATION (UNAUDITED) Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund hereby designates up to a maximum of $1,045,882 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended March 31, 2004. In January 2005, shareholders will receive Form 1099-DIV which will include their share of qualified dividends distributed during the calendar year 2004. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 32.06% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended March 31, 2004. Annual Report | 27 Board Members and Officers The name, age and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until that person's successor is elected and qualified.. INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ HARRIS J. ASHTON (71) Trustee Since 1989 142 Director, Bar-S Foods One Franklin Parkway (meat packing company). 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 (76) Trustee Since 2000 52 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 (71) Trustee Since 1989 143 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. - ------------------------------------------------------------------------------------------------------------------------------------ EDITH E. HOLIDAY (52) Trustee Since January 96 Director, Amerada Hess One Franklin Parkway 2004 Corporation (exploration and San Mateo, CA 94403-1906 refining of oil and gas); Beverly Enterprises, Inc. (health care); H.J. Heinz Company (processed foods and allied products); RTI International Metals, Inc. (manufacture and distribution titanium); and Canadian Nation Railway (railroad). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury Department (1988-1989). - ------------------------------------------------------------------------------------------------------------------------------------ FRANK W.T. LAHAYE (74) Trustee Since 1989 115 Director, The California Center One Franklin Parkway for Land Recycling San Mateo, CA 94403-1906 (redevelopment). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). - ------------------------------------------------------------------------------------------------------------------------------------
28 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ GORDON S. MACKLIN (75) Trustee Since 1992 142 Director, White One Franklin Parkway Mountains Insurance San Mateo, CA 94403-1906 Group, Ltd. (holding company); Martek Biosciences Corporation; MedImmune, Inc. (biotechnology); and Overstock.com (Internet services); and FORMERLY, Director, MCI Communication Corporation (subsequently known as MCI WorldCom, Inc. and WorldCom, Inc.) (communications services) (1988-2002) and Spacehab, Inc. (aerospace services) (1994-2003). - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company); and FORMERLY, Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment banking) (1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987). - ------------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX NAME, AGE AND ADDRESS POSITION TIME SERVED OVERSEEN BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ **EDWARD B. JAMIESON (55) Trustee, President Trustee and 8 None One Franklin Parkway and Chief Executive President since 1993 San Mateo, CA 94403-1906 Officer - Investment and Chief Executive Management Officer - Investment Management since 2002 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; and officer and/or trustee, as the case may be, of other subsidiaries of Franklin Resources, Inc. and of five of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ **CHARLES B. JOHNSON (71) Trustee and Chairman Trustee since 1989 142 None One Franklin Parkway of the Board and Chairman of the San Mateo, CA 94403-1906 Board since 1993 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, Member-Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 29
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX NAME, AGE AND ADDRESS POSITION TIME SERVED OVERSEEN BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ **RUPERT H. JOHNSON, JR. Trustee and Senior Trustee since 1989 125 None (63) Vice President and Senior Vice One Franklin Parkway President since 1992 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.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ HARMON E. BURNS (59) 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 some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ MARTIN L. FLANAGAN (43) Vice President Since 1995 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Co-President and Chief Executive 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 or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------ JIMMY D. GAMBILL (56) Senior Vice Since 2002 Not Applicable None 500 East Broward Blvd. President and Chief Suite 2100 Executive Officer- Fort Lauderdale, FL Finance and 33394-3091 Administration - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment companies in Franklin Templeton Investments. - ------------------------------------------------------------------------------------------------------------------------------------
30 | Annual Report
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX NAME, AGE AND ADDRESS POSITION TIME SERVED OVERSEEN BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ DAVID P. GOSS (56) 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 51 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 Vice President Since 2000 Not Applicable None (56) One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President, Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment Advisory Services, Inc., Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin Templeton Investor Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton Investment Counsel, LLC, and Templeton/Franklin Investment Services, Inc.; and officer of some of the other subsidiaries of Franklin Resources, Inc. and of 51 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 (42) Vice President Since 1989 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Co-President and Chief Executive Officer, 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. - ------------------------------------------------------------------------------------------------------------------------------------
Annual Report | 31
- ------------------------------------------------------------------------------------------------------------------------------------ NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX NAME, AGE AND ADDRESS POSITION TIME SERVED OVERSEEN BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------------------ DIOMEDES LOO-TAM Treasurer, and Since March 2004 Not Applicable None (65) One Franklin Chief Financial Parkway San Mateo, Officer CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------------------ PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Officer of 51 of the investment companies in Franklin Templeton Investments; and Consultant, MyVest Corporation (software development company and investment advisory services); and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2002-2003); Treasurer/Controller of most of the investment companies in Franklin Templeton Investments (1985-2000); and Senior Vice President, Franklin Templeton Services, LLC (1997-2000). - ------------------------------------------------------------------------------------------------------------------------------------ MURRAY L. SIMPSON (66) Vice President Since 2000 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, as the case may be, of some of the subsidiaries of Franklin Resources, Inc. and of 51 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 U.S. registered investment companies within 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 to be interested persons of the Trust under the federal securities laws due to their positions as officers and directors and major shareholders of Franklin Resources Inc. (Resources), which is the parent company of the Trust's adviser and distributor. Edward B. Jamieson is considered to be an interested person of the Trust under the federal securities laws due to his position as an officer 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. THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE AS THAT TERM IS DEFINED UNDER THE RELEVANT SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI. 32 | Annual Report Franklin Multi-Income Trust PROXY VOTING POLICIES AND PROCEDURES The Fund has established Proxy Voting Policies and Procedures ("Policies") that the Fund uses to determine how to vote proxies relating to portfolio securities. Shareholders may view the Fund's complete Policies online at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Annual Report | 33 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. Literature Request For a brochure and prospectus, which contains more complete information, including charges, expenses and risks, 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, we may monitor, record and access telephone calls to or from our service departments. These calls can be identified by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton China World Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Mutual Discovery Fund Templeton Capital Accumulator Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II 1 VALUE Franklin Balance Sheet Investment Fund 2 Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund 2 Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Recovery Fund 3 Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund 4 SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Franklin Technology Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund TARGET FUNDS 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 Federal Money Fund 5,6 Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 3 Franklin Income Fund Franklin Money Fund 5,6 Franklin Short-Intermediate U.S. Government Securities Fund 5 Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 5 Templeton Global Bond Fund TAX-FREE INCOME 7 NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund 8 Tax-Exempt Money Fund 5,6 LIMITED-TERM FUNDS California Limited-Term Tax-Free Income Fund Federal Limited-Term Tax-Free Income Fund New York Limited-Term Tax-Free Income Fund INTERMEDIATE-TERM FUNDS California Intermediate-Term Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund New York Intermediate-Term Tax-Free Income Fund STATE-SPECIFIC 7 Alabama Arizona California 9 Colorado Connecticut Florida 9 Georgia Kentucky Louisiana Maryland Massachusetts 8 Michigan 8 Minnesota 8 Missouri New Jersey New York 9 North Carolina Ohio 8 Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust 10 1.The fund is closed to new investors. Existing shareholders can continue adding to their accounts. 2.The fund is only open to existing shareholders as well as select retirement plans. 3.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. 4.Upon reaching approximately $350 million in assets, the fund intends to close to all investors. 5.An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 6.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. 7.For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. 8.Portfolio of insured municipal securities. 9.These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and limited-term, intermediate-term and money market portfolios (CA and NY). 10.The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 02/04 Not part of the annual report [LOGO OMITTED] FRANKLIN(R) TEMPLETON(R) INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 ANNUAL REPORT AND SHAREHOLDER INFORMATION Franklin Multi-Income Trust INVESTMENT MANAGER Franklin Advisers, Inc. 1-800/DIAL BEN(R) 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. FMI A2004 05/04 ITEM 2. CODE OF ETHICS. (a) The Registrant has adopted a code of ethics that applies to its principal executive officers and principal financial and accounting officer. (c) N/A (d) N/A (f) Pursuant to Item 11(a), the Registrant is attaching as an exhibit a copy of its code of ethics that applies to its principal executive officers financial and accounting officer. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant has an audit committee financial expert serving on its audit committee. (2) The audit committee financial expert is Frank W.T. LaHaye and he is "independent" as defined under the relevant Securities and Exchange Commission Rules and Releases. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees The aggregate fees paid to the principal accountant for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or for services that are normally provided by the principal accountant in connection with statutory and regulatory filings or engagements were $31,069 for the fiscal year ended March 31, 2004 and $31,685 for the fiscal year ended March 31, 2003. (b) Audit-Related Fees There were no fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of Item 4. The aggregate fees paid to the principal accountant for assurance and related services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant that are reasonably related to the performance of the audit of the their financial statements were $47,910 for the fiscal year ended March 31, 2004 and $0 for the fiscal year ended March 31, 2003. The services for which these fees were paid included attestation services. (c) Tax Fees There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant for tax compliance, tax advice and tax planning. There were no fees paid to the principal accountant for professional services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant for tax compliance, tax advice and tax planning. (d) All Other Fees The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant not reported in paragraphs (a)-(c) of Item 4 were $29 for the fiscal year ended March 31, 2004 and $0 for the fiscal year ended March 31, 2003. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process. The aggregate fees paid to the principal accountant for products and services rendered by the principal accountant to the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant not reported in paragraphs (a)-(c) of Item 4 were $99,971 for the fiscal year ended March 31, 2004 and $0 for the fiscal year ended March 31, 2003. The services for which these fees were paid included review of materials provided to the fund Board in connection with the investment management contract renewal process. (e) (1) The Fund's audit committee is directly responsible for approving the services to be provided by the auditors, including: (i) pre-approval of all audit and audit related services; (ii) pre-approval of all non-audit related services to be provided to the Fund by the auditors; (iii)pre-approval of all non-audit related services to be provided to the Fund by the auditors to the Fund's investment adviser or to any entity that controls, is controlled by or is under common control with the Fund's investment adviser and that provides ongoing services to the Fund where the non-audit services relate directly to the operations or financial reporting of the Fund; and (iv) establishment by the audit committee, if deemed necessary or appropriate, as an alternative to committee pre-approval of services to be provided by the auditors, as required by paragraphs (ii) and (iii) above, of policies and procedures to permit such services to be pre-approved by other means, such as through establishment of guidelines or by action of a designated member or members of the committee; provided the policies and procedures are detailed as to the particular service and the committee is informed of each service and such policies and procedures do not include delegation of audit committee responsibilities, as contemplated under the Securities Exchange Act of 1934, to management; subject, in the case of (ii) through (iv), to any waivers, exceptions or exemptions that may be available under applicable law or rules. (e) (2) None of the services provided to the registrant described in paragraphs (b)-(d) of Item 4 were pre-approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of regulation S-X. (f) No disclosures are required by this Item 4(f). (g) The aggregate non-audit fees paid to the principal accountant for services rendered by the principal accountant to the registrant and the registrant's investment adviser and any entity controlling, controlled by or under common control with the investment adviser that provides ongoing services to the registrant were $147,910 for the fiscal year ended March 31, 2004 and $0 for the fiscal year ended March 31, 2003. (h) No disclosures are required by this Item 4(h). ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The board of trustees of the Trust has delegated the authority to vote proxies related to the portfolio securities held by the Fund to the Fund's manager Franklin Mutual Advisers, LLC, in accordance with the Proxy Voting Policies and Procedures (Policies) adopted by the manager. The manager has delegated its administrative duties with respect to the voting of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All proxies received by the Proxy Group will be voted based upon the manager's instructions and/or policies. To assist it in analyzing proxies, the manager subscribes to Institutional Shareholder Services (ISS), an unaffiliated third party corporate governance research service that provides in-depth analyses of shareholder meeting agendas, vote recommendations, recordkeeping and vote disclosure services. In addition, the manager subscribes to Glass Lewis & Co., LLC (Glass Lewis), an unaffiliated third party analytical research firm, to receive analyses and vote recommendations on the shareholder meetings of publicly held U.S. companies. Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and considered in making a final voting decision, the manager does not consider recommendations from ISS, Glass Lewis or any other third party to be determinative of the manager's ultimate decision. The manager votes proxies solely in the interests of the Fund and its shareholders. As a matter of policy, the officers, directors, trustees and employees of the Fund, the manager and the Proxy Group will not be influenced by outside sources whose interests conflict with the interests of the Fund and its shareholders. All conflicts are resolved in the interests of the manager's clients. In situations where the manager perceives a material conflict of interest, the manager may: disclose the conflict to the Fund's board of trustees; defer to the voting recommendation of the Fund's board of trustees, ISS, Glass Lewis or those of another independent third party provider of proxy services; or take such other action in good faith (in consultation with counsel) which would protect the interests of the Fund and its shareholders. The recommendation of management on any issue is a factor which the manager considers in determining how proxies should be voted, but is not determinative of the manager's ultimate decision. As a matter of practice, the votes with respect to most issues are cast in accordance with the position of the company's management. Each issue, however, is considered on its own merits, and the manager will not support the position of the company's management in any situation where it deems that the ratification of management's position would adversely affect the investment merits of owning that company's shares. Manager's proxy voting policies and principles The manager has adopted general proxy voting guidelines, which are summarized below. These guidelines are not an exhaustive list of all the issues that may arise and the manager cannot anticipate all future situations. In all cases, each proxy will be considered based on the relevant facts and circumstances. Board of directors. The manager supports an independent board of directors, and prefers that key committees such as audit, nominating, and compensation committees be comprised of independent directors. The manager will generally vote against management efforts to classify a board and will generally support proposals to declassify the board of directors. The manager may withhold votes from directors who have attended less than 75% of meetings without a valid reason. While generally in favor of separating Chairman and CEO positions, the manager will review this issue as well as proposals to restore or provide for cumulative voting on a case-by-case basis, taking into consideration factors such as the company's corporate governance guidelines or provisions and performance. Ratification of Auditors. In light of several high profile accounting scandals, the manager will closely scrutinize the role and performance of auditors. On a case-by-case basis, the manager will examine proposals relating to non-audit relationships and non-audit fees. The manager will also consider, on a case-by-case basis, proposals to rotate auditors, and will vote against the ratification of auditors when there is clear and compelling evidence of accounting irregularities or negligence. Management & director compensation. A company's equity-based compensation plan should be in alignment with its shareholders' long-term interests. The manager evaluates plans on a case-by-case basis by considering several factors to determine whether the plan is fair and reasonable, including the ISS quantitative model utilized to assess such plans and/or the Glass Lewis evaluation of the plans. The manager will generally oppose plans that have the potential to be excessively dilutive, and will almost always oppose plans that are structured to allow the repricing of underwater options, or plans that have an automatic share replenishment "evergreen" feature. The manager will generally support employee stock option plans in which the purchase price is at least 85% of fair market value, and when potential dilution is 10% or less. Severance compensation arrangements will be reviewed on a case-by-case basis, although the manager will generally oppose "golden parachutes" that are considered to be excessive. The manager will normally support proposals that require a percentage of directors' compensation to be in the form of common stock, as they align their interests with those of shareholders. The manager will review on a case-by-case basis any shareholder proposals to adopt policies on expensing stock option plans. Anti-takeover mechanisms and related issues. The manager generally opposes anti-takeover measures since they tend to reduce shareholder rights. On occasion, the manager may vote with management when the research analyst has concluded that the proposal is not onerous and would not harm the Fund or its shareholders' interests. The manager generally supports proposals that require shareholder rights' plans ("poison pills") to be subject to a shareholder vote and will closely evaluate such plans on a case-by-case basis to determine whether or not they warrant support. The manager will generally vote against any proposal to issue stock that has unequal or subordinate voting rights. The manager generally opposes any supermajority voting requirements as well as the payment of "greenmail." The manager generally supports "fair price" provisions and confidential voting. Changes to capital structure. The manager will review, on a case-by-case basis, proposals by companies to increase authorized shares and the purpose for the increase and proposals seeking preemptive rights. The manager will generally not vote in favor of dual-class capital structures to increase the number of authorized shares where that class of stock would have superior voting rights. The manager will generally vote in favor of the issuance of preferred stock in cases where the company specifies the voting, dividend, conversion and other rights of such stock and the terms of the preferred stock issuance are deemed reasonable. Mergers and corporate restructuring. Mergers and acquisitions will be subject to careful review by the research analyst to determine whether each will be beneficial to shareholders. The manager will analyze various economic and strategic factors in making the final decision on a merger or acquisition. Corporate restructuring and reincorporation proposals are also subject to a thorough examination on a case-by-case basis. Social and corporate policy issues. The manager will generally give management discretion with regard to social, environmental and ethical issues, although the manager may vote in favor of those that are believed to have significant economic benefits or implications for the Fund and its shareholders. Global corporate governance. Many of the tenets discussed above are applied to proxy voting decisions for international companies. However, the manager must be more flexible in these instances and must be mindful of the varied market practices of each region. The manager will attempt to process every proxy it receives for all domestic and foreign proxies. However, there may be situations in which the manager cannot process proxies, for example, where a meeting notice was received too late, or sell orders preclude the ability to vote. The manager may abstain from voting under certain circumstances or vote against items such as "Other Business" when the manager is not given adequate information from the company. Shareholders may view the complete Policies on-line at franklintempleton.com. Alternatively, shareholders may request copies of the Policies free of charge by calling the Proxy Group collect at 1-954-847-2268 or by sending a written request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's proxy voting records will also be made available on-line at franklintempleton.com and posted on the SEC website at www.sec.gov no later than August 31, 2004 and will reflect the twelve-month period beginning July 1, 2003, and ending June 30, 2004. 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers N/A 9. Submission of Matters to a Vote of Security Holders. There have been no changes to the procedures by which shareholders may recommend nominees to the Registrant's Board of Trustees that would require disclosure herein. Item 10. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (b) Changes in Internal Controls. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 11. EXHIBITS. (A) Code of Ethics for Principal Executive and Senior Financial Officers. (B)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Diomedes Tam-Loo, Chief Financial Officer (B)(2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and Diomedes Tam-Loo, Chief Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN MULTI-INCOME TRUST By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date May 11, 2004 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date May 11, 2004 By /s/Diomedes Loo-Tam Chief Financial Officer Date May 11, 2004 EX-99.CODE ETH 2 codeofethics.txt EXHIBIT (A) FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. COVERED OFFICERS AND PURPOSE OF THE CODE This code of ethics (the "Code")1 is for the investment companies within the complex registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") applies to each FT Fund's Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers" each of whom are set forth in Exhibit A) for the purpose of promoting: o Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o Full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the SEC and in other public communications made by or on behalf of the FT Funds; o Compliance with applicable laws and governmental rules and regulations; o The prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o Accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. COVERED OFFICERS SHOULD HANDLE ETHICALLY ACTUAL AND APPARENT CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his service to, the FT Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his family, receives improper personal benefits as a result of his position with the FT Funds. Certain conflicts of interest arise out of the relationships between Covered Officers and the FT Funds and already are subject to conflict of interest provisions in the Investment Company Act of 1940 ("Investment Company Act") and the Investment Advisers Act of 1940 ("Investment Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the FT Funds because of their status as "affiliated persons" of the FT Funds. The FT Funds' and the investment advisers' compliance programs and procedures are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the FT Funds, the investment advisers and the fund administrator of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the FT Funds, for the adviser, the administrator, or for all three), be involved in establishing policies and implementing decisions that will have different effects on the adviser, administrator and the FT Funds. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the FT Funds, the adviser, and the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the FT Funds. Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically. In addition, it is recognized by the FT Funds' Boards of Directors ("Boards") that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the FT Funds. Each Covered Officer must: o Not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the FT Funds whereby the Covered Officer would benefit personally to the detriment of the FT Funds; o Not cause the FT Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the FT Funds; o Not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; o Report at least annually the following affiliations or other relationships:/2 o all directorships for public companies and all companies that are required to file reports with the SEC; o any direct or indirect business relationship with any independent directors; o any direct or indirect business relationship with any independent public accounting firm; and o any direct or indirect interest in any transaction with any FT Fund that will benefit the officer (not including benefits derived from the advisory, sub-advisory, distribution or service agreements with affiliates of Franklin Resources). There are some conflict of interest situations that should always be approved in writing by FT's General Counsel or Deputy General Counsel, if material. Examples of these include/3: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100; o The receipt of any entertainment from any Company with which the FT Funds has current or prospective business dealings unless such entertainment is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety. Notwithstanding the foregoing, the Covered Officers must obtain prior approval for any entertainment with a value in excess of $1000. o Any ownership interest in, or any consulting or employment relationship with, any of the FT Fund's service providers, other than an investment adviser, principal underwriter, administrator or any affiliated person thereof; o A direct or indirect financial interest in commissions, transaction charges or spreads paid by the FT Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. FT's General Counsel or Deputy General Counsel will provide a report to the FT Funds Audit Committee of any approvals granted at the next regularly scheduled meeting. III. DISCLOSURE AND COMPLIANCE o Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the FT Funds; o Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the FT Funds to others, whether within or outside the FT Funds, including to the FT Funds' directors and auditors, and to governmental regulators and self-regulatory organizations; o Each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the FT Funds, the adviser and the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the FT Funds file with, or submit to, the SEC and in other public communications made by the FT Funds; and o It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. IV. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o Upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board that he has received, read, and understands the Code (see Exhibit B); o Annually thereafter affirm to the Board that he has complied with the requirements of the Code; and o Notify FT's General Counsel or Deputy General Counsel promptly if he knows of any violation of this Code. Failure to do so is itself is a violation of this Code. FT's General Counsel and Deputy General Counsel are responsible for applying this Code to specific situations in which questions are presented under it and have the authority to interpret this Code in any particular situation.4 However, the Independent Directors of the respective fund will consider any approvals or waivers5 sought by any Chief Executive Officers of the Funds. The FT Funds will follow these procedures in investigating and enforcing this Code: o FT's General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to him; o If, after such investigation, FT's General Counsel or Deputy General Counsel believes that no violation has occurred, FT's General Counsel is not required to take any further action; o Any matter that FT's General Counsel or Deputy General Counsel believes is a violation will be reported to the Independent Directors of the appropriate FT Fund; o If the Independent Directors concur that a violation has occurred, it will inform and make a recommendation to the Board of the appropriate Funds, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to dismiss the Covered Officer; o The Independent Directors will be responsible for granting waivers, as appropriate; and o Any changes to or waivers of this Code will, to the extent required, are disclosed as provided by SEC rules. V. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the FT Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies there under. Insofar as other policies or procedures of the FT Funds, the FT Funds' advisers, principal underwriter, or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The FT Code of Ethics and Policy Statement On Insider Trading, adopted by the FT Funds, FT investment advisers and FT Fund's principal underwriter pursuant to Rule 17j-l under the Investment Company Act and more detailed policies and procedures set forth in FT's Employee Handbook are separate requirements applying to the Covered Officers and others, and are not part of this Code. VI. AMENDMENTS Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the FT Funds' Board including a majority of independent directors. VII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the FT Funds' Board and their counsel. VIII. INTERNAL USE The Code is intended solely for the internal use by the FT Funds and does not constitute an admission, by or on behalf of any FT Funds, as to any fact, circumstance, or legal conclusion. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics FRANKLIN GROUP OF FUNDS Edward B. Jamieson, President and Chief Executive Officer - Investment Management Charles B. Johnson, President and Chief Executive Officer - Investment Management Gregory E. Johnson, President and Chief Executive Officer - Investment Management Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management William J. Lippman, President and Chief Executive Officer - Investment Management Christopher Molumphy, President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Diomedes Loo-Tam Treasurer & Chief Financial Officer FRANKLIN MUTUAL SERIES FUNDS David Winters Chairman of the Board, President, Chief Executive Officer-Investment Management Jimmy D. Gambill Senior Vice President and Chief Executive Officer- Finance and Administration Diomedes Loo-Tam Treasurer & Chief Financial Officer TEMPLETON GROUP OF FUNDS Jeffrey A. Everett President and Chief Executive Officer - Investment Management Martin L. Flanagan President and Chief Executive Officer - Investment Management Mark Mobius President and Chief Executive Officer - Investment Management Christopher J. Molumphy President and Chief Executive Officer - Investment Management Gary P. Motyl President and Chief Executive Officer - Investment Management Donald F. Reed President and Chief Executive Officer - Investment Management Jimmy D. Gambill, Senior Vice President and Chief Executive Officer - Finance and Administration Diomedes Loo-Tam Treasurer & Chief Financial Officer EXHIBIT B ACKNOWLEDGMENT FORM FRANKLIN TEMPLETON FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS. INSTRUCTIONS: 1. Complete all sections of this form. 2. Print the completed form, sign, and date. 3. Submit completed form to FT's General Counsel within 10 days of becoming a Covered Officer and by January 30th of each subsequent year. INTER-OFFICE MAIL: Murray Simpson, General Counsel, Legal SM-920/2 TELEPHONE: (650) 312-7331 Fax: (650) 312-2221 E-MAIL: Simpson, Murray (internal address); mlsimpson@frk.com (external address) - ---------------------------------------------------------------------------- COVERED OFFICER'S NAME: - ---------------------------------------------------------------------------- TITLE: - ---------------------------------------------------------------------------- DEPARTMENT: - ---------------------------------------------------------------------------- LOCATION: - ---------------------------------------------------------------------------- CERTIFICATION FOR YEAR ENDING: - ---------------------------------------------------------------------------- TO: FT GENERAL COUNSEL, LEGAL DEPARTMENT I hereby acknowledge receipt of a copy of Franklin Templeton Fund's code of ethics for Principal Executive Officers and Senior Financial Officers (the "Code") that I have read and understand. I will comply fully with all provisions of the Code to the extent they apply to me during the period of my employment. I further understand and acknowledge that any violation of the Code may subject me to disciplinary action, including termination of employment -------------------- --------------------- Signature Date signed 1 Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant's annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention. 2 Reporting of these affiliations or other relationships may be made separately by completing the Directors and Officers Questionnaire and returning to FT's General Counsel or Deputy General Counsel. 3 Any activity or relationship that would present a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if a member of the Covered Officer's immediate family engages in such an activity or has such a relationship. The Cover Person should also obtain written approval by FT's General Counsel in such situations. 4 FT's General Counsel and Deputy General Counsel are authorized to consult, as appropriate, with members of the Audit Committee, counsel to the FT Funds and counsel to the Independent Directors, and are encouraged to do so. 5 Item 2 of Form N-CSR defines "waiver" as "the approval by the registrant of a material departure from a provision of the code of ethics" and "implicit waiver," which must also be disclosed, as "the registrant's failure to take action within a reasonable period of time regarding a material departure from a provision of the code of ethics that has been made known to an executive officer" of the registrant. EX-99.CERT 3 fmitjimg302.txt EXHIBIT (B)(1) CERTIFICATIONS I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of the Franklin Multi-Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 11, 2004 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration I, Diomedes Loo-Tam, certify that: 1. I have reviewed this report on Form N-CSR of the Franklin Multi-Income Trust; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. May 11, 2004 /S/DIOMEDES LOO-TAM Treasurer and Chief Financial Officer EX-99.906 4 fmitjimg906.txt EXHIBIT (B)(2) CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jimmy D. Gambill, Chief Executive Officer of the Franklin Multi-Income Trust (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 03/31/04 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: May 11, 2004 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Diomedes Loo-Tam, Chief Financial Officer of the Franklin Multi-Income Trust (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 03/31/04 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: May 11, 2004 /S/DIOMEDES LOO-TAM Treasurer and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----