-----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, Bl2N+S2t2YuiwC+uTU8doKdJqZR1n0K8wz61Uba8JdvYVtl3OvveoGeHyCXM9HHc IT/qLGtHYt9MscFUyws7nw== 0000854856-05-000006.txt : 20050611 0000854856-05-000006.hdr.sgml : 20050611 20050531155657 ACCESSION NUMBER: 0000854856-05-000006 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050531 DATE AS OF CHANGE: 20050531 EFFECTIVENESS DATE: 20050531 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: 05867415 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 811-05873 --------- 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: 3/31/05 ------- ITEM 1. REPORTS TO STOCKHOLDERS. [GRAPHIC OMITTED] - -------------------------------------------------------------------------------- MARCH 31, 2005 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ANNUAL REPORT | INCOME - -------------------------------------------------------------------------------- FRANKLIN MULTI-INCOME TRUST - -------------------------------------------------------------------------------- [LOGO](R) FRANKLIN TEMPLETON 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 recognized leader in fixed income investing and also brings 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 - ------------------------------------------------------------------------------- [GRAPHIC OMITTED] 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 Report of Independent Registered Public Accounting Firm ................... 28 Tax Designation ........................................................... 29 Board Members and Officers ................................................ 30 Shareholder Information ................................................... 35 - -------------------------------------------------------------------------------- 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 as well as growth of income through dividend increases and capital appreciation. PORTFOLIO BREAKDOWN Based on Total Investments* 3/31/05 [THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.] Corporate Bonds 52.2% Utilities Common Stocks 42.5% Misc. Common & Preferred Stocks 3.3% Foreign Currency Denominated Bonds 0.5% Cash & Other Net Assets 1.5% * Total investments include long-term and short-term investments and other net assets, excluding long-term debt issued by the Fund. Dear Shareholder: We are pleased to bring you Franklin Multi-Income Trust's annual report for the fiscal year ended March 31, 2005. PERFORMANCE OVERVIEW For the 12 months under review, Franklin Multi-Income Trust delivered cumulative total returns of +14.32% based on change in net asset value and +21.29% based on change in market price on the New York Stock Exchange. For comparison, the Credit Suisse First Boston (CSFB) High Yield Index returned 7.84%, while utilities stocks, as measured by the Standard & Poor's (S&P) Utilities Index, returned 24.60% for the 12 months ended March 31, 2005.(1) You can find the Fund's long-term performance data in the Performance Summary on page 5. ECONOMIC AND MARKET OVERVIEW Overall domestic economic growth remained healthy, with annualized quarterly growth of gross domestic product (GDP) ranging from 4.0% to 3.1% over the past year. In terms of drivers supporting this economic expansion, approximately (1) Sources: Credit Suisse First Boston; Standard & Poor's Micropal. The CSFB High Yield Index is designed to mirror the investible universe of the U.S. dollar denominated high yield debt market. The S&P Utilities Index is a market capitalization-weighted index that includes utility stocks in the S&P 500 Composite Index. The indexes are unmanaged and include reinvestment of any income or 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 DIVIDEND DISTRIBUTIONS 4/1/04-3/31/05 - ----------------------------------------- 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 - ----------------------------------------- two-thirds of GDP is generated by consumer spending, and almost one-fifth by business spending. Since consumer spending relies on consumers' ability to remain gainfully employed, many analysts study the employment picture for indications of consumer spending. Over the past 12 months, nonfarm payroll data, as well as other indexes, showed growing employment. This, along with 6.0% growth in personal income over the past year, helped consumer spending increase 6.1% (not adjusted for inflation) for the 12 months ended March 31, 2005, which supported U.S. economic growth.(2) Business spending also rose during the reporting period, contributing to economic growth. For example, annualized nonresidential investment spending recorded double-digit gains for most of the period before experiencing a slowdown in its pace of growth during first quarter 2005. Historically low interest rates and ample cash and liquidity allowed many corporations to increase their capital investment plans to meet expected demand increases. Domestic inflationary pressures increased over the past 12 months, driven by economic strength as well as rising energy prices, as oil prices neared $57 a barrel.(3) Moreover, although corporate productivity continued to grow, the pace of productivity growth slowed from that of recent years. In this environment, the Federal Reserve Board (Fed) raised the federal funds target rate to 2.75% from 1.00% during the reporting period, with expectations for further measured increases continuing in 2005. Nonetheless, with some slack remaining in the labor force and businesses still unable in many industries to pass along significant price increases to the consumer, nominal inflation was relatively contained, as measured by the 2.3% rise in the core Consumer Price Index (CPI), which excludes volatile food and energy costs. Although higher than in the past two calendar years, this matched the core CPI's 10-year average of 2.3%.(2) With the rise in short-term rates, the yield curve flattened during the period; however, longer-term interest rates, as measured by the 10-year U.S. Treasury yield, did increase, with the 10-year yield rising from 3.86% to 4.50% by period-end. 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) Source: Bureau of Labor Statistics. (3) Source: Bloomberg Energy/Commodity Service. 2 | Annual Report MANAGER'S DISCUSSION During the year under review, the Fund benefited from positive returns in each of its primary asset classes. High yield corporate bonds gained from a strong fundamental environment as well as continued investor interest in higher yielding assets. Due to a continuing economic recovery, the default rate fell to 1.25% in 2004, well below the 4.40% historical average experienced since 1985.(4) Utility stocks benefited from investor preference for dividend paying stocks and a continued low interest rate environment. Many utility companies maintained their "back to basics" strategy, which focused on core, regulated assets and generating shareholder returns through dividend increases or share repurchases. HIGH YIELD CORPORATE BONDS The Fund benefited from its overweighted positions in wireless telecommunications and chemicals relative to the CSFB High Yield Index.(5) The wireless telecommunications industry benefited from merger and acquisition activity, in particular the merger of Fund holding Nextel Communications with investment grade-rated Sprint. In addition, industry growth remained positive and the feared demise of revenue from roaming charges failed to materialize. The chemicals industry experienced renewed pricing power, as demand for plastics and other chemical end-products improved along with the economy. Since very little new capacity was built during the recent industry downturn, the increase in demand led to higher operating rates, which enabled companies to expand margins in spite of high oil and natural gas costs. In this favorable fundamental environment, several companies, including Fund holdings Nalco, Celanese (BCP Chrystal Holding in the SOI) and Huntsman International Holdings (redeemed during the period), issued equity via initial public offerings. The Fund's underweighted position in utilities and overweighted position in broadcasting hindered performance in the high yield sector. Utility bonds generated returns greater than that of the overall index. However, the Fund intentionally kept its high yield utility exposure fairly low given its large exposure to that sector through utility stocks. More defensive sectors such as broadcasting underperformed the index during the fiscal year's strong market environment. We held a greater exposure than the index because we preferred broadcasters' free cash flow generation and the asset protection afforded by the value of radio and television stations. (4) Source: Altman, Dr. Edward, "Default Returns in the High Yield Bond Market," Spring 2005. (5) In the SOI, the wireless telecommunications industry is part of communications; the chemicals industry is part of process industries. TOP 10 HOLDINGS 3/31/05 - -------------------------------------------------------------------------------- COMPANY SECTOR/INDUSTRY % OF TOTAL (SECURITY TYPE) INVESTMENTS* - -------------------------------------------------------------------------------- Exelon Corp. 3.2% UTILITIES (STOCK) - -------------------------------------------------------------------------------- Dominion Resources Inc. 2.5% UTILITIES (STOCK) - -------------------------------------------------------------------------------- Entergy Corp. 2.4% UTILITIES (STOCK) - -------------------------------------------------------------------------------- TXU Corp. 2.3% UTILITIES (STOCK) - -------------------------------------------------------------------------------- FPL Group 2.2% UTILITIES (STOCK) - -------------------------------------------------------------------------------- Edison International 2.0% UTILITIES (STOCK) - -------------------------------------------------------------------------------- Southern Co. 2.0% UTILITIES (STOCK) - -------------------------------------------------------------------------------- NiSource 1.9% UTILITIES (STOCK) - -------------------------------------------------------------------------------- ONEOK 1.8% UTILITIES (STOCK) - -------------------------------------------------------------------------------- FirstEnergy 1.7% UTILITIES (STOCK) - -------------------------------------------------------------------------------- * Total investments include long-term and short-term investments and other net assets, excluding long-term debt issued by the Fund. Annual Report | 3 UTILITY STOCKS The Fund's utility exposure remained below the middle of our normal investment range during the year, at 44.0% of the Fund's total net assets excluding long-term debt issued by the Fund as of March 31, 2005. This positioning constrained Fund performance as utility stocks generated a greater return than high yield bonds. Utility stocks were supported by strong industry fundamentals, which enabled companies to generate free cash flow and increase their dividends. In addition, the continued low interest rate environment and investor appetite for dividend paying stocks also helped support utility performance. Thank you for your continued participation in Franklin Multi-Income Trust. We look forward to serving your future investment needs. Sincerely, [PHOTO OMITTED] /s/ Christopher J. Molumphy Christopher J. Molumphy, CFA Senior Portfolio Manager [PHOTO OMITTED] /s/ Glenn I. Voyles Glenn I. Voyles, CFA Portfolio Manager Franklin Multi-Income Trust THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF MARCH 31, 2005, 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 ADVISER 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 3/31/05 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 reinvestment of the Fund's dividends and 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 - -------------------------------------------------------------------------------- SYMBOL: FMI CHANGE 3/31/05 3/31/04 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.70 $9.12 $8.42 - -------------------------------------------------------------------------------- Market Price (NYSE) +$1.14 $8.79 $7.65 - -------------------------------------------------------------------------------- DISTRIBUTIONS (4/1/04-3/31/05) - -------------------------------------------------------------------------------- Dividend Income $0.4200 - -------------------------------------------------------------------------------- PERFORMANCE - -------------------------------------------------------------------------------- 1-YEAR 5-YEAR 10-YEAR - -------------------------------------------------------------------------------- Cumulative Total Return(1) - -------------------------------------------------------------------------------- Based on change in NAV +14.32% +45.22% +133.91% - -------------------------------------------------------------------------------- Based on change in market price +21.29% +79.38% +147.38% - -------------------------------------------------------------------------------- Average Annual Total Return(1) - -------------------------------------------------------------------------------- Based on change in NAV +14.32% +7.75% +8.87% - -------------------------------------------------------------------------------- Based on change in market price +21.29% +12.40% +9.48% - -------------------------------------------------------------------------------- Distribution Rate(2) 4.78% - -------------------------------------------------------------------------------- PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY DIFFER FROM FIGURES SHOWN. FOR MORE CURRENT PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT 1-800/342-5236. ENDNOTES THE FUND'S PORTFOLIO INCLUDES A SUBSTANTIAL PORTION OF HIGHER-YIELDING, LOWER-RATED CORPORATE BONDS BECAUSE OF THE RELATIVELY HIGHER YIELDS THEY OFFER. THESE SECURITIES CARRY A GREATER DEGREE OF CREDIT RISK RELATIVE TO INVESTMENT-GRADE SECURITIES. IN ADDITION TO OTHER FACTORS, SECURITIES ISSUED BY UTILITY COMPANIES ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS. WHEN INTEREST RATES FALL, UTILITY SECURITIES PRICES TEND TO RISE; WHEN INTEREST RATES RISE, THEIR PRICES GENERALLY FALL. (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 3.5 cent per share March dividend and the NYSE closing price of $8.79 on 3/31/05. Annual Report | 5 ANNUAL SHAREHOLDERS' MEETING SEPTEMBER 8, 2004 At an annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund") held on September 8, 2004, shareholders approved the following: 1. Regarding the proposal to elect nominees for Trustees:
- ----------------------------------------------------------------------------------------------------------- % OF % OF SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED - ----------------------------------------------------------------------------------------------------------- Edward B. Jamieson 4,983,495.006 85.007% 96.473% 182,213.785 3.111% 3.527% - ----------------------------------------------------------------------------------------------------------- Charles B. Johnson 4,979,498.006 85.009% 96.395% 186,210.785 3.179% 3.605% - ----------------------------------------------------------------------------------------------------------- Rupert H. Johnson, Jr. 4,980,991.006 85.035% 96.424% 184,717.785 3.153% 3.576% - -----------------------------------------------------------------------------------------------------------
6 | Annual Report DIVIDEND REINVESTMENT AND CASH PURCHASE PLAN The Fund'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 Fund. The Plan also allows you to purchase additional shares of the Fund 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 Fund's Dividend Reinvestment and Cash Purchase Plan Brochure. A copy of that Brochure may be obtained from the Fund 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 Fund declares a dividend or capital gain distribution, you, as a participant in the Plan, will automatically receive an equivalent amount of shares of the Fund 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 Fund. 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 Fund which are purchased in the open market. The Plan Agent will invest cash payments on approximately the 15th of each month in which no dividend or distribution is payable and, during each month in which a dividend or distribution is payable, will invest cash payments beginning on the dividend payment date. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON YOUR FUNDS HELD BY THE PLAN AGENT. Accordingly, you should send any voluntary cash payments which you wish to make shortly before an investment date but in sufficient time to ensure that your payment will reach the Plan Agent not less than 2 business days before an investment date. Payments received less than 2 business days before an investment date will be invested during the next month or, if there are more than 30 days until the next investment date, will be returned to you. You may obtain a refund of any cash payment by written notice, if the Plan Agent receives the written notice not less than 48 hours before an investment date. 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 Fund. 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 Fund 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 Fund 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 Fund. Annual Report | 9 FRANKLIN MULTI-INCOME TRUST FINANCIAL HIGHLIGHTS
-------------------------------------------------------- YEAR ENDED MARCH 31, 2005 2004 2003 2002 2001 -------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .............. $ 8.42 $ 6.40 $ 8.71 $ 9.80 $ 8.97 -------------------------------------------------------- Income from investment operations: Net investment income .......................... 0.44 0.44 0.51 0.63 0.66 Net realized and unrealized gains (losses) ..... 0.68 2.00 (2.25) (1.05) 0.84 -------------------------------------------------------- Total from investment operations ................ 1.12 2.44 (1.74) (0.42) 1.50 Less distributions from net investment income ... (0.42) (0.42) (0.57) (0.67) (0.67) -------------------------------------------------------- Net asset value, end of year .................... $ 9.12 $ 8.42 $ 6.40 $ 8.71 $ 9.80 ======================================================== Market value, end of year(a) .................... $ 8.79 $ 7.65 $ 6.10 $ 8.70 $ 8.62 ======================================================== Total return (based on market value per share) .. 21.29% 32.84% (23.67)% 9.23% 33.54% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ................. $53,446 $49,322 $37,511 $51,047 $57,412 Ratios to average net assets: Expenses ....................................... 2.98% 3.49% 4.47% 3.45% 3.23% Net investment income .......................... 5.07% 5.71% 7.52% 6.97% 6.88% Portfolio turnover rate ......................... 26.59% 45.82% 48.45% 18.27% 26.72% Total debt outstanding at end of year (000's) ... $16,000 $14,000 $14,000 $16,000 $16,000 Asset coverage per $1,000 of debt(b) ............ $ 4,340 $ 4,523 $ 3,679 $ 4,190 $ 4,588 Average amount of notes per share during the year $ 2.57 $ 2.39 $ 2.54 $ 2.73 $ 2.73
(a) Based on the last sale on the New York Stock Exchange. (b) Asset coverage per $1,000 of debt has been corrected. As of March 31, 2004, 2003, 2002 and 2001 the asset coverage previously presented were $3,523, $2,679, $3,190 and $3,588, respectively. 10 | See notes to financial statements. | Annual Report FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2005
- ----------------------------------------------------------------------------------------------------------------- COUNTRY SHARES/WARRANTS VALUE - ----------------------------------------------------------------------------------------------------------------- COMMON STOCKS AND WARRANTS 56.2% COMMUNICATIONS 0.9% (a) Telewest Global Inc. ................................ United Kingdom 17,056 $ 303,426 (a) USA Mobility Inc. ................................... United States 5,053 163,717 ------------ 467,143 ------------ CONSUMER SERVICES 0.1% Marriott International Inc., A ...................... United States 1,052 70,336 ------------ ELECTRONIC TECHNOLOGY 0.0%(b) (a) Loral Space & Communications Ltd., wts., 12/27/06 ... United States 4,188 63 (a) Loral Space & Communications Ltd., wts., 1/15/07 .... United States 1,000 -- ------------ 63 ------------ TRANSPORTATION 0.0%(b) (a) Continental Airlines Inc., B .................... United States 357 4,298 ------------ UTILITIES 55.2% Alliant Energy Corp. ................................ United States 15,000 401,700 Ameren Corp. ........................................ United States 20,000 980,200 American Electric Power Co. Inc. .................... United States 33,800 1,151,228 Atmos Energy Corp. .................................. United States 35,000 945,000 Cinergy Corp. ....................................... United States 24,500 992,740 Dominion Resources Inc. ............................. United States 23,400 1,741,662 DTE Energy Co. ...................................... United States 20,000 909,600 Edison International ................................ United States 40,000 1,388,800 Energy East Corp. ................................... United States 30,000 786,600 Entergy Corp. ....................................... United States 24,000 1,695,840 Exelon Corp. ........................................ United States 49,000 2,248,610 FirstEnergy Corp. ................................... United States 27,500 1,153,625 FPL Group Inc. ...................................... United States 38,000 1,525,700 Nicor Inc. .......................................... United States 29,000 1,075,610 NiSource Inc. ....................................... United States 57,000 1,299,030 NSTAR ............................................... United States 15,500 841,650 ONEOK Inc. .......................................... United States 40,200 1,238,964 Pepco Holdings Inc. ................................. United States 20,500 430,295 Pinnacle West Capital Corp. ......................... United States 24,000 1,020,240 PPL Corp. ........................................... United States 11,700 631,683 Progress Energy Inc. ................................ United States 21,000 880,950 Public Service Enterprise Group Inc. ................ United States 15,000 815,850 Puget Energy Inc. ................................... United States 37,000 815,480 SCANA Corp. ......................................... United States 12,621 482,375 Sempra Energy ....................................... United States 26,000 1,035,840 Southern Co. ........................................ United States 43,000 1,368,690 TXU Corp. ........................................... United States 20,400 1,624,452 ------------ 29,482,414 ------------ TOTAL COMMON STOCKS AND WARRANTS (COST $19,132,325) . 30,024,254 ------------
Annual Report | 11 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------ COUNTRY SHARES/WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------------------------ PREFERRED STOCK (COST $625,000) 1.2% UTILITIES Heco Capital Trust III, 6.50%, pfd. .............................. United States 25,000 $ 637,750 ------------ CONVERTIBLE PREFERRED STOCKS 2.1% CONSUMER DURABLES 1.3% Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ................ United States 15,300 693,702 ------------ UTILITIES 0.8% CMS Energy Trust I, 7.75%, cvt. pfd. ............................. United States 8,000 408,000 ------------ TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,023,846) ............. 1,101,702 ------------ ------------------- PRINCIPAL AMOUNT(C) ------------------- BONDS 68.5% COMMERCIAL SERVICES 1.4% Corrections Corp. of America, senior note, 7.50%, 5/01/11 ........ United States $ 500,000 508,750 JohnsonDiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ....... United States 200,000 216,000 ------------ 724,750 ------------ COMMUNICATIONS 8.1% Dobson Cellular Systems Inc., secured note, 144A, 9.875%, 11/01/12 United States 400,000 410,000 Inmarsat Finance PLC, senior note, 7.625%, 6/30/12 ............... United Kingdom 600,000 600,000 Intelsat Bermuda Ltd., senior note, 144A, 8.25%, 1/15/13 ......... Bermuda 600,000 609,000 Millicom International Cellular SA, senior note, 144A, 10.00%, 12/01/13 ........................................................ Luxembourg 500,000 512,500 Nextel Communications Inc., senior note, 7.375%, 8/01/15 ......... United States 600,000 636,750 Qwest Communications International Inc., senior note, 144A, 7.50%, 2/15/14 ......................................................... United States 500,000 491,250 Rogers Wireless Communications Inc., senior secured note, 7.25%, 12/15/12 ........................................................ Canada 500,000 512,500 Time Warner Telecom Holdings Inc., senior note, 144A, 9.25%, 2/15/14 ......................................................... United States 300,000 289,500 Time Warner Telecom Holdings Inc., senior note, 9.25%, 2/15/14 ... United States 300,000 289,500 ------------ 4,351,000 ------------ CONSUMER DURABLES 3.4% D.R. Horton Inc., senior note, 8.50%, 4/15/12 .................... United States 500,000 547,983 Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ............. United States 300,000 298,500 Simmons Co., senior sub. note, 7.875%, 1/15/14 ................... United States 400,000 410,000 William Lyon Homes Inc., senior note, 7.625%, 12/15/12 ........... United States 600,000 564,000 ------------ 1,820,483 ------------ CONSUMER NON-DURABLES 3.5% Del Monte Corp., senior sub. note, 144A, 6.75%, 2/15/15 .......... United States 400,000 392,000 Rayovac Corp., senior sub. note, 144A, 7.375%, 2/01/15 ........... United States 600,000 577,500 Smithfield Foods Inc., senior note, 7.00%, 8/01/11 ............... United States 400,000 411,500 Smithfield Foods Inc., senior note, 7.75%, 5/15/13 ............... United States 200,000 213,000 William Carter, senior sub. note, 10.875%, 8/15/11 ............... United States 242,000 268,620 ------------ 1,862,620 ------------ CONSUMER SERVICES 11.7% (d) Adelphia Communications Corp., senior note, 10.875%, 10/01/10 .... United States 600,000 534,000 Cablevision Systems Corp., senior note, 144A, 8.00%, 4/15/12 ..... United States 600,000 619,500 Charter Communications Holdings II, senior note, 10.25%, 9/15/10 . United States 600,000 615,000
12 | Annual Report FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------- COUNTRY PRINCIPAL AMOUNT(C) VALUE - --------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 ............. United States $ 490,000 $ 548,800 DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ................ United States 500,000 543,750 Emmis Operating Co., senior sub. note, 6.875%, 5/15/12 ............ United States 600,000 591,000 Marquee Inc., senior note, 144A, 8.625%, 8/15/12 .................. United States 400,000 428,000 Park Place Entertainment Corp., senior sub. note, 7.875%, 3/15/10 . United States 500,000 547,500 Pinnacle Entertainment Inc., senior sub. note, 8.75%, 10/01/13 .... United States 100,000 104,000 Radio One Inc., senior sub. note, 144A, 6.375%, 2/15/13 ........... United States 200,000 197,500 Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 ......... United States 200,000 220,750 Royal Caribbean Cruises Ltd., senior note, 6.875%, 12/01/13 ....... United States 400,000 419,000 Station Casinos Inc., senior sub. note, 6.875%, 3/01/16 ........... United States 600,000 603,750 Young Broadcasting Inc., senior sub. note, 8.75%, 1/15/14 ......... United States 300,000 285,750 ------------ 6,258,300 ------------ ELECTRONIC TECHNOLOGY 3.4% Flextronics International Ltd., senior sub. note, 6.50%, 5/15/13 .. Singapore 400,000 399,000 Sanmina-SCI Corp., sub. note, 144A, 6.75%, 3/01/13 ................ United States 600,000 565,500 Solectron Corp., senior note, 9.625%, 2/15/09 ..................... United States 300,000 324,750 Xerox Corp., senior note, 7.125%, 6/15/10 ......................... United States 500,000 519,375 ------------ 1,808,625 ------------ ENERGY MINERALS 3.5% Chesapeake Energy Corp., senior note, 144A, 6.375%, 6/15/15 ....... United States 200,000 198,500 Foundation PA Coal Co., senior note, 7.25%, 8/01/14 ............... United States 300,000 306,000 Markwest Energy Partners LP, senior note, 144A, 6.875%, 11/01/14 .. United States 300,000 301,500 Peabody Energy Corp., senior note, B, 6.875%, 3/15/13 ............. United States 300,000 310,500 Plains Exploration & Production Co., senior note, 7.125%, 6/15/14 . United States 200,000 210,000 Vintage Petroleum, senior sub. note, 7.875%, 5/15/11 .............. United States 500,000 532,500 ------------ 1,859,000 ------------ GOVERNMENT BONDS 0.7% Eskom, E168, 11.00%, 6/01/08 ...................................... South Africa 2,175,000 ZAR 374,386 ------------ HEALTH SERVICES 3.4% Davita Inc., senior sub. note, 144A, 7.25%, 3/15/15 ............... United States 600,000 591,000 Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 .............. United States 600,000 568,500 Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%, 10/01/14 ......................................................... United States 600,000 634,500 ------------ 1,794,000 ------------ HEALTH TECHNOLOGY 1.1% Bio-Rad Laboratories Inc., senior sub. note, 144A, 6.125%, 12/15/14 United States 600,000 591,000 ------------ INDUSTRIAL SERVICES 2.7% Allied Waste North America Inc., senior note, 7.875%, 4/15/13 ..... United States 600,000 601,500 Grant Prideco Escrow, senior note, 9.00%, 12/15/09 ................ United States 200,000 217,000 Hanover Equipment Trust 01, senior secured note, B, 8.75%, 9/01/11 United States 600,000 636,000 ------------ 1,454,500 ----------- NON-ENERGY MINERALS 1.6% Ispat Inland ULC, senior secured note, 9.75%, 4/01/14 ............. United States 402,000 470,139 Novelis Inc., senior note, 144A, 7.25%, 2/15/15 ................... Canada 400,000 394,000 ------------ 864,139 ------------
Annual Report | 13 FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
- ------------------------------------------------------------------------------------------------------------------------------------ COUNTRY PRINCIPAL AMOUNT(C) VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) PROCESS INDUSTRIES 8.4% Abitibi-Consolidated Inc., senior note, 8.375%, 4/01/15 ............ Canada $ 600,000 $ 586,500 BCP Crystal Holding U.S., senior sub. note, 144A, 9.625%, 6/15/14 .. Luxembourg 385,000 440,825 Georgia-Pacific Corp., senior note, 8.00%, 1/15/24 ................. United States 600,000 672,000 JSG Funding PLC, senior sub. note, 144A, 7.75%, 4/01/15 ............ Irish Republic 250,000 233,750 MDP Acquisitions PLC, senior note, 9.625%, 10/01/12 ................ Irish Republic 300,000 324,000 Nalco Co., senior sub. note, 8.875%, 11/15/13 ...................... United States 400,000 430,000 Owens-Brockway Glass Container Inc., senior note, 144A, 6.75%, 12/01/14 ......................................................... United States 600,000 591,000 (d),(e),(f) Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/04 ......................................................... Indonesia 1,000,000 235,520 PQ Corp., senior sub. note, 144A, 7.50%, 2/15/13 ................... United States 300,000 297,000 Rhodia SA, senior note, 10.25%, 6/01/10 ............................ France 600,000 657,000 ------------ 4,467,595 ------------ PRODUCER MANUFACTURING 5.5% Case New Holland Inc., senior note, 144A, 9.25%, 8/01/11 ........... United States 600,000 642,000 Invensys PLC, senior note, 144A, 9.875%, 3/15/11 ................... United Kingdom 400,000 409,000 Fimep SA, senior note, 10.50%, 2/15/13 ............................. France 500,000 567,500 Milacron Escrow Corp., senior secured note, 11.50%, 5/15/11 ........ United States 600,000 657,000 Nortek Inc., senior sub. note, 8.50%, 9/01/14 ...................... United States 200,000 194,000 TRW Automotive Inc., senior note, 9.375%, 2/15/13 .................. United States 272,000 293,760 Westinghouse Air Brake Technologies Corp., senior note, 6.875%, 7/31/13 .......................................................... United States 200,000 200,000 ------------ 2,963,260 ------------ REAL ESTATE INVESTMENT TRUSTS 1.2% Host Marriott LP, senior note, 9.25%, 10/01/07 ..................... United States 500,000 537,500 Host Marriott LP, senior note, 144A, 6.375%, 3/15/15 ............... United States 100,000 96,000 ------------ 633,500 ------------ RETAIL TRADE 1.4% Leslie's Poolmart, senior note, 144A, 7.75%, 2/01/13 ............... United States 300,000 304,500 Rite Aid Corp., senior note, 144A, 6.125%, 12/15/08 ................ United States 500,000 467,500 ------------ 772,000 ------------ TECHNOLOGY SERVICES 1.2% UGS Corp., senior sub. note, 144A, 10.00%, 6/01/12 ................. United States 600,000 666,000 ------------ TRANSPORTATION 1.9% Great Lakes Dredge & Dock Corp., senior sub. note, 7.75%, 12/15/13 . United States 400,000 334,000 Laidlaw International Inc., senior note, 10.75%, 6/15/11 ........... United States 600,000 682,500 ------------ 1,016,500 ------------
14 | Annual Report FRANKLIN MULTI-INCOME TRUST STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- COUNTRY PRINCIPAL AMOUNT(C) VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) UTILITIES 4.4% Aquila Inc., senior note, 14.875%, 7/01/12 ...................... United States $ 400,000 $ 550,000 Calpine Corp., senior secured note, 144A, 8.75%, 7/15/13 ........ United States 600,000 456,000 Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 ............... United States 500,000 481,250 Midwest Generation LLC, senior secured note, 8.75%, 5/01/34 ..... United States 600,000 672,000 Texas Genco LLC, senior note, 144A, 6.875%, 12/15/14 ............ United States 200,000 201,500 ------------ 2,360,750 ------------ TOTAL BONDS (COST $36,195,888) .................................. 36,642,408 ------------ TOTAL LONG TERM INVESTMENTS (COST $56,977,059) .................. 68,406,114 ------------ --------- SHARES --------- SHORT TERM INVESTMENT (COST $528,805) 1.0% MONEY FUND (g) Franklin Institutional Fiduciary Trust Money Market Portfolio ... United States 528,805 528,805 ------------ TOTAL INVESTMENTS (COST $57,505,864) 129.0% ..................... 68,934,919 OTHER ASSETS, LESS LIABILITIES (29.0)% .......................... (15,488,796) ------------ NET ASSETS 100.0% ............................................... $53,446,123 ============
CURRENCY ABBREVIATION | ZAR - South African Rand (a) Non-income producing. (b) Rounds to less than 0.05% of net assets. (c) The principal amount is stated in U.S. dollars unless otherwise indicated. (d) Defaulted securities. See Note 9. (e) See Note 10 regarding restricted securities. (f) See Note 11 regarding other considerations. (g) See Note 8 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, 2005 Assets: Investments in securities: Cost - Unaffiliated issuers ........................................ $ 56,977,059 Cost - Sweep Money Fund (Note 8) ................................... 528,805 ------------- Total cost of investments .................................... 57,505,864 ============= Value - Unaffiliated issuers ....................................... 68,406,114 Value - Sweep Money Fund (Note 8) .................................. 528,805 ------------- Total value of investments ......................................... 68,934,919 Receivables: Dividends and interest ............................................. 802,375 Note issuance costs (Note 3) ....................................... 118,009 ------------- Total assets ................................................. 69,855,303 ------------- Liabilities: Payables: Affiliates ......................................................... 49,425 Note (Note 3) ...................................................... 16,000,000 Accrued interest (Note 3) .......................................... 29,370 Distributions to shareholders ...................................... 205,016 Deferred sale proceeds (Note 11) ................................... 78,171 Other liabilities .................................................. 47,198 ------------- Total liabilities ............................................ 16,409,180 ------------- Net assets, at value ....................................... $ 53,446,123 ============= Net assets consist of: Distributions in excess of net investment income .................... $ (399,477) Net unrealized appreciation (depreciation) .......................... 11,428,114 Accumulated net realized gain (loss) ................................ (11,366,136) Paid-in capital ..................................................... 53,783,622 ------------- Net assets, at value ....................................... $ 53,446,123 ============= Net asset value per share ($53,446,123 / 5,857,600 shares outstanding) $ 9.12 =============
16 | See notes to financial statements. | Annual Report FRANKLIN MULTI-INCOME TRUST FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the year ended March 31, 2005 Investment income: Dividends: Unaffiliated issuers .................................................. $ 1,227,590 Sweep Money Fund (Note 8) ............................................. 15,308 Other income (Note 12) ................................................. 1,750 Interest ............................................................... 2,844,221 ------------ Total investment income ......................................... 4,088,869 ------------ Expenses: Management fees (Note 4) ............................................... 557,240 Interest expense (Note 3) .............................................. 792,895 Transfer agent fees .................................................... 27,510 Custodian fees (Note 5) ................................................ 1,354 Reports to shareholders ................................................ 30,093 Registration and filing fees ........................................... 75 Professional fees ...................................................... 43,200 Trustees' fees and expenses ............................................ 5,707 Amortization of note issuance costs (Note 3) ........................... 23,063 Other .................................................................. 32,092 ------------ Total expenses ................................................ 1,513,229 Expense reductions (Note 5) ................................... (81) ------------ Net expenses ................................................. 1,513,148 ------------ Net investment income ........................................ 2,575,721 ------------ Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ........................................................... (1,269,160) Foreign currency transactions ......................................... 1,862 ------------ Net realized gain (loss) ..................................... (1,267,298) Net change in unrealized appreciation (depreciation) on: Investments ........................................................... 5,277,256 Translation of assets and liabilities denominated in foreign currencies (1,545) ------------ Net change in unrealized appreciation (depreciation) .................... 5,275,711 ------------ Net realized and unrealized gain (loss) ................................. 4,008,413 ------------ Net increase (decrease) in net assets resulting from operations ......... $ 6,584,134 ============
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, 2005 and 2004
---------------------------- 2005 2004 ---------------------------- Increase (decrease) in net assets: Operations: Net investment income ........................................................................... $ 2,575,721 $ 2,574,538 Net realized gain (loss) from investments ....................................................... (1,267,298) (1,276,521) Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ................................................. 5,275,711 12,973,693 ---------------------------- Net increase (decrease) in net assets resulting from operations ........................... 6,584,134 14,271,710 Distribution to shareholders from net investment income .......................................... (2,460,192) (2,460,192) ---------------------------- Net increase (decrease) in net assets ..................................................... 4,123,942 11,811,518 Net assets: Beginning of year ................................................................................ 49,322,181 37,510,663 ---------------------------- End of year ...................................................................................... $53,446,123 $49,322,181 ============================ Distributions in excess of net investment income included in net assets: End of year ...................................................................................... $ (399,477) $ (523,205) ============================
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, 2005 Cash flow from operating activities: Dividends and interest received ............................................................ $ 3,866,925 Operating expenses paid .................................................................... (602,894) Interest expense paid ...................................................................... (802,900) ------------- Cash provided - operating activities ...................................................... 2,461,131 ============= Cash flow from investing activities: Investment purchases ....................................................................... (20,782,427) Investment sales and maturities ............................................................ 18,581,052 Short term investment securities, net ...................................................... 331,399 ------------- Cash used - investing activities .......................................................... (1,869,976) ============= Cash flow from financing activities: Proceeds from note maturity ................................................................ (14,000,000) Note issuance .............................................................................. 16,000,000 Payment of Note Issuance costs ............................................................. (130,963) Distributions to shareholders .............................................................. (2,460,192) ------------- Cash used - financing activities .......................................................... (591,155) ============= Net increase (decrease) in cash ............................................................. -- Cash at beginning of year ................................................................... -- ------------- Cash at end of year ......................................................................... $ -- ============= RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES FOR THE YEAR ENDED MARCH 31, 2005 Net investment income ....................................................................... $ 2,575,721 Adjustments to reconcile net investment income to net cash provided by operating activities: Amortization income ........................................................................ (113,432) Amortization of note issuance costs ........................................................ 23,063 Increase in dividends and interest receivable .............................................. (108,512) Increase in liabilities .................................................................... 84,291 ------------- Net cash provided by operating activities ................................................... $ 2,461,131 =============
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 note (the Note) and shares of beneficial interest (the Shares). On February 28, 2005, the Board of Trustees for the Fund approved a proposal to merge into the Franklin Income Fund, subject to approval by the shareholders of the Fund. The following summarizes the Fund's significant accounting policies. A. SECURITY VALUATION Securities listed on a securities exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Over-the-counter securities and listed securities for which there is no reported sale are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Investments in open-end mutual funds are valued at the closing net asset value. Corporate debt securities generally trade in the over-the-counter market rather than on a securities exchange. The Fund may utilize independent pricing services, quotations from bond dealers and information with respect to bond and note transactions, to assist in determining a current market value for each security. The Fund's pricing services may use valuation models or matrix pricing which considers information with respect to comparable bond and note transactions, quotations from bond dealers, or by reference to other securities that are considered comparable in such characteristics as rating, interest rate and maturity date, option adjusted spread models, prepayment projections, interest rate spreads and yield curves, to determine current value. Foreign securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded, or the NYSE, whichever is earlier. If no sale is reported at that time, the foreign security will be valued within the range of the most recent quoted bid and ask prices. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the close of the NYSE on the day that the value of the foreign security is determined. The Fund has procedures to determine the fair value of individual securities and other assets for which market prices are not readily available or which may not be reliably priced. Some methods for valuing these securities may include: fundamental analysis, matrix pricing, discounts from market prices of similar securities, or discounts applied due to the nature and duration of restrictions on the disposition of the securities. Due to the inherent uncertainty of valuations of such securities, the fair values may differ significantly from the values that would have been used had a ready market for such investments existed. Occasionally, events occur between the time at which trading in a security 20 | Annual Report FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) A. SECURITY VALUATION (CONTINUED) is completed and the close of the NYSE that might call into question the availability (including the reliability) of the value of a portfolio security held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services. All security valuation procedures are approved by the Fund's Board of Trustees. B. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities, income and expense items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. Occasionally, events may impact the availability or reliability of foreign exchange rates used to convert the U.S. dollar equivalent value. If such an event occurs, the foreign exchange rate will be valued at fair value using procedures established and approved by the Fund's Board of Trustees. 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 on the Statement of Operations. 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. FOREIGN CURRENCY CONTRACTS When the Fund purchases or sells foreign securities it may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. A foreign exchange contract is an agreement between two parties to exchange different currencies at an agreed upon exchange rate on a specified date. Realized and unrealized gains and losses on these contracts are included in the Statement of Operations. The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counterparties to fulfill their obligations under the contracts. Annual Report | 21 FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. INCOME TAXES No provision has been made for U.S. income taxes because the Fund's policy is to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and to distribute substantially all of its taxable income. Fund distributions to shareholders are determined on an income tax basis and may differ from net investment income and realized gains for financial reporting purposes. E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. Dividend income and distributions to shareholders are recorded on the ex-dividend date. F. ACCOUNTING ESTIMATES The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expenses during the reporting period. Actual results could differ from those estimates. G. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified by the Fund against certain liabilities arising out of the performance of their duties to the Fund. 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, 2005 there were an unlimited number of shares authorized ($0.01 par value). During the year ended March 31, 2005, there were no share transactions; all reinvested distributions were satisfied with previously issued shares purchased in the open market. 3. SENIOR FIXED RATE NOTES On September 15, 2004, the Fund's $14 million, 6.75% senior note matured and was replaced with a new note described below. 22 | Annual Report FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. SENIOR FIXED RATE NOTES (CONTINUED) On September 15, 2004, the Fund issued $16 million principal amount of a new class of five-year senior notes (the Note). The Note is a general unsecured obligation of the Fund and rank senior to Trust shares and all existing or future unsecured indebtedness of the Fund. The Note bears interest, payable semi-annually, at the rate of 4.13% per year, to maturity on September 15, 2009. 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, 2005. The issuance costs of $130,963 incurred by the Fund are deferred and amortized on an interest method basis over the term of the Note. 4. TRANSACTIONS WITH AFFILIATES Franklin Resources, Inc. is the holding company for various subsidiaries that together are referred to as Franklin Templeton Investments. Certain officers and trustees of the Fund are also officers or directors of the following subsidiaries: - -------------------------------------------------------------------------------- SUBSIDIARY AFFILIATION - -------------------------------------------------------------------------------- Franklin Advisers Inc. (Advisers) Investment manager Franklin Templeton Services LLC (FT Services) Administrative manager A. MANAGEMENT FEES The Fund pays an investment management fee to Advisers of 0.85% per year of the average weekly net assets plus the principal amount of the Note. B. ADMINISTRATIVE FEES 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. EXPENSE OFFSET ARRANGEMENT The Fund has entered into an arrangement with its custodian whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended March 31, 2005, the custodian fees were reduced as noted in the Statement of Operations. Annual Report | 23 FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. INCOME TAXES At March 31, 2005, the Fund had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2008 ............................. $ 24,985 2010 ............................. 150,106 2011 ............................. 5,087,216 2012 ............................. 4,348,077 2013 ............................. 496,170 ----------- $10,106,554 =========== At March 31, 2005, the Fund had deferred capital losses occurring subsequent to October 31, 2004 of $890,804. For tax purposes, such losses will be reflected in the year ending March 31, 2006. The tax character of distributions paid during the years ended March 31, 2005 and 2004, was as follows: ------------------------- 2005 2004 ------------------------- Distributions paid from - ordinary income ......... $2,460,192 $2,460,192 At March 31, 2005, the cost of investments, net unrealized appreciation (depreciation) and undistributed ordinary income for income tax purposes were as follows: Cost of investments .................................. $ 58,091,729 ============= Unrealized appreciation .............................. $ 12,746,607 Unrealized depreciation .............................. (1,903,417) ------------- Net unrealized appreciation (depreciation) ........... $ 10,843,190 ============= Distributable earnings - undistributed ordinary income $ 190,925 ============= Net investment income (loss) differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions, amortization of note issuance costs and bond discounts and premiums. Net realized gains (losses) differ for financial statement and tax purposes primarily due to differing treatments of wash sales, foreign currency transactions and bond discounts and premiums. 7. INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short-term securities) for the year ended March 31, 2005 aggregated $20,182,427 and $17,225,629, respectively. 24 | Annual Report FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. 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. 9. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 53.53% 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. The Fund held defaulted securities and/or other securities for which the income has been deemed uncollectible. At March 31, 2005, the value of these securities was $769,520, representing 1.12% of the Fund's portfolio. The Fund discontinues accruing income on securities for which income has been deemed uncollectible and provides an estimate for losses on interest receivable. For information as to specific securities, see the accompanying Statement of Investments. 10. RESTRICTED SECURITIES At March 31, 2005, investments in securities included issues that are restricted and illiquid. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and are valued under methods approved by the Board of Trustees as reflecting fair value. A security may also be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. At March 31, 2005, the Fund held investments in restricted and illiquid securities, as follows:
ACQUISITION PRINCIPAL AMOUNT ISSUER DATE COST VALUE - ------------------------------------------------------------------------------------------------------------- $1,000,000 Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/04 (Indonesia) (0.44% OF NET ASSETS) 10/28/98 $699,704 $235,520
11. OTHER CONSIDERATIONS Subject to certain terms and conditions, the Fund has agreed to sell its holdings in Pindo Deli Finance Mauritius Ltd. in November 2006. Until the completion of the sale, the transaction will be accounted for as a secured borrowing with a pledge of collateral and any preliminary sales proceeds received are deferred until the completion of the transaction. Annual Report | 25 FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. REGULATORY MATTERS INVESTIGATIONS AND SETTLEMENTS As part of various investigations by a number of federal, state, and foreign regulators and governmental entities, including the Securities and Exchange Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the National Association of Securities Dealers, Inc. ("NASD"), relating to certain practices in the mutual fund industry, including late trading, market timing and marketing support payments to securities dealers who sell fund shares, Franklin Resources, Inc. and certain of its subsidiaries (as used in this section, together, the "Company"), as well as certain current or former executives and employees of the Company, provided documents and information in response to subpoenas and/or requests for documents, information and/or testimony. Beginning in August 2004, the Company entered into settlements with certain of the regulators and a governmental entity investigating the mutual fund industry practices noted above. The Company believes that settlement of each of the matters is in the best interest of the Company and shareholders of the Franklin, Templeton, and Mutual Series mutual funds (the "funds"). Two of the settlement agreements, those with the SEC and the CAGO concerning marketing support payments, provide that the distribution of settlement monies are to be made to the relevant funds, not to individual shareholders. The CAGO has approved the distribution plan pertaining to the distribution of the monies owed under the CAGO settlement agreement and, in accordance with the terms and conditions of that settlement, the monies were disbursed to the participating funds and are recorded as other income in the current period. The SEC has not yet approved the distribution plan pertaining to the SEC settlement. When approved, disbursements of settlement monies under the SEC's settlement will be made promptly in accordance with the terms and conditions of that order. OTHER LEGAL PROCEEDINGS On April 12, 2005, the Attorney General of West Virginia filed a complaint in the Circuit Court of Marshall County, West Virginia against a number of companies engaged in the mutual fund industry, including Franklin Resources, Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties alleging violations of the West Virginia Consumer Credit and Protection Act and seeking, among other things, civil penalties and attorneys' fees and costs. To the extent applicable to the Company, the complaint arises from activity that occurred in 2001 and duplicates, in whole or in part, the allegations asserted in the February 4, 2004 Massachusetts Administrative Complaint concerning one instance of market timing (the "Administrative Complaint") and the SEC's findings regarding market timing in its August 2, 2004 Order (the "SEC Order"), both of which matters were previously reported. 26 | Annual Report FRANKLIN MULTI-INCOME TRUST NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. REGULATORY MATTERS (CONTINUED) OTHER LEGAL PROCEEDINGS (CONTINUED) The Company and other funds, and certain current and former officers, employees, and directors have been named in multiple lawsuits in different courts alleging violations of various federal securities laws and seeking, among other relief, monetary damages, restitution, removal of fund trustees, directors, advisers, administrators, and distributors, rescission of management contracts and 12b-1 plans, and/or attorneys' fees 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 Templeton funds managed by Franklin Resources, Inc. subsidiaries, resulting in alleged market timing activity. The majority of these lawsuits duplicate, in whole or in part, the allegations asserted in the Administrative Complaint and the SEC's findings regarding market timing in the SEC Order. The lawsuits are styled as class actions, or derivative actions on behalf of either the named funds or Franklin Resources, Inc. In addition, the Company, 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 marketing support payments and/or payment of allegedly excessive commissions and/or advisory or distribution fees, and seeking, among other relief, monetary damages, restitution, rescission of advisory contracts, including recovery of all fees paid pursuant to those contracts, an accounting of all monies paid to the named advisers, declaratory relief, injunctive relief, and/or attorneys' fees and costs. These lawsuits are styled as class actions or derivative actions brought on behalf of the Fund and other funds. The Company and fund management strongly believe that the claims made in each of the lawsuits described above are without merit and intends to defend against them vigorously. The Company cannot predict with certainty the eventual outcome of these lawsuits, nor whether they will have a material negative impact on the Company. Public trust and confidence are critical to the Company's business and any material loss of investor and/or client confidence could result in a significant decline in assets under management by the Company, which would have an adverse effect on future financial results. 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. The Company is committed to taking all appropriate actions to protect the interests of its funds' shareholders. Annual Report | 27 FRANKLIN MULTI-INCOME TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN MULTI-INCOME TRUST In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements of operations, of changes in net assets, of cash flows and the financial highlights present fairly, in all material respects, the financial position of Franklin Multi-Income Trust (the "Fund") at March 31, 2005, 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 five years in the period then ended, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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, 2005 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California May 10, 2005 28 | 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 $1,099,867 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended March 31, 2005. In January 2006, shareholders will receive Form 1099-DIV which will include their share of qualified dividends distributed during the calendar year 2005. 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 Code, the Fund hereby designates 32.90% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended March 31, 2005. Annual Report | 29 BOARD MEMBERS AND OFFICERS The name, age and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
- ------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ------------------------------------------------------------------------------------------------------------------------- HARRIS J. ASHTON (72) Trustee Since 1989 143 Director, Bar-S Foods (meat packing One Franklin Parkway 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 (77) Trustee Since 2000 51 None One Franklin Parkway San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Member 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 (72) Trustee Since 1989 144 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 (until 2002) (Consultant (2003)). - ------------------------------------------------------------------------------------------------------------------------- EDITH E. HOLIDAY (53) Trustee Since 2004 97 Director, Amerada Hess Corporation One Franklin Parkway (exploration and refining of oil and San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed foods and allied products), RTI International Metals, Inc. (manufacture and distribution of titanium), Canadian National Railway (railroad), and White Mountains Insurance Group, Ltd. (holding company). - ------------------------------------------------------------------------------------------------------------------------- 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 (76) Trustee Since 1989 117 Director, The California Center for One Franklin Parkway Land Recycling (redevelopment). San Mateo, CA 94403-1906 - ------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company (venture capital). - -------------------------------------------------------------------------------------------------------------------------
30 | 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 (77) Trustee Since 1992 143 Director, Martek Biosciences One Franklin Parkway Corporation, MedImmune, Inc. San Mateo, CA 94403-1906 (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), White Mountains Insurance Group, Ltd. (holding company) (1987-2004) and Spacehab, Inc. (aerospace services) (1994-2003). - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company) (2001-2004); 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 OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------------------------------------------------------------------------------------------------------- **EDWARD B. JAMIESON (56) Trustee, Trustee and 10 None One Franklin Parkway President and President since San Mateo, CA 94403-1906 Chief 1993 and Chief Executive Executive Officer Officer - - Investment Investment Management 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 (72) Trustee and Trustee since 143 None One Franklin Parkway Chairman of 1989 and San Mateo, CA 94403-1906 the Board Chairman of the Board since 1993 - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Chairman of the Board, 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 | 31
- --------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - --------------------------------------------------------------------------------------------------------------------------- **RUPERT H. JOHNSON, JR. (64) Trustee and Trustee since 127 None One Franklin Parkway Senior Vice 1989 and Senior San Mateo, CA 94403-1906 President Vice President since 1992 - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; 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 (60) Vice President Since 1989 Not Applicable Not Applicable 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.; 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. - ----------------------------------------------------------------------------------------------------------------------------- JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable None One Franklin Parkway Compliance San Mateo, CA 94403-1906 Officer - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin Resources, Inc.; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001). - ----------------------------------------------------------------------------------------------------------------------------- LAURA FERGERSON (43) Treasurer Since July 2004 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Officer of 34 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003). - ----------------------------------------------------------------------------------------------------------------------------- MARTIN L. FLANAGAN (44) Vice President Since 1995 Not Applicable Not Applicable 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 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. - -----------------------------------------------------------------------------------------------------------------------------
32 | Annual Report
- ---------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------------------------------------------------------------------------------------------------------- JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable Not Applicable 500 East Broward Blvd. President and Suite 2100 Chief Fort Lauderdale, FL 33394-3091 Executive Officer - Finance and 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. - ----------------------------------------------------------------------------------------------------------------------------- DAVID P. GOSS (58) Vice President Since 2000 Not Applicable Not Applicable One Franklin Parkway San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior 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 (57) Vice President Since 2000 Not Applicable Not Applicable 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, LLC, 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 (43) Vice President Since 1989 Not Applicable Not Applicable 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 | 33
- ---------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------------------------------------------------------------------------------------------------------- MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable Not Applicable 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). - ----------------------------------------------------------------------------------------------------------------------------- GALEN G. VETTER (53) Chief Financial Since 2004 Not Applicable Not Applicable 500 East Broward Blvd. Officer and Suite 2100 Chief Fort Lauderdale, FL 33394-3091 Accounting Officer - ----------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton Services, LLC; and FORMERLY, Managing Director of RSM McGladrey, Inc.; and Partner of McGladrey & Pullen, LLP. - -----------------------------------------------------------------------------------------------------------------------------
* 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 STOCK EXCHANGE RULES AND SECURITIES AND EXCHANGE COMMISSION RULES AND RELEASES. 34 | Annual Report FRANKLIN MULTI-INCOME TRUST SHAREHOLDER INFORMATION 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. Copies of the Fund's proxy voting records are also made available online at franklintempleton.com and posted on the U.S. Securities and Exchange Commission's website at sec.gov and reflect the most recent 12-month period ended June 30. QUARTERLY STATEMENT OF INVESTMENTS The Fund files a complete statement of investments with the U.S. Securities and Exchange Commission for the first and third quarters for each fiscal year on Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's website at sec.gov. The filed form may also be viewed and copied at the Commission's Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may be obtained by calling 1-800/SEC-0330. CERTIFICATIONS The Fund's Chief Executive Officer - Finance and Administration is required by the New York Stock Exchange's Listing Standards to file annually with the Exchange a certification that he is not aware of any violation by the Fund of the Exchange's Corporate Governance Standards applicable to the Fund. The Fund has filed such certification. In addition, the Fund's Chief Executive Officer - Finance and Administration and Chief Financial Officer and Chief Accounting Officer are required by the rules of the SEC to provide certain certifications with respect to the Fund's Form N-CSR and Form N-CSRS (which include the Fund's annual and semiannual reports to shareholders) that are filed semiannually with the SEC. The Fund has filed such certifications with its Form N-CSRS for the six months ended September 30, 2004. Additionally, the Fund expects to file, on or about May 31, 2005, such certifications with its Form N-CSR for the year ended March 31, 2005. Annual Report | 35 This page intentionally left blank. LITERATURE REQUEST LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT 1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. 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 Mutual Discovery 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 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 Technology Fund Franklin Utilities Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Corefolio Allocation Fund Franklin Templeton Founding Funds Allocation Fund Franklin Templeton Perspectives 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(4) Franklin's AGE High Income Fund Franklin Floating Rate Daily Access Fund Franklin Income Fund Franklin Limited Maturity U.S. Government Securities Fund(4),(5) Franklin Low Duration Total Return Fund Franklin Real Return Fund Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund(4) Templeton Global Bond Fund TAX-FREE INCOME(6) NATIONAL FUNDS Double Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund(7) 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 Alabama Arizona California(8) Colorado Connecticut Florida(8) Georgia Kentucky Louisiana Maryland Massachusetts(7) Michigan(7) Minnesota(7) Missouri New Jersey New York(8) North Carolina Ohio(7) Oregon Pennsylvania Tennessee Virginia INSURANCE FUNDS Franklin Templeton Variable Insurance Products Trust(9) (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 and 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) An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. (5) Formerly Franklin Short-Intermediate U.S. Government Securities Fund. Effective 9/1/04, the fund's name changed; its investment goal and strategy remained the same. (6) For investors subject to the alternative minimum tax, a small portion of fund dividends may be taxable. Distributions of capital gains are generally taxable. (7) Portfolio of insured municipal securities. (8) 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). (9) The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 01/05 Not part of the annual report [LOGO](R) FRANKLIN TEMPLETON One Franklin Parkway INVESTMENTS San Mateo, CA 94403-1906 ANNUAL REPORT 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. MIT A2005 05/05 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 and principal 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 $43,578 for the fiscal year ended March 31, 2005 and $31,069 for the fiscal year ended March 31, 2004. (b) Audit-Related Fees The aggregate 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 were $8,000 for the fiscal year ended March 31, 2005 and $0 for the fiscal year ended March 31, 2004. The services for which these fees were paid included attestation services. 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 their financial statements were $0 for the fiscal year ended March 31, 2005 and $51,489 for the fiscal year ended March 31, 2004. The services for which these fees were paid 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. The aggregate 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 were $5,253 for the fiscal year ended March 31, 2005 and $0 for the fiscal year ended March 31, 2004. The services for which these fees were paid included tax compliance and advise. (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 $0 for the fiscal year ended March 31, 2005 and $29 for the fiscal year ended March 31, 2004. 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 $0 for the fiscal year ended March 31, 2005 and $99,971 for the fiscal year ended March 31, 2004. 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 registrant'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 registrant by the auditors to the registrant's investment adviser or to any entity that controls, is controlled by or is under common control with the registrant's investment adviser and that provides ongoing services to the registrant where the non-audit services relate directly to the operations or financial reporting of the registrant; 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 $13,253 for the fiscal year ended March 31, 2005 and $151,489 for the fiscal year ended March 31, 2004. (h) The registrant's audit committee of the board of trustees has considered whether the provision of non-audit services that were rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Members of the Audit Committee are: Robert F. Carlson, S. Joseph Fortunato and Frank W. T. LaHaye. ITEM 6. SCHEDULE OF INVESTMENTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Board has delegated the authority to vote proxies related to the portfolio securities held by the Fund to the Fund's manager Franklin Advisers, Inc. (Advisers) 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, 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 it aligns 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 are available on-line at franklintempleton.com and posted on the SEC website at WWW.SEC.GOV and reflect the twelve-month period beginning July 1, 2003, and ending June 30, 2004. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A ITEM 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 (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 Galen G. Vetter, 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 Galen G. Vetter, 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 20, 2005 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 20, 2005 By /s/Galen G. Vetter Chief Financial Officer Date May 20, 2005 EX-99.CODE ETH 2 ncsr-code704.txt CODE OF ETHICS FOR PRINCIPAL EXECUTIVES & SENIOR FINANCIAL OFFICERS - ------------------------------------------------------------------------------ PROCEDURES Dated July 2004 - ------------------------------------------------------------------------------- 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") applies to the Principal Executive Officers, Principal Financial Officer and Principal Accounting Officer (the "Covered Officers," each of whom is set forth in Exhibit A) of each investment company advised by a Franklin Resources subsidiary and that is registered with the United States Securities & Exchange Commission ("SEC") (collectively, "FT Funds") for the purpose of promoting: o Honest and ethical conduct, including the ethical resolution 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 will be expected to adhere to a high standard of business ethics and must be sensitive to situations that may give rise to actual as well as apparent conflicts of interest. II. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Funds for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Franklin Resources, Inc. has separately adopted the CODE OF ETHICS AND BUSINESS CONDUCT ("Business Conduct"), which is applicable to all officers, directors and employees of Franklin Resources, Inc., including Covered Officers. It summarizes the values, principles and business practices that guide the employee's business conduct and also provides a set of basic principles to guide officers, directors and employees regarding the minimum ethical requirements expected of them. It supplements the values, principles and business conduct identified in the Code and other existing employee policies. Additionally, the Franklin Templeton Funds have separately adopted the CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING governing personal securities trading and other related matters. The Code for Insider Trading provides for separate requirements that apply to the Covered Officers and others, and therefore is not part of this Code. Insofar as other policies or procedures of Franklin Resources, Inc., the Funds, the Funds' adviser, 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 superceded by this Code to the extent that they overlap or conflict with the provisions of this Code. Please review these other documents or consult with the Legal Department if have questions regarding the applicability of these policies to you. III. 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 or her 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 apposition 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 or her personal influence or personal relationships improperly to influence investment decisions orfinancial 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 FT 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:/ 1 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 of the FT Funds; o any direct or indirect business relationship with any independent public accounting firm (which are not related to the routine issues related to the firm's service as the Covered Persons accountant); 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). These reports will be reviewed by the Legal Department for compliance with the Code. There are some conflict of interest situations that should always be approved in writing by Franklin Resources General Counsel or Deputy General Counsel, if material. Examples of these include/2: o Service as a director on the board of any public or private Company; o The receipt of any gifts in excess of $100 from any person, from any corporation or association 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 from the Franklin Resources General Counsel 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; - ----------------------------- 1 Reporting of these affiliations or other relationships shall be made by completing the annual Directors and Officers Questionnaire and returning the questionnaire to Franklin Resources Inc, General Counsel or Deputy General Counsel. 2 Any activity or relationship that would present a conflict for a Covered Officer may 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. 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. Franklin Resources 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. IV. 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 or her area of responsibility, consult with other officers and employees of the FT Funds, the FT Fund's 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. V. Reporting and Accountability Each Covered Officer must: o Upon becoming a covered officer affirm in writing to the Board that he or she 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 Franklin Resources' General Counsel or Deputy General Counsel promptly if he or she knows of any violation of this Code. Failure to do so is itself is a violation of this Code. Franklin Resources' 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./3 However, the Independent Directors of the respective FT Funds will consider any approvals or waivers/4 sought by any Chief Executive Officers of the Funds. - ----------------- 3 Franklin Resources 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. 4 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. See Part X. The FT Funds will follow these procedures in investigating and enforcing this Code: o Franklin Resources General Counsel or Deputy General Counsel will take all appropriate action to investigate any potential violations reported to the Legal Department; o If, after such investigation, the General Counsel or Deputy General Counsel believes that no violation has occurred, The General Counsel is not required to take any further action; o Any matter that the 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 FT Fund or 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./5 VI. 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 thereunder. 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-1 under the Investment Company Act, the Code of Ethics and Business Conduct 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. VII. 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. VIII. 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. - --------------------- 5 See Part X. IX. 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. X. Disclosure on Form N-CSR 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. The Legal Department shall be responsible for ensuring that: o a copy of the Code is filed with the SEC as an exhibit to each Fund's annual report; and o any amendments to, or waivers (including implicit waivers) from, a provision of the Code is disclosed in the registrant's annual report on Form N-CSR. In the event that the foregoing disclosure is omitted or is determined to be incorrect, the Legal Department shall promptly file such information with the SEC as an amendment to Form N-CSR. In such an event, the Fund Chief Compliance Officer shall review the Code and propose such changes to the Code as are necessary or appropriate to prevent reoccurrences. EXHIBIT A Persons Covered by the Franklin Templeton Funds Code of Ethics August 2004 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 Galen G. Vetter 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 Galen G. Vetter 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 Galen G. Vetter Chief Financial Officer EXHIBIT B ACKNOWLEDGMENT FORM JULY 2004 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: Franklin Resources 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 EX-99.CERT 3 gambill302.txt Exhibit (B)(1) CERTIFICATIONS I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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 20, 2005 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration I, Galen G. Vetter, certify that: 1. I have reviewed this report on Form N-CSR of 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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 20, 2005 /S/GALEN G. VETTER Chief Financial Officer EX-99.906 4 gambill906.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 3/31/05 (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 20, 2005 /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, Galen G. Vetter, 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 3/31/05 (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 20, 2005 /S/GALEN G. VETTER 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-----