UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5873
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Franklin Multi-Income Trust
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(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
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 3/31
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Date of reporting period: 9/30/03
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Item 1. Reports to Stockholders.
SEPTEMBER 30, 2003
[GRAPHIC OMITTED]
SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION
INCOME
FRANKLIN
MULTI-INCOME TRUST
[LOGO OMITTED]
FRANKLIN(R) TEMPLETON(R)
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
Franklin Templeton Investments
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager structure combines the specialized
expertise of three world-class investment management groups--Franklin, Templeton
and Mutual Series.
SPECIALIZED EXPERTISE
Each of our portfolio management groups operates autonomously, relying on its
own research and staying true to the unique investment disciplines that underlie
its success.
FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a
driving force in fixed income investing around the globe. They also bring
expertise in growth- and value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in
1954, launched what has become the industry's oldest global fund. Today, with
research offices in over 25 countries, they offer investors the broadest global
reach in the industry.
MUTUAL SERIES. Established 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 semiannual report
Contents
SEMIANNUAL REPORT
Franklin Multi-Income Trust ................ 1
Performance Summary ........................ 6
Annual Shareholders' Meeting ............... 7
Dividend Reinvestment
and Cash Purchase Plan ..................... 8
Financial Highlights and
Statement of Investments ...................11
Financial Statements .......................17
Notes to Financial Statements ..............21
Proxy Voting Policies and Procedures .......25
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Semiannual Report
Franklin Multi-Income Trust
YOUR FUND'S GOAL: Franklin Multi-Income Trust seeks to provide high, current
income consistent with preservation of capital.
Dear Shareholder:
This semiannual report for Franklin Multi-Income Trust covers the six-month
period ended September 30, 2003.
PERFORMANCE OVERVIEW
For the six months ended September 30, 2003, Franklin Multi-Income Trust's
cumulative total return was +22.33% based on the change in net asset value and
+19.30% based on the change in market price on the New York Stock Exchange, as
shown in the Performance Summary on page 6. The Credit Suisse First Boston
(CSFB) High Yield Index returned 13.08%, while utilities stocks, as measured by
the Standard & Poor's (S&P) Utilities Index, returned 20.75%, for the same
six-month period. 1, 2
1. Source: Credit Suisse First Boston. The CSFB High Yield Index is a
trader-priced portfolio constructed to mirror the high yield debt market.
2. Source: Standard & Poor's Micropal. The S&P Utilities Index is a market
capitalization-weighted index that includes utility stocks in the Standard &
Poor's 500 Composite Index. Indexes are unmanaged and include reinvested
dividends. 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 COMPLETE LEGAL
TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF
INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 12.
Semiannual Report | 1
[GRAPHIC OMITTED]
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC AS FOLLOWS:
Portfolio Breakdown
Based on Total Market Value as of 9/30/03
Corporate Bonds ............... 55.1%
Utilities Stocks .............. 39.7%
Misc. Equities &
Preferred Stocks .............. 3.4%
Foreign Currency
Denominated Bonds ............. 0.6%
Convertible Bonds ............. 1.2%
ECONOMIC AND MARKET OVERVIEW
During the six-month period ended September 30, 2003, to help jump-start the
uneven economic recovery, the U.S. government applied large amounts of stimulus.
The Federal Reserve Board cut the federal funds target rate 25 basis points
(0.25%) in June, and the federal government implemented the biggest tax cuts
since the Reagan administration. The yield on the benchmark 10-year Treasury
note declined to 45-year low levels in mid-June when the economic outlook
remained cloudy, but since then spiked to one-year highs as signs of an economic
recovery emerged. Stock prices, as measured by the Standard & Poor's 500 (S&P
500) Composite Index, rose since March partly on expectations of improving
earnings. 3
Energy prices remained at elevated levels, with West Texas Intermediate crude
oil averaging $29.62 per barrel for the six-month reporting period compared with
an average $27.29 in the Fund's prior semiannual period. Natural gas prices
averaged $5.26 per million BTU for the period under review, nearly 60% higher
than the $3.30 average of the Fund's prior semiannual period. However, inflation
remained tame, with the core Consumer Price Index (excluding food and energy)
averaging only 1.43% during the six months under review.
3. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen
for market size, liquidity and industry group representation. Each stock's
weight in the index is proportionate to its market value. The S&P 500 is one of
the most widely used benchmarks of U.S. equity performance.
2 | Semiannual Report
High yield bonds performed well as signs of an economic recovery, the absence
of any major new corporate scandals, and many investors' appetite for yield
contributed to higher bond prices. High yield bonds began the reporting period
yielding 8.25 percentage points more than comparable Treasury bonds, which was
well above the 5.84 percentage point historical average, and they ended the
period at a 5.99 percentage point yield spread. 1 Fundamental and technical
factors drove high yield bond returns. On the fundamental side, a declining
default rate, renewed access to the capital markets and companies' focus on
paying down debt led to an expected improvement in credit quality for many high
yield issuers. Technical support, in the form of inflows into the high yield
asset class, came from investors seeking yield in a low nominal interest rate
environment, as well as from those seeking an alternative investment to equity
markets.
The S&P Utilities Index's 20.75% return for the six-month period masked
tremendous volatility that occurred. 2 From April 1 until mid-June, utility
stocks returned roughly 21% as interest rates declined. As interest rates rose
from June 13 through August 5, utility stocks declined about 8.5%. From August 5
through September 30, 2003, utility stocks rallied 8.7% as interest rates
stabilized and then declined again, resulting in a nearly flat third quarter
2003 performance. 2 Utility stocks in general benefited from a number of
companies' renewed focus on paying down debt and increasing dividends, as
certain management teams returned to the basics after ill-fated experiments with
non-regulated assets. Also, a technical boost came from the tax-rate reduction
on dividend income. However, the increase in Treasury yields mid-period
partially offset this benefit.
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.
TOP 10 HOLDINGS
9/30/03
- ---------------------------------------------
COMPANY
SECTOR/INDUSTRY % OF TOTAL
(SECURITY TYPE) MARKET VALUE
- ---------------------------------------------
Exelon Corp. 2.7%
UTILITIES (STOCK)
- ---------------------------------------------
Dominion Resources Inc. 2.5%
UTILITIES (STOCK)
- ---------------------------------------------
Entergy Corp. 2.2%
UTILITIES (STOCK)
- ---------------------------------------------
Southern Co. 2.2%
UTILITIES (STOCK)
- ---------------------------------------------
FPL Group Inc. 2.1%
UTILITIES (STOCK)
- ---------------------------------------------
Nicor Inc. 1.8%
UTILITIES (STOCK)
- ---------------------------------------------
American Electric Power Co. Inc. 1.7%
UTILITIES (STOCK)
- ---------------------------------------------
Progress Energy Inc. 1.6%
UTILITIES (STOCK)
- ---------------------------------------------
Public Service Enterprise Group 1.6%
UTILITIES (STOCK)
- ---------------------------------------------
Cinergy Corp. 1.6%
UTILITIES (STOCK)
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Semiannual Report | 3
DIVIDEND DISTRIBUTIONS
4/1/03-9/30/03
- --------------------------------------
MONTH DIVIDEND PER SHARE
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April 3.50 cents
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May 3.50 cents
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June 3.50 cents
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July 3.50 cents
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August 3.50 cents
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September 3.50 cents
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TOTAL 21.00 CENTS
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MANAGER'S DISCUSSION
The Fund benefited from its overweighted positions in the wireless
(communications) and cable television (consumer services) industries relative to
the CSFB High Yield Index. The wireless industry continued to rebound from low
levels achieved at the end of the prior fiscal year when many investors were
worried about the industry's growth prospects and access to capital. The rebound
was largely due to several factors, including renewed access to capital markets,
fundamental credit improvement driven by debt reduction and deferral of capital
expenditures, and subscriber growth. The cable TV industry benefited as
valuations in public equity markets and private transactions stabilized and in
some cases increased, implying improved support for cable companies' high yield
bonds.
Overall, the Fund's high yield bond performance was impeded by our relatively
underweighted positions in certain industries that performed strongly during the
period. One notable example was utilities. Given the Fund's large overall
exposure to utility stocks, we kept our high yield utility bond exposure fairly
low. However, among high yield bonds, utilities were one of the best-performing
sectors in the CSFB High Yield Index, so the Fund's relatively underweighted
utility bond exposure hindered performance. Likewise, the Fund had a relatively
low exposure to the telecommunications industry (subset of communications), at
just 1.0% of total market value at period-end. Many such bonds generated solid
returns as they rebounded from depressed valuations. However, due to numerous
telecommunications bond defaults over the past several years, there were few
non-distressed companies remaining, substantially limiting our investment
choices.
The Fund's utility stocks contributed to overall performance during the period,
as their returns were healthy in spite of a general interest rate increase.
However, our utility stocks underperformed the S&P Utilities Index because we do
not hold the same positions as the index. Four recently distressed companies
that did not pay dividends during the period contributed significantly to the
index's return. We did not hold these companies because with the Fund's focus on
income we are precluded from purchasing stocks that do not pay dividends.
Despite this, the Fund performed well overall.
4 | Semiannual Report
We thank you for your continued investment in Franklin Multi-Income Trust and
welcome your comments.
Sincerely,
[PHOTO OMITTED]
/S/ Christopher J. Molumphy, CFA
Senior Portfolio Manager
[PHOTO OMITTED]
/S/ Glenn I. Voyles, CFA
Portfolio Manager
Franklin Multi-Income Trust
THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF
SEPTEMBER 30, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE
FUND'S PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON MARKET AND ECONOMIC
CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN
OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF
EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS
OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISOR MAKES NO
REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY
HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY.
Semiannual Report | 5
Performance Summary as of 9/30/03
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects the Fund's dividend income, capital gain
distributions, if any, and any unrealized gains or losses. All total returns
include reinvested distributions according to the terms specified in the Fund's
dividend reinvestment and cash purchase plan and do not reflect any sales
charges paid at inception or brokerage commissions paid on secondary market
purchases.
PRICE AND DISTRIBUTION INFORMATION
- --------------------------------------------------------------------------------------------------------------------
CHANGE 9/30/03 3/31/03
- --------------------------------------------------------------------------------------------------------------------
Net Asset Value (NAV) +$1.20 $7.61 $6.41
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Market Price (NYSE) +$0.96 $7.06 $6.10
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DISTRIBUTIONS (4/1/03-9/30/03)
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Dividend Income $0.21
PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------
6-MONTH 1-YEAR 5-YEAR 10-YEAR
- --------------------------------------------------------------------------------------------------------------------
Cumulative Total Return 1
- --------------------------------------------------------------------------------------------------------------------
Based on change in NAV +22.33% +32.73% +9.79% +83.70%
- --------------------------------------------------------------------------------------------------------------------
Based on change in market price +19.30% +17.62% +12.93% +82.99%
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return 1
- --------------------------------------------------------------------------------------------------------------------
Based on change in NAV +22.33% +32.73% +1.89% +6.27%
- --------------------------------------------------------------------------------------------------------------------
Based on change in market price +19.30% +17.62% +2.46% +6.23%
- --------------------------------------------------------------------------------------------------------------------
Distribution Rate 2 5.95%
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE
RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. INVESTMENT RETURN AND PRINCIPAL
VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN OR LOSS
WHEN YOU SELL YOUR SHARES.
FOR MORE CURRENT PERFORMANCE, PLEASE CALL FRANKLIN TEMPLETON INVESTMENTS AT
1-800/342-5236.
ENDNOTES
SPECIAL RISKS ARE ASSOCIATED WITH FOREIGN INVESTING, INCLUDING CURRENCY
VOLATILITY, ECONOMIC INSTABILITY AND POLITICAL DEVELOPMENTS OF COUNTRIES WHERE
THE FUND INVESTS. EMERGING MARKETS INVOLVE HEIGHTENED RISKS RELATED TO THE SAME
FACTORS, IN ADDITION TO THOSE ASSOCIATED WITH THEIR RELATIVELY SMALL SIZE AND
LESSER LIQUIDITY.
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated. Six-month return has not
been annualized.
2. Distribution rate is based on an annualization of the Fund's 3.5 cent per
share September dividend and the NYSE closing price of $7.06 on 9/30/03.
6 | Past performance does not guarantee future results. | Semiannual Report
Annual Shareholders' Meeting
SEPTEMBER 9, 2003
At an annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund")
held on September 9, 2003, shareholders approved the following:
1. Regarding the proposal to elect nominees for Trustees:
- -----------------------------------------------------------------------------------------------------------------
% OF % OF
SHARES % OF OUTSTANDING WITHHELD OR % OF OUTSTANDING
TRUSTEES FOR VOTED SHARES ABSTAIN VOTED SHARES
- -----------------------------------------------------------------------------------------------------------------
Robert F. Carlson 4,812,813.6750 96.08% 82.16% 196,466.6360 3.92% 3.35%
- -----------------------------------------------------------------------------------------------------------------
Joseph Fortunato 4,817,240.5950 96.17% 82.24% 192,039.7160 3.83% 3.28%
- -----------------------------------------------------------------------------------------------------------------
Frank W. T. Lahaye 4,824,640.5950 96.31% 82.37% 184,636.7160 3.69% 3.15%
- -----------------------------------------------------------------------------------------------------------------
Semiannual Report | 7
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.
8 | Semiannual Report
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.
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.
Semiannual Report | 9
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.
10 | Semiannual Report
Franklin Multi-Income Trust
FINANCIAL HIGHLIGHTS
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SIX MONTHS ENDED
SEPTEMBER 30, 2003 YEAR ENDED MARCH 31,
(UNAUDITED) 2003 2002 2001 2000 1999
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
Net asset value, beginning of period ........... $6.40 $8.71 $9.80 $8.97 $10.04 $11.98
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Income from investment operations:
Net investment income ......................... .22 .51 .63 .66 .71 .76
Net realized and unrealized gains (losses) .... 1.20 (2.25) (1.05) .84 (.84) (1.70)
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Total from investment operations ............... 1.42 (1.74) (.42) 1.50 (.13) (.94)
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Less distributions from:
Net investment income ......................... (.21) (.57) (.67) (.67) (.70) (.77)
Net realized gains ............................ -- -- -- -- (.24) (.23)
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Total distributions ............................ (.21) (.57) (.67) (.67) (.94) (1.00)
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Net asset value, end of period ................. $7.61 $6.40 $8.71 $9.80 $ 8.97 $10.04
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Market value, end of period a .................. $7.06 $6.10 $8.70 $8.62 $ 7.00 $ 9.00
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Total return (based on market
value per share) b ............................ 19.30% (23.67)% 9.23% 33.54% (12.29)% (9.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) .............. $44,598 $37,511 $51,047 $57,412 $52,559 $58,827
Ratios to average net assets:
Expenses ...................................... 3.61% c 4.47% 3.45% 3.23% 3.30% 3.07%
Net investment income ......................... 6.16% c 7.52% 6.97% 6.88% 7.33% 6.87%
Portfolio turnover rate ........................ 26.68% 48.45% 18.27% 26.72% 30.42% 24.31%
Total debt outstanding at end of period (000's) $14,000 $14,000 $16,000 $16,000 $16,000 $16,000
Asset coverage per $1,000 of debt .............. $ 3,186 $ 2,679 $ 3,190 $ 3,588 $ 3,285 $ 3,677
Average amount of notes per share
during the period ............................. $2.39 $2.54 $2.73 $2.73 $2.73 $2.73
aBased on the last sale on the New York Stock Exchange.
bTotal return is not annualized for periods less than one year.
cAnnualized
Semiannual Report | See notes to financial statements. | 11
Franklin Multi-Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------------------
SHARES/WARRANTS VALUE
COMMON STOCKS AND WARRANTS 53.5%
COMMUNICATIONS 2.1%
BellSouth Corp. ........................................................................ 34,000 $ 805,120
aMetrocall Holdings Inc. ................................................................ 924 133,980
-------------
939,100
-------------
CONSUMER SERVICES .1%
Marriott International Inc., A ......................................................... 1,052 45,267
-------------
ELECTRONIC TECHNOLOGY
aLoral Space & Communications Ltd., wts., 12/27/06 ...................................... 4,188 --
aLoral Space & Communications Ltd., wts., 1/15/07 ....................................... 1,000 10
-------------
10
-------------
TRANSPORTATION
aContinental Airlines Inc., B ........................................................... 357 5,919
-------------
UTILITIES 51.3%
Alliant Energy Corp. ................................................................... 25,000 550,000
Ameren Corp. ........................................................................... 20,000 858,200
American Electric Power Co. Inc. ....................................................... 33,800 1,014,000
aAquila Inc. ............................................................................ 40,820 137,972
Atmos Energy Corp. ..................................................................... 35,000 837,900
CenterPoint Energy Inc. ................................................................ 55,400 508,018
Cinergy Corp. .......................................................................... 24,500 899,150
Dominion Resources Inc. ................................................................ 23,400 1,448,460
DTE Energy Co. ......................................................................... 20,000 737,800
Energy East Corp. ...................................................................... 30,000 672,900
Entergy Corp. .......................................................................... 24,000 1,299,600
Exelon Corp. ........................................................................... 24,500 1,555,750
FirstEnergy Corp. ...................................................................... 27,500 877,250
FPL Group Inc. ......................................................................... 19,000 1,200,800
Nicor Inc. ............................................................................. 29,000 1,019,060
NiSource Inc. .......................................................................... 19,000 379,620
NSTAR .................................................................................. 15,500 736,250
ONEOK Inc. ............................................................................. 40,200 810,834
Pepco Holdings Inc. .................................................................... 20,500 354,240
Pinnacle West Capital Corp. ............................................................ 24,000 852,000
PPL Corp. .............................................................................. 11,700 479,115
Progress Energy Inc. ................................................................... 21,000 933,660
Public Service Enterprise Group Inc. ................................................... 22,000 924,000
Puget Energy Inc. ...................................................................... 37,000 829,910
SCANA Corp. ............................................................................ 12,621 432,269
Sempra Energy .......................................................................... 26,000 763,360
Southern Co. ........................................................................... 43,000 1,260,760
TXU Corp. .............................................................................. 20,400 480,624
-------------
22,853,502
-------------
TOTAL COMMON STOCKS AND WARRANTS (COST $20,170,268) .................................... 23,843,798
-------------
12 | Semiannual Report
Franklin Multi-Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
SHARES/WARRANTS VALUE
PREFERRED STOCK (COST $1,199)
COMMUNICATIONS
Metrocall Holdings Inc., 15.00%, pfd., A ............................................... 557 $ 6,266
-------------
CONVERTIBLE PREFERRED STOCKS 2.1%
CONSUMER DURABLES 1.5%
Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ...................................... 15,300 662,643
-------------
UTILITIES .6%
CMS Energy Trust I, 7.75%, cvt. pfd. ................................................... 8,000 290,936
-------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,023,846) ................................... 953,579
-------------
PRINCIPAL AMOUNTd
-----------------
BONDS 71.6%
COMMERCIAL SERVICES 2.8%
Johnsondiversey Inc., senior sub. note, 9.625%, 5/15/12 ................................$ 200,000 218,000
bKey3Media Group Inc., senior sub. note, 11.25%, 6/15/11 ................................ 1,000,000 15,000
Quebecor Media Inc., senior note, 11.125%, 7/15/11 (Canada) ............................ 500,000 572,500
William Carter, senior sub. note, 10.875%, 8/15/11 ..................................... 400,000 448,000
-------------
1,253,500
-------------
COMMUNICATIONS 7.4%
Dobson Communications, senior note, 144A, 8.875%, 10/01/13 ............................. 400,000 406,500
Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ........................ 500,000 538,750
Millicom International Cellular SA, senior note,
144A, 11.00%, 6/01/06 (Luxembourg) ................................................... 571,000 586,702
Nextel Communications Inc., senior note, 7.375%, 8/01/15 ............................... 600,000 609,000
Nextel Partners Inc., senior note, 144A, 8.125%, 7/01/11 ............................... 500,000 490,000
bNextlink Communications Inc., senior note, 9.625%, 10/01/07 ............................ 500,000 3,125
bNextlink Communications Inc., senior note, 9.00%, 3/15/08 .............................. 500,000 3,125
Triton PCS Inc., senior note, 144A, 8.50%, 6/01/13 ..................................... 200,000 215,500
US West Communications Inc., 6.875%, 9/15/33 ........................................... 500,000 442,500
-------------
3,295,202
-------------
CONSUMER DURABLES 2.2%
D.R. Horton Inc., senior note, 8.50%, 4/15/12 .......................................... 500,000 552,500
General Motors, senior note, 8.25%, 7/15/23 ............................................ 400,000 419,348
-------------
971,848
-------------
CONSUMER NON-DURABLES 2.0%
Revlon Consumer Products Corp., senior note, 8.125%, 2/01/06 ........................... 600,000 417,000
Revlon Consumer Products Corp., senior note, 9.00%, 11/01/06 ........................... 300,000 211,500
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ...................... 100,000 57,000
Smithfield Foods Inc., senior note, 144A, 7.75%, 5/15/13 ............................... 200,000 215,500
-------------
901,000
-------------
CONSUMER SERVICES 15.8%
bAdelphia Communications Corp., senior note,
10.875%, 10/01/10 .................................................................... 1,000,000 705,000
CanWest Media Inc., senior sub. note,
10.625%, 5/15/11 (Canada) ............................................................ 500,000 570,000
Charter Communications Holdings II,
senior note, 144A, 10.25%, 9/15/10 ................................................... 800,000 810,000
Dex Media West, senior sub. note, 144A, 9.875% 8/15/13 ................................. 500,000 567,500
Semiannual Report | 13
Franklin Multi-Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNTd VALUE
BONDS (CONT.)
CONSUMER SERVICES (CONT.)
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) ....................$ 250,000 $ 250,313
DIRECTV Holdings/Finance, senior note, 144A, 8.375%, 3/15/13 ........................... 500,000 566,250
EchoStar DBS Corp., senior note, 10.375%, 10/01/07 ..................................... 500,000 558,750
Hollywood Park, senior sub. note, B, 9.25%, 2/15/07 .................................... 700,000 718,375
Park Place Entertainment Corp., senior sub. note, 7.875%, 3/15/10 ...................... 500,000 537,500
Royal Caribbean Cruises, senior note, 8.00%, 5/15/10 ................................... 200,000 212,000
Six Flags Inc., senior note, 9.50%, 2/01/09 ............................................ 600,000 574,500
Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 ................................ 700,000 777,875
Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter,
4/15/09 (United Kingdom) ............................................................. 500,000 197,500
-------------
7,045,563
-------------
DISTRIBUTION SERVICES
bAmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ....................... 250,000 125
-------------
ELECTRONIC TECHNOLOGY 1.8%
Flextronics International Ltd., senior sub. note,
144A, 6.50%, 5/15/13 ................................................................. 600,000 598,500
Vought Aircraft Industries Inc., senior note,
144A, 8.00%, 7/15/11 ................................................................. 200,000 205,000
-------------
803,500
-------------
ENERGY MINERALS 2.8%
Arch Western Finance, senior note, 144A, 6.75%, 7/01/13 ................................ 400,000 414,000
Peabody Energy Corp., senior note, B, 6.875%, 3/15/13 .................................. 300,000 314,250
Vintage Petroleum, senior sub. note, 7.875%, 5/15/11 ................................... 500,000 521,250
-------------
1,249,500
-------------
GOVERNMENT BONDS .8%
ESCOM, 11.00%, 6/01/08 (South Africa) .................................................. 2,175,000 ZAR 331,012
-------------
HEALTH SERVICES 2.6%
bMagellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ........................ 1,000,000 560,000
Tenet Healthcare Corp., 7.375%, 2/01/13 ................................................ 600,000 607,500
-------------
1,167,500
-------------
HEALTH TECHNOLOGY 1.2%
Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 .............................. 500,000 522,500
-------------
INDUSTRIAL SERVICES 4.8%
Allied Waste North America, senior note, 7.875%, 4/15/13 ............................... 500,000 526,250
Grant Prideco Escrow, senior note, 9.00%, 12/15/09 ..................................... 200,000 216,500
Gulfterra Energy Partners, senior sub. note, 10.625%, 12/01/12 ......................... 500,000 588,750
Universal Compression Inc., senior note, 144A, 7.25%, 5/15/10 .......................... 200,000 207,000
URS Corp., senior sub. note, 12.25%, 5/01/09 ........................................... 600,000 621,000
-------------
2,159,500
-------------
NON-ENERGY MINERALS .5%
Louisiana Pacific Corp., senior sub. note, 10.875%, 11/15/08 ........................... 200,000 233,500
-------------
PROCESS INDUSTRIES 10.1%
Consolidated Container Co. LLC, senior disc. note, 10.125%, 7/15/09 .................... 1,000,000 510,000
Equistar Chemical, senior note, 144A, 10.625%, 5/01/11 ................................. 300,000 298,500
14 | Semiannual Report
Franklin Multi-Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNTd VALUE
BONDS (CONT.)
PROCESS INDUSTRIES (CONT.)
FiberMark Inc., senior note, 10.75%, 4/15/11 ...........................................$ 500,000 $ 312,500
Graham Packaging Co., senior disc. note, B, 10.75%, 1/15/09 ............................ 200,000 206,000
Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 .............................. 200,000 205,500
Graham Packaging Co., senior sub. note, 144A, 8.75%, 1/15/08 ........................... 200,000 205,500
Graphic Packaging International, senior note,
144A, 8.50%, 8/15/11 ................................................................ 500,000 543,750
Huntsman ICI Chemicals, senior disc. note, zero cpn., 12/31/09 ......................... 2,000,000 800,000
IMC Global Inc., senior note, 144A, 10.875%, 8/01/13 ................................... 600,000 624,000
MDP Acquisitions PLC, senior note, 9.625%, 10/01/12
(Irish Republic) ..................................................................... 300,000 330,000
bPindo Deli Finance Mauritius Ltd., senior note,
10.25%, 10/01/02 (Indonesia) ......................................................... 1,000,000 255,000
United Industries Corp., senior sub. note, 9.875%, 4/01/09 ............................. 200,000 207,000
-------------
4,497,750
-------------
PRODUCER MANUFACTURING 7.1%
Case New Holland Inc., senior note,
144A, 9.25%, 8/01/11 (Netherlands) ................................................... 600,000 648,000
Cummins Inc., senior note, 144A, 9.50%, 12/01/10 ....................................... 100,000 114,500
Le Grand SA, senior note, 144A, 10.50%, 2/15/13 (France) ............................... 500,000 567,500
NMHG Holding Co., senior note, 10.00%, 5/15/09 ......................................... 400,000 442,000
Nortek Inc., senior note, B, 9.125%, 9/01/07 ........................................... 500,000 517,500
Rexnord Corp., senior sub. note, 10.125%, 12/15/12 ..................................... 100,000 111,500
TRW Automotive Inc., senior note, 144A, 9.375%, 2/15/13 ................................ 200,000 226,000
TRW Automotive Inc., senior sub. note, 144A, 11.00%, 2/15/13 ........................... 100,000 117,000
Westinghouse Air Brake, senior note, 144A, 6.875%, 7/31/13 ............................. 400,000 407,000
-------------
3,151,000
-------------
REAL ESTATE INVESTMENT TRUST 3.6%
Corrections Corp. of America, senior note, 7.50%, 5/01/11 .............................. 400,000 414,500
Corrections Corp. of America, senior note, 144A, 7.50%, 5/01/11 ........................ 200,000 207,250
Host Marriott LP, senior note, 9.25%, 10/01/07 ......................................... 500,000 548,125
Ventas Realty LP/Capital Corp., senior note, 9.00%, 5/01/12 ............................ 400,000 446,000
-------------
1,615,875
-------------
RETAIL TRADE 1.0%
Rite Aid Corp., 144A, 6.125%, 12/15/08 ................................................. 500,000 467,500
-------------
TRANSPORTATION 1.4%
Laidlaw International Inc., senior note, 144A, 10.75%, 6/15/11 ......................... 600,000 639,000
-------------
UTILITIES 3.7%
AES Corp., senior note, 9.375%, 9/15/10 ................................................ 400,000 410,000
Calpine Corp., senior secured note, 144A, 8.75%, 7/15/13 ............................... 600,000 552,000
Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 ...................................... 500,000 460,000
PG&E Corp., senior secured note, 144A, 6.875%, 7/15/08 ................................. 200,000 211,000
-------------
1,633,000
-------------
TOTAL BONDS (COST $34,792,401) ......................................................... 31,938,375
-------------
CONVERTIBLE BONDS 1.6%
COMMUNICATIONS .8%
Millicom International Cellular SA, 144A, PIK, cvt., 2.00%, 6/01/06 (Luxembourg) ....... 81,000 348,908
-------------
Semiannual Report | 15
Franklin Multi-Income Trust
STATEMENT OF INVESTMENTS, SEPTEMBER 30, 2003 (UNAUDITED) (CONTINUED)
- ---------------------------------------------------------------------------------------------------------------------------
PRINCIPAL AMOUNTd VALUE
CONVERTIBLE BONDS (CONT.)
ELECTRONIC TECHNOLOGY .8%
Nortel Networks Corp., cvt., senior note, 4.25%, 9/01/08 (Canada) ......................$ 400,000 $ 355,000
-------------
TOTAL CONVERTIBLE BONDS (COST $406,359) ................................................ 703,908
-------------
TOTAL LONG TERM INVESTMENTS (COST $56,394,073) ......................................... 57,445,926
-------------
SHARES
------------
SHORT TERM INVESTMENT (COST $554,062) 1.3%
cFranklin Institutional Fiduciary Trust Money Market Portfolio .......................... 554,062 554,062
-------------
TOTAL INVESTMENTS (COST $56,948,135) 130.1% ............................................ 57,999,988
OTHER ASSETS, LESS LIABILITIES (30.1)% ................................................. (13,402,308)
-------------
NET ASSETS 100.0% ...................................................................... $ 44,597,680
-------------
CURRENCY ABBREVIATIONS | ZAR - South African Rand
aNon-income producing
bThe fund discontinues accruing income on defaulted securities. See Note 8.
cSee Note 7 regarding investments in the Franklin Institutional Fiduciary Trust
Money Market Portfolio.
dThe principal amount is stated in U.S. dollars unless otherwise indicated.
16 | See notes to financial statements. | Semiannual Report
Franklin Multi-Income Trust
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2003 (unaudited)
Assets:
Investments in securities:
Cost .......................................................................... $ 56,948,135
-------------
Value ......................................................................... 57,999,988
Receivables:
Investment securities sold .................................................... 210,998
Dividends and interest ........................................................ 751,080
Note issuance costs (Note 3) ................................................... 21,022
-------------
Total assets .............................................................. 58,983,088
-------------
Liabilities:
Payables:
Investment securities purchased ............................................... 74,800
Affiliates .................................................................... 40,164
Note (Note 3) ................................................................. 14,000,000
Accrued interest (Note 3) ..................................................... 39,375
Distributions to shareholders .................................................. 205,016
Other liabilities .............................................................. 26,053
-------------
Total liabilities ......................................................... 14,385,408
-------------
Net assets, at value ..................................................... $ 44,597,680
-------------
Net assets consist of:
Undistributed net investment income ............................................ $ (575,644)
Net unrealized appreciation (depreciation) ..................................... 1,052,695
Accumulated net realized gain (loss) ........................................... (9,662,993)
Capital shares ................................................................. 53,783,622
-------------
Net assets, at value ..................................................... $ 44,597,680
-------------
Net asset value per share ($44,597,680 (DIVIDE) 5,857,600 shares outstanding) ... $7.61
-------------
Semiannual Report | See notes to financial statements. | 17
Franklin Multi-Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the six months ended September 30, 2003 (unaudited)
Investment income:
Dividends ................................................................................................. $ 636,243
Interest .................................................................................................. 1,450,941
-------------
Total investment income .............................................................................. 2,087,184
-------------
Expenses:
Management fees (Note 4) .................................................................................. 239,077
Transfer agent fees (Note 4) .............................................................................. 11,887
Custodian fees ............................................................................................ 361
Reports to shareholders ................................................................................... 11,066
Registration and filing fees .............................................................................. 286
Professional fees ......................................................................................... 18,938
Trustees' fees and expenses ............................................................................... 2,753
Amortization of note issuance costs (Note 3) .............................................................. 3,496
Other ..................................................................................................... 11,329
-------------
Expenses before interest expense ...................................................................... 299,193
Interest expense (Note 3) ............................................................................. 472,500
-------------
Total expenses ....................................................................................... 771,693
-------------
Net investment income .............................................................................. 1,315,491
Realized and unrealized gains (losses): -------------
Net realized gain (loss) from:
Investments .............................................................................................. (872,239)
Foreign currency transactions ............................................................................ (124)
-------------
Net realized gain (loss) ............................................................................ (872,363)
Net unrealized appreciation
(depreciation) on:
Investments .............................................................................................. 7,873,868
Translation of assets and liabilities denominated in foreign currencies .................................. 117
-------------
Net unrealized appreciation (depreciation) .......................................................... 7,873,985
-------------
Net realized and unrealized gain (loss) .................................................................... 7,001,622
-------------
Net increase (decrease) in net assets resulting from operations ............................................ $ 8,317,113
-------------
18 | See notes to financial statements. | Semiannual Report
Franklin Multi-Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the six months ended September 30, 2003 (unaudited)
and the year ended March 31, 2003
SIX MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 2003 MARCH 31, 2003
Increase (decrease) in net assets:
Operations:
Net investment income ............................................................. $ 1,315,491 $ 3,010,702
Net realized gain (loss) from investments and foreign currency transactions ....... (872,363) (8,364,558)
Net unrealized appreciation (depreciation) on investments and translation of
assets and liabilities denominated in foreign currencies ......................... 7,873,985 (4,860,983)
------------------------------------
Net increase (decrease) in net assets resulting from operations ............... 8,317,113 (10,214,839)
Distributions to shareholders from net investment income ........................... (1,230,096) (3,321,259)
------------------------------------
Net increase (decrease) in net assets ......................................... 7,087,017 (13,536,098)
Net assets:
Beginning of period ................................................................ 37,510,663 51,046,761
------------------------------------
End of period ...................................................................... $ 44,597,680 $ 37,510,663
------------------------------------
Undistributed net investment income included in net assets:
End of period ...................................................................... $ (575,644) $ (661,039)
------------------------------------
Semiannual Report | See notes to financial statements. | 19
Franklin Multi-Income Trust
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
for the six months ended September 30, 2003 (unaudited)
Cash flow from operating activities:
Dividends and interest received ......................................................... $ 1,953,480
Operating expenses paid ................................................................. (305,514)
Interest expense paid ................................................................... (472,500)
-------------
Cash provided - operations ............................................................. 1,175,466
-------------
Cash flow from investing activities:
Investment purchases .................................................................... (26,078,036)
Investment sales and maturities ......................................................... 26,132,666
-------------
Cash provided - investments ............................................................ 54,630
-------------
Cash flow from financing activities:
Distributions to shareholders ........................................................... (1,230,096)
-------------
Cash used - financing .................................................................. (1,230,096)
-------------
Net change in cash ....................................................................... --
Cash at beginning of period .............................................................. --
-------------
Cash at end of period .................................................................... $ --
-------------
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2003
Net investment income .................................................................... $ 1,315,491
Amortization income ..................................................................... (184,113)
Amortization of note issuance costs ..................................................... 3,496
Decrease in dividends and interest receivable ........................................... 50,409
Decrease in liabilities ................................................................. (9,817)
-------------
Cash provided - operations ............................................................... $ 1,175,466
-------------
20 | See notes to financial statements. | Semiannual Report
Franklin Multi-Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Multi-Income Trust (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end investment company. The
Fund has two classes of securities: senior fixed-rate notes (the Note) and
shares of beneficial interest (the Shares). The Fund seeks high current income.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the last reported sales price. Over-the-counter securities and listed
securities for which no sale is reported are valued within the range of the
latest quoted bid and asked prices. Securities for which market quotations are
not readily available are valued at fair value as determined by management in
accordance with procedures established by the Board of Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its tax-able income.
D. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. 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.
Semiannual Report | 21
Franklin Multi-Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
E. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expense during the reporting period. Actual results could differ from those
estimates.
F. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified against certain liability arising out of the performance of their
duties to the Funds. Additionally, in the normal course of business, the Fund
enters into contracts with service providers that contain general
indemnification clauses. The Fund's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against the Fund
that have not yet occurred. However, based on experience, the Fund expects the
risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At September 30, 2003, there were an unlimited number of shares authorized
($0.01 par value). During the period ended September 30, 2003, there were no
share transactions; all reinvested distributions were satisfied with previously
issued shares purchased in the open market.
3. SENIOR FIXED-RATE NOTE
On August 16, 1999, the Fund issued $16 million principal amount of a new class
of five-year senior notes (the Note). On September 6, 2002, the Fund retired $2
million of the Note's principal amount, leaving a remaining $14 million
outstanding. The Note is a general unsecured obligation of the Fund and ranks
senior to Trust shares and all existing or future unsecured indebtedness of the
Fund.
The Note bears interest, payable semi-annually, at the rate of 6.75% per year,
to maturity on September 15, 2004. The Note was issued in a private placement,
and is not available for resale; therefore, no market value can be obtained for
the Note. The Fund is required to maintain on a monthly basis a specified
discounted asset value for its portfolio in compliance with guidelines
established by Standard & Poor's Corporation, and is required to maintain asset
coverage for the Note of at least 300%. The Fund has met these requirements
during the period ended September 30, 2003.
The issuance costs of $96,069 incurred by the Fund are deferred and amortized on
an interest method basis over the term of the Note.
22 | Semiannual Report
Franklin Multi-Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
4. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers or directors of the
following entities:
- --------------------------------------------------------------------------------
ENTITY AFFILIATION
- --------------------------------------------------------------------------------
Franklin Advisers, Inc. (Advisers) Investment manager
Franklin Templeton Services, LLC (FT Services) Administrative manage
The Fund pays an investment management fee to Advisers of .85% per year of the
average weekly net assets of the Fund excluding the principal amount of the
Note.
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
5. INCOME TAXES
At March 31, 2003, 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
----------
$5,262,307
----------
At March 31, 2003, the Fund had deferred capital losses and deferred currency
losses occurring subsequent to October 31, 2002 of $3,159,362 and $183,
respectively. For tax purposes, such losses will be reflected in the year ending
March 31, 2004.
At September 30, 2003, the net unrealized appreciation (depreciation) based on
the cost of investments for income tax purposes of $57,505,460 was as follows:
Unrealized appreciation .................................... $ 7,329,553
Unrealized depreciation .................................... (6,835,025)
------------
Net unrealized appreciation (depreciation) ................. $ 494,528
------------
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities, foreign currency
transactions, and bond discounts and premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions and bond discounts and premiums.
Semiannual Report | 23
Franklin Multi-Income Trust
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
period ended September 30, 2003 aggregated $15,198,791 and $14,764,120,
respectively.
7. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management fees paid by the
Sweep Money Fund. The Fund earned $3,948 of dividend income from investment in
the Sweep Money Fund for the period ended September 30, 2003.
8. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 56.93% 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 and/or other securities for which the income has been
deemed uncollectible. The Fund discontinues accruing income on these securities
and provides an estimate for losses on interest receivable. At September 30,
2003, the value of these securities was $1,541,375 representing 3.5% of the
Fund's net assets. For information as to specific securities, see the
accompanying Statement of Investments.
9. OTHER CONSIDERATIONS
Advisers, as the Fund's manager, may serve as a member of various bondholders'
steering committees, on credit committees, or may represent the Fund in certain
corporate restructuring negotiations. Currently the manager serves in one or
more of these capacities for Adelphia Communications Corp., Key3Media Group
Inc., and Magellan Health Services Inc. As a result of this involvement,
Advisers may be in possession of certain material non-public information. If the
Fund's manager, while in possession of such information, seeks to sell any of
its holdings in these securities it will comply with all applicable federal
securities laws.
24 | Semiannual Report
Franklin Multi-Income Trust
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group.
Semiannual Report | 25
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including charges and expenses, call Franklin Templeton Investments at
1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before
investing or sending money. To ensure the highest quality of service, telephone
calls to or from our service departments may be monitored, recorded and
accessed. These calls can be identified by the presence of a regular beeping
tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets Trust
Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Franklin Global Aggressive Growth Fund
Franklin Global Growth Fund
Mutual Discovery Fund
Templeton Capital Accumulator Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II 1
VALUE
Franklin Balance Sheet Investment Fund 2
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund 3
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible
Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund 4
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Utilities Fund
Franklin Technology Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
Franklin Templeton Corefolio Allocation Fund
Franklin Templeton Founding Funds
Allocation Fund
INCOME
Franklin Adjustable U.S. Government Securities Fund 5
Franklin's AGE High Income Fund
Franklin Federal Money Fund 5, 6
Franklin Floating Rate Daily Access Fund
Franklin Floating Rate Trust 7
Franklin Income Fund
Franklin Money Fund 5, 6
Franklin Short-Intermediate U.S. Government Securities Fund 5
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund5
Templeton Global Bond Fund
TAX-FREE INCOME 8
Double Tax-Free Income Fund
Federal Intermediate-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund 9
Tax-Exempt Money Fund 5,6
STATE-SPECIFIC TAX-FREE INCOME8
Alabama
Arizona
California 10
Colorado
Connecticut
Florida 10
Georgia
Kentucky
Louisiana
Maryland
Massachusetts 9
Michigan 9
Minnesota 9
Missouri
New Jersey
New York 10
North Carolina
Ohio 9
Oregon
Pennsylvania
Tennessee
Virginia
VARIABLE INSURANCE PRODUCTS FUNDS
Franklin Templeton Variable Insurance Products Trust 11
1. The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
2. The fund is only open to existing shareholders as well as select retirement
plans.
3. Effective June 30, 2003, the fund reopened to all new investors.
4. Upon reaching approximately $350 million in assets, the fund will close to
all investors.
5. An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
6. No assurance exists that the fund's $1.00 per share price will be maintained.
It is possible to lose money by investing in the fund.
7. The fund is a continuously offered, closed-end fund. Shares may be purchased
daily; there is no daily redemption. However, each quarter, pending board
approval, the fund will authorize the repurchase of 5%-25% of the outstanding
number of shares. Investors may tender all or a portion of their shares during
the tender period.
8. For investors subject to the alternative minimum tax, a small portion of
these dividends may be taxable. Distributions of capital gains are generally
taxable.
9. Portfolio of insured municipal securities.
10. These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA) and
limited-term, intermediate-term and money market portfolios (CA and NY).
11. The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
09/03 Not part of the semiannual report
[LOGO OMITTED]
FRANKLIN(R)
TEMPLETON(R)
INVESTMENTS
One Franklin Parkway
San Mateo, CA 94403-1906
SEMIANNUAL REPORT AND SHAREHOLDER INFORMATION
FRANKLIN MULTI-INCOME TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
1-800/DIAL BEN(R)
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
FMI S2003 11/03
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 10(a), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers financial
and accounting officer.
Item 3. Audit Committee Financial Expert.
(a)(1) The registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
Item 4. Principal Accountant Fees and Services. N/A
Item 5. Audit Committee of Listed Registrants. N/A
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies. N/A
Item 9. 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 10. Exhibits.
(A) Code of Ethics for Principal Executive and Senior Financial Officers.
(B)(1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Kimberley H. Monasterio, 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
Kimberley H. Monasterio, 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 ____________________
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 28, 2003
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 ____________________
Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date November 28, 2003
By ____________________
Kimberley H. Monasterio
Chief Financial Officer
Date November 28, 2003