Franklin Multi-Income Trust
Semi
Annual Report
September 30, 1997
CONTENTS
Shareholder Letter 1
Manager's Discussion 3
Performance Summary 7
Dividend
Reinvestment Plan 10
Annual Meeting
of Shareholders 13
Financial Highlights &
Statement of Investments 14
Financial Statements 20
Notes to
Financial Statements 23
SHAREHOLDER LETTER
Dear Shareholder:
We are pleased to bring you Franklin Multi-Income Trust's semi-annual report for
the period ended September 30, 1997.
The U.S. economy grew moderately during the reporting period, although a few
market followers remain concerned about a possible downturn. Fears that a tight
labor market might lead to inflationary pressure in the form of higher wage
demands contributed to the Federal Reserve Board's (the Fed's) decision to raise
the federal funds rate 25 basis points in March, from 5.25% to 5.50% (this is
the rate banks charge each other for overnight loans). In response to this
increase, the stock market dropped by roughly 10%. Though it quickly rebounded,
recent reports still show relatively few signs of inflationary pressure.
In fact, some economists have dubbed the current, benign U.S. economic
environment as the "Goldilocks Economy," as it is neither "too hot" (growing
fast enough to generate higher prices and inflation) nor "too cold" (slowing
down at a rate that threatens to throw us into a recession) but appears to be
"just right."1
1. There is no assurance that these economic conditions will continue.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Both major investment sectors of the Trust -- utility stocks and high yield
corporate bonds -- performed well in this environment. High yield corporate
securities benefited from the strong corporate earnings of the companies in our
portfolio. Meanwhile, high valuations in the stock market, spurred by the
current "just right" economic environment, helped bolster the prices of many of
our utility stocks.
As a result, the Franklin Multi-Income Trust performed favorably during the
six-month period, and the Manager's Discussion on page 3 provides specific
details about your Trust's performance and investment strategies.
As always, we appreciate your continued investment in the Franklin Multi-Income
Trust and look forward to serving your future investment needs.
Sincerely,
Charles B. Johnson
President
Franklin Multi-Income Trust
MANAGER'S DISCUSSION
Your Fund's Objective: The Franklin Multi-Income Trust seeks to provide high
current income consistent with preservation of capital.
The Franklin Multi-Income Trust generated a cumulative total return of +9.56%,
based on its change in market price on the New York Stock Exchange over the
six-month period ended September 30, 1997. This compared favorably to the First
Boston High Yield Corporate Index and the Standard and Poor's(R) Utilities Index
which returned +9.23% and +10.96%, respectively, during the same period.2
2. Total returns include reinvested interest or dividends. Indexes are
unmanaged, and one cannot invest in them directly.
The Trust's performance was bolstered by two key areas of investment: high yield
corporate securities and utility stocks. High yield corporate securities
benefited from strong corporate earnings and improved economic conditions, while
the prices of utility stocks were enhanced by a persistently strong stock
market. In addition to these two key areas, other market sectors contributed to
the Trust's positive performance.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Top 10 Holdings
9/30/97
Company % of Total
Industry Net Assets
New Century
Energies, Inc. 4.39%
Utility (stock)
FPL Group, Inc. 2.89%
Utility (stock)
Cinergy Corp. 2.84%
Utility (stock)
Pacific Enterprises 2.50%
Utility (stock)
Nortel Inversora SA 2.41%
Wireless Communication
(pref. stock)
Millicom International
Cellular, Inc. 2.32%
Wireless Communication
(bond)
Dominion Resources, Inc. 2.31%
Utility (stock)
Allegheny Power
Systems, Inc. 2.25%
Utility (stock)
Southern Co. 2.12%
Utility (stock)
New Jersey Resources Corp. 2.11%
Utility (stock)
For a complete list of the Trust's holdings, please see page 15 of this report.
Sector Discussions
Media and Broadcasting
The Trust maintained a significant weighting in the broadcasting and media
sector throughout the reporting period. This sector benefited from the rapid
consolidation that followed deregulation resulting from the implementation of
the February 1996 Telecommunications Act. Our holdings in Chancellor Radio
Broadcasting and Sinclair Capital, two market leaders in the radio and
television industry, performed admirably. Likewise, Outdoor Systems, Inc., a
market leader in outdoor advertising, appreciated significantly.
Cable Television
Positive industry trends made the cable television sector profitable for the
Trust. In particular, Cablevision Systems Corp. was a top performer. By rapidly
improving its technology, the company was able to offer new systems and
services. In August 1997, Standard and Poor's, a national credit rating agency,
recognized Cablevision Systems' performance and upgraded its rating on
subordinated notes (junior claims) from B to BB-.3 Based on continued
development of new technology, our outlook for this sector remains positive.
3. This does not indicate Standard & Poor's rating of the fund.
Industrial
Our position in Allied Waste Industries, Inc. contributed to the Trust's capital
appreciation in this sector over the six-month period. This landfill and trash
collections operator strategically acquired Canadian and U.S. assets of Laidlaw.
As a result, the company profited from a strong position, and should continue to
do so as industry consolidation proceeds. In September 1997, Allied Waste
completed a secondary offering of common stock, raising approximately $345
million in capital for future acquisitions.
Food and Beverage
During the reporting period, this sector benefited from a combination of
consolidation and cost reduction. Specifically, PMIAcquisition Corp. (Purina
Mills) performed well through strategic acquisitions and successful cost-cutting
programs.
The company enjoys the largest market share in the domestic food sector, and
leads the competition in its research and development efforts.
Metals
Favorable performance in this sector resulted from an exceptionally strong
demand for metal. During the period, Acme Metals Inc. performed well, as it
completed Phase I of its modernization program. The company built a compact
strip production facility allowing it to produce very profitable high carbon
steel. This development improved Acme's credit profile, moving it forward.
Energy
Rising commodity prices, especially in oil and gas, together with strong
industry fundamentals, continued to add to the Trust's capital appreciation.
Holdings in Pride Petroleum Services, Inc., and Forcenergy, Inc. resulted in
strong performance over the six-month period. In May 1997, Standard and Poor's
recognized Pride Petroleum's credit strengthening, and upgraded its senior note
rating from B+ to BB-.4
4. This does not indicate Standard & Poor's rating of the fund.
Utilities
While our holdings in the utilities sector (35.3% of total market value)
contributed to a solid performance during the reporting period, deregulation
issues presented investors with new challenges and opportunities.
Important developments have offered some clarification to the complex issue of
utility deregulation. California announced a final restructuring plan, and
several other key states are close to completing plans designed to guide
electric utilities into a competitive environment. In the telecommunications
industry, the regional Bell telephone companies continue to deregulate in
accordance with the Federal Communications Commission's rules. Increased concern
over future competition has had a strong impact on some utilities' price
performance over the past few years. Resolution of these issues should allow the
market to value these securities more in line with their future growth
prospects.
Despite this changing environment, the Trust benefited from its holdings in
utility companies with superior growth rates and strong competitive positions.
Utility stocks that performed well over the six-month period include: Cinergy,
and SCANA Corporation. In spite of the potential for regulatory change,
utilities continue to provide services that are essential to everyday life.
Going forward, we will focus on companies poised to take full advantage of
utility deregulation, along with the resulting increased competition and
consolidation within the industry.
Looking Ahead
We expect continued moderate economic growth, stable interest rates, and low
inflation for the intermediate term. If this environment persists, high yield
corporate bonds and utility equities should remain attractive investments over
the short to intermediate term, and provide favorable returns to the Franklin
Multi-Income Trust.
Just as economic and market conditions constantly change, our strategies,
evaluations, conclusions and decisions regarding portfolio holdings will also
change as new circumstances arise. Although past performance of a specific
investment or sector cannot guarantee future performance, such information can
be useful in analyzing our selection process for the Trust's purchases.
PERFORMANCE SUMMARY
Franklin Multi-Income Trust's share price on the New York Stock Exchange (NYSE)
increased 50.0 cents, from $9.375 on March 31, 1997, to $9.875 on September 30,
1997. The Trust's net asset value price per share increased $1.15, from $10.34
to $11.49, for the same period.
During the reporting period, the Trust distributed income totaling 38.4 cents
($0.3840) per share. Distributions will vary based on the fund's income, and
past distributions are not indicative of future trends.
Based on an annualization of September's monthly dividend of 6.4 cents ($0.064)
per share and the NYSE closing price of $9.875 on September 30, 1997, the
Trust's distribution rate was 7.78%.
The Franklin Multi-Income Trust reported cumulative total return of 9.56% for
the six-month period ended September 30, 1997. Total return reflects the change
in the Trust's share price on the NYSE. Based on the change in net asset value
(as opposed to market price), six-month total return for the same period was
15.58%. All total returns assume the reinvestment of dividends according to the
terms specified in the dividend reinvestment plan.
We urge you to view your investment in Franklin Multi-Income Trust with a
long-term perspective. As the table on page 8 shows, the Trust reported a
cumulative total return of 188.52%, based on net asset value, since its
inception on October 9, 1989.
Dividend Distributions
4/1/97 - 9/30/97
Dividend
Month per Share
1April 6.4 cents
May 6.4 cents
June 6.4 cents
July 6.4 cents
August 6.4 cents
September 6.4 cents
Total 38.4 cents
Periods ended 9/30/97
Since
Inception
1-Year 5-Year (10/9/89)
Cumulative Total Return1
Based on change in net asset value 20.30% 79.39% 188.52%
Based on change in market price 14.78% 58.57% 134.90%
Average Annual Total Return1
Based on change in net asset value 20.30% 12.40% 14.37%
Based on change in market price 14.78% 9.66% 11.43%
Distribution Rate2 7.78%
1. Total return calculations represent the change in value of an investment over
the periods indicated and assume reinvestment of all distributions according to
the terms specified in the Trust's dividend reinvestment plan.
2. Distribution rate is based on the annualization of the Trust's current 6.4
cent per share monthly dividend and the NYSE closing price of $9.875 on
September 30, 1997.
PORTFOLIO OPERATIONS
Christopher Molumphy
Senior Portfolio Manager
Franklin Advisers, Inc.
Christopher Molumphy holds a Bachelor of Arts degree in economics from Stanford
University and a master's degree in finance from the University of Chicago. He
has been with Franklin Advisers since 1988. Molumphy is a Chartered Financial
Analyst (CFA) and a member of several securities industry associations. He has
managed the Franklin Multi-Income Trust since 1991.
DIVIDEND REINVESTMENT PLAN
The Trust's Dividend Reinvestment Plan (the "Plan") offers you a prompt and
simple way to reinvest income dividends and capital gain distributions in shares
of the Trust. The First Data Services Group (the "Plan Agent"), c/o Corporate
Securities, 53 State St., Boston, Massachusetts 02109, acts as your Plan Agent
in administering the Plan. All reinvestments are in full and fractional shares,
carried to three decimal places. The complete Terms and Conditions of the
Dividend Reinvestment Plan are contained in the Trust's prospectus, dated
September 23, 1988, used in connection with its initial public offering. A copy
of that prospectus may be obtained from the Trust at the address on the cover of
this report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the Trust declares an income dividend or a capital gains distribution payable
in either the Trust's shares or in cash, you, as a participant in the Plan, will
automatically receive an equivalent amount of shares of the Trust. If the market
price per share on the valuation date equals or exceeds the net asset value per
share on that date, the Trust will issue new shares to you at the higher of the
net asset value or 95% of the market price on the valuation date. The valuation
date is generally the payment date or, if that date is not a trading day on the
New York Stock Exchange, the next preceding trading day. If the net asset value
per share exceeds the market price per share at such time, or if the Trust
declares a dividend or distribution payable only in cash, you will be deemed to
have elected to receive shares of the Trust valued at the market price on the
valuation date, purchased on your behalf by the Plan Agent in the open market.
If, before the Plan Agent has completed its purchases, the market price exceeds
the net asset value per share, the average per share purchase price paid by the
Plan Agent may exceed the net asset value per share of the Trust, resulting in
the acquisition of fewer shares than if the dividend or distribution had been
paid in shares issued by the Trust.
There is no direct charge to participants for reinvesting dividends and
distributions, since the Plan Agent's fees are paid by the Trust. However, when
shares are purchased in the open market, each participant will pay a pro rata
portion of any brokerage commissions incurred.
The automatic reinvestment of dividends and distributions does not relieve
shareholders of liability for any taxes which may be payable on such dividends
or distributions. Generally, income and capital gains resulting from dividends
and distributions received in the form of shares of the Trust are realized
notwithstanding the fact that cash is not received by shareholders.
You will receive a monthly account statement from the Plan Agent, showing total
dividends and 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 non-certificated form. This convenience
provides added protection against loss, theft or inadvertent destruction of
certificates.
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
will receive a certificate issued in your name for all full shares and the Plan
Agent will convert any fractional shares you hold at the time of withdrawal to
cash at the then 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 shares are not held in your name, you should contact
your brokerage firm, bank, or other nominee for more information.
ANNUAL MEETING OF SHAREHOLDERS
July 16, 1997
At an Annual Meeting of Shareholders of the Franklin Multi-Income Trust on July
16, 1997, shareholders of the Trust voted as follows:
1. Regarding the election of trustees to be Class Two Trustees of the Trust, to
hold office for the three-year term ending in 2000.
<TABLE>
<CAPTION>
% of % of
Outstanding % of Outstanding % of
For Shares Voted Against Shares Voted
<S> <C> <C> <C> <C> <C> <C>
S. Joseph Fortunato 3,588,386.703 61.260% 98.169% 66,913.443 1.142% 1.831%
David W. Garbellano* 3,581,418.992 61.141% 97.979% 73,881.144 1.261% 2.021%
Frank W. T. LaHaye 3,599,098.992 61.443% 98.462% 56,201.144 0.959% 1.538%
</TABLE>
2. Regarding the ratification of the selection of Coopers & Lybrand L.L.P.,
Certified Public Accountants, as the independent auditors for the Trust for the
fiscal year ending March 31, 1998.
% of % of
Outstanding % of Outstanding % of
For Shares Voted Against Shares Voted
3,590,001.843 61.288% 98.214% 11,971.638 0.204% 0.328%
*The Board notes with deep regret the passing of director David Garbellano, on
September 27, 1997. A search for a qualified candidate to fill this vacancy is
underway.
FRANKLIN MULTI-INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
Six months ended
September 30, 1997 Year ended March 31,
-------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
(for a share outstanding throughout the period)
Net asset value, beginning of period $10.34 $10.61 $9.60 $9.97 $11.38 $10.15
---------------------------------------------------------------
Income from investment operations:
Net investment income .34 .79 .78 .78 .84 1.00
Net realized and unrealized gains (losses) 1.19 -- 1.11 (.08) (.78) 1.20
---------------------------------------------------------------
Total from investment operations 1.53 .79 1.89 .70 .06 2.20
---------------------------------------------------------------
Less distributions from:
Net investment income (.36) (.77) (.77) (.78) (.85) (.97)
In excess of net investment income (.02) -- -- (.01) -- --
Net realized gains -- (.29) (.11) (.28) (.62) --
---------------------------------------------------------------
Total distributions (.38) (1.06) (.88) (1.07) (1.47) (.97)
Net asset value, end of period $11.49 $10.34 $10.61 $9.60 $9.97 $11.38
===============================================================
Market value per share, end of period1 $ 9.875 $ 9.375 $ 9.000 $8.750 $9.750 $10.625
===============================================================
Total return
Based on market value per share2 9.56% 16.24% 12.87% 1.46% 5.47% 19.72%
Ratios/Supplemental Data
Net assets, end of period (000's) $67,277 $60,594 $62,153 $56,230 $58,391 $66,657
Ratios to average net assets:
Expenses 3.11%* 3.14% 3.21% 3.00% 2.90% 2.99%
Net investment income 6.30%* 7.48% 7.53% 6.37% 6.00% 7.51%
Portfolio turnover rate 30.19% 44.40% 35.06% 29.77% 28.90% 41.22%
Average commission rate paid3 $.0534 $.0522 $.0536 -- -- --
Total debt outstanding at end
of period (000's omitted) $16,000 $16,000 $16,000 $16,000 $15,974 $15,926
Asset coverage per $1,000 of debt $ 4,205 $ 3,787 $ 3,885 $ 3,514 $ 3,655 $ 4,185
Average amount of notes per share during the period $ 2.73 $ 2.73 $ 2.73 $2.73 $2.73 $ 2.72
</TABLE>
*Annualized
1Based on the last sale on the New York Stock Exchange.
2Total return is not annualized.
3Relates to purchases and sales of equity securities. Prior to fiscal year end
1996 disclosure of average commission rate was not required.
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Statement of Investments, September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
SHARES/
WARRANTS VALUE
<S> <C> <C>
Common Stocks and Warrants 47.2%
Energy 2.0%
Enron Global Power & Pipelines, L.L.C. ................................. 8,300 $ 285,313
Ultramar Diamond Shamrock Corp. ........................................ 33,300 1,076,006
-------------
1,361,319
-------------
Industrial .5%
a Anacomp, Inc............................................................ 20,565 318,758
a Thermadyne Holdings Corp. .............................................. 518 15,540
-------------
334,298
-------------
Lodging .1%
a Host Marriott Corp. .................................................... 526 11,967
Marriott International, Inc. ........................................... 526 37,379
-------------
49,346
-------------
Media and Broadcasting .2%
a Sullivan Broadcast Holdings ............................................ 16,000 152,000
-------------
Metals and Mining
a Gulf States Steel, Inc., warrants ...................................... 1,000 5,100
-------------
Utilities 44.4%
Allegheny Power System, Inc. ........................................... 50,000 1,512,500
American Electric Power Co., Inc........................................ 30,000 1,365,000
Ameritech Corp. ........................................................ 10,000 665,000
BellSouth Corp. ........................................................ 12,000 555,000
Central & South West Corp. ............................................. 45,500 1,009,531
Cinergy Corp. .......................................................... 57,200 1,912,625
Delmarva Power & Light Co............................................... 20,000 377,500
Dominion Resources, Inc. ............................................... 41,000 1,552,875
DPL, Inc. .............................................................. 50,600 1,239,700
Duke Energy Corp. ...................................................... 17,000 840,438
Edison International ................................................... 14,500 366,125
Enova Corp. ............................................................ 34,000 858,500
Enron Corp. ............................................................ 14,000 539,000
Entergy Corp. .......................................................... 25,400 661,988
Florida Progress Corp. ................................................. 25,000 825,000
FPL Group, Inc. ........................................................ 38,000 1,947,500
New Century Energies, Inc............................................... 71,000 2,950,938
New England Electric System ............................................ 6,800 266,900
New Jersey Resources Corp. ............................................. 43,900 1,421,263
OGE Energy Corp. ....................................................... 22,100 1,042,844
PacifiCorp ............................................................. 50,000 1,118,750
Pacific Enterprises .................................................... 49,600 1,680,200
PECO Energy Co. ........................................................ 16,800 393,750
Puget Sound Energy, Inc................................................. 25,000 665,625
RJR Nabisco Holdings Corp. ............................................. 14,000 481,250
SBC Communications, Inc................................................. 3,500 214,813
SCANA Corp. ............................................................ 40,000 1,002,500
Utilities (cont.)
Southern Co. ........................................................... 63,100 $ 1,423,694
Texas Utilities Co. .................................................... 28,100 1,011,600
-------------
29,902,409
-------------
Total Common Stocks and Warrants (Cost $25,226,067) .................... 31,804,472
-------------
Partnership Units .1%
Financial
a,d PG Partners I, L.P. Preference Units (Cost $0) ......................... 1 27,333
-------------
Preferred Stocks 10.5%
Cable Television 1.9%
Cablevision Systems Corp., 11.75% pfd., Series H, PIK .................. 11,226 1,268,605
-------------
Consumer Products .7%
a,e Dimon DECS Trust, 8.50%, cvt. pfd. ..................................... 18,200 447,038
-------------
Energy 1.8%
d CMS Energy Corp., 144A, 7.75%, quarterly cvt. pfd. ..................... 22,000 1,197,068
-------------
Food .9%
Ralston Purina Co., 7.00% cvt. pfd. .................................... 9,300 626,588
-------------
Lodging .6%
Hilton Hotels, 8.00% cvt. pfd. ......................................... 14,000 434,000
-------------
Media and Broadcasting 1.6%
a Sinclair Capital, 144A, 11.625% pfd. ................................... 10,000 1,085,000
-------------
Transportation .6%
CNF Trust I, 5.00% cvt. pfd., Series A.................................. 5,700 366,938
-------------
Wireless Communication 2.4%
a Nortel Inversora SA, 10.00% cvt. pfd. (Argentina) ...................... 30,000 1,620,000
-------------
Total Preferred Stocks (Cost $5,939,236) ............................... 7,045,237
-------------
PRINCIPAL
AMOUNT*
Bonds 63.2%
Automotive 3.8%
Aetna Industries, Inc., senior notes, 11.875%, 10/01/06 ................ $1,000,000 1,100,000
e Advanced Accessory Systems, senior sub. notes, 144A, 9.75%, 10/01/07 ... 500,000 501,875
Collins & Aikman Products, senior sub. notes, 11.50%, 4/15/06 .......... 500,000 574,375
c Harvard Industries, Inc., senior notes, 11.125%, 8/01/05 ............... 1,000,000 395,000
-------------
2,571,250
-------------
Broadcasting 3.1%
Chancellor Radio Broadcasting, senior sub. notes, 144A, 8.75%, 6/15/07 . 1,000,000 1,027,500
Sullivan Broadcast Holdings, senior deb., 13.25%, 12/15/06 ............. 1,000,000 1,080,000
-------------
2,107,500
-------------
Chemical Products 1.5%
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 ................ $1,000,000 $ 1,045,000
-------------
Consumer Products 1.8%
E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ... 500,000 488,750
Rent-Way, Inc., cvt. sub. deb., 144A, 7.00%, 2/01/07 ................... 100,000 161,500
RJR Nabisco, Inc., notes, 9.25%, 8/15/13 ............................... 500,000 544,248
-------------
1,194,498
-------------
Containers and Packaging 2.4%
Anchor Glass, first mortgage, 144A, 11.25%, 4/01/05 .................... 1,000,000 1,092,500
U.S. Can Corp., guaranteed senior sub. notes, Series B, 10.125%, 10/15/06 500,000 533,750
-------------
1,626,250
-------------
Energy 2.4%
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ................... 500,000 526,250
Gulf Canada Resources, Ltd., senior sub. deb., 9.25%, 1/15/04 (Canada) . 500,000 530,625
Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07 .......... 500,000 533,750
-------------
1,590,625
-------------
Financial Services 1.6%
First Nationwide Holdings, senior sub. notes, 10.625%, 10/01/03 ........ 1,000,000 1,107,500
-------------
Food and Beverage 1.2%
PMI Acquisition Corp., senior sub. notes, 10.25%, 9/01/03 .............. 800,000 850,000
-------------
Food Retailing 4.8%
AMERISERV Food Co., senior sub. notes, 144A, 10.125%, 7/15/07 .......... 750,000 780,000
Fleming Cos., Inc., senior sub. notes, 144A, 10.50%, 12/01/04 .......... 1,000,000 1,050,000
Penn Traffic Co., senior notes, 8.625%, 12/15/03 ....................... 1,000,000 857,500
Shoppers Food Warehouse Corp., senior notes, 144A, 9.75%, 6/15/04 ...... 500,000 511,875
-------------
3,199,375
-------------
Foreign Government Agencies .6%
ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) .............. 2,175,000 COM 384,924
-------------
Gaming and Leisure 1.7%
Showboat, Inc., senior sub. notes, 13.00%, 8/01/09 ..................... 1,000,000 1,165,000
-------------
Health Care 3.8%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ....... 1,000,000 1,042,500
U.S. Diagnostic Labs, Inc., cvt. sub. deb., 144A, 9.00%, 3/31/03 ....... 450,000 477,000
Vencor, Inc., senior sub. notes, 144A, 8.625%, 7/15/07 ................. 1,000,000 1,018,750
-------------
2,538,250
-------------
Industrial 5.3%
Allied Waste Industries, Inc., senior disc. notes, 144A,
zero coupon to 6/01/02, (original accretion rate 5.60%)
11.30% thereafter, 6/01/07 ............................................ 1,500,000 1,018,125
Derlan Manufacturing, Inc., senior notes, 10.00%, 1/15/07 (Canada) ..... 500,000 530,000
Falcon Building Products, senior disc. notes, 144A,
zero coupon to 6/15/02, (original accretion rate 10.46%)
10.50% thereafter, 6/15/07 ............................................ 500,000 317,500
Intertek Finance Plc., guaranteed senior sub. notes, Series B,
10.25%, 11/01/06 (United Kingdom) ..................................... 500,000 522,500
Nortek, Inc., senior notes, 144A, 9.125%, 9/01/07 ...................... 500,000 508,125
Industrial (cont.)
Thermadyne Holdings Corp., notes, 10.75%, 11/01/03 ..................... $ 359,000 $ 385,925
Thermadyne Holdings Corp., senior notes, 10.25%, 5/01/02 ............... 259,000 270,655
-------------
3,552,830
-------------
Media 3.3%
American Media Operation, senior sub. notes, 11.625%, 11/15/04 ......... 500,000 550,625
Fox/Liberty Network, senior disc. notes, 144A, zero coupon to 8/15/02,
(original accretion rate 9.75%) 9.75% thereafter, 8/15/07 ............ 1,000,000 640,000
Outdoor Systems, Inc., guaranteed senior sub. notes, 8.875%, 6/15/07 ... 1,000,000 1,025,000
-------------
2,215,625
-------------
Metals and Mining 3.5%
Acme Metals, Inc., guaranteed senior secured disc. notes, 13.50%, 8/01/04 1,000,000 1,137,500
Dayton Mining Corp., sub. deb., 144A, 7.00%, 4/01/02 (Canada) .......... 250,000 225,000
LTV Corp., guaranteed senior notes, 144A, 8.20%, 9/15/07 ............... 1,000,000 991,250
-------------
2,353,750
-------------
Paper and Forest Products 1.5%
e Pindo Deli Finance Mauritius Ltd., guaranteed notes, 144A,
11.75%, 10/01/17 (Indonesia) .......................................... 1,000,000 1,018,125
-------------
Real Estate 2.3%
HMH Properties, Inc., senior notes, 144A, 8.875%, 7/15/07 .............. 1,000,000 1,025,000
Macerich Co., sub., 144A, 7.25%, 12/15/02 .............................. 500,000 495,625
-------------
1,520,625
-------------
Retail .8%
Specialty Retailers, guaranteed senior notes, Series B, 8.50%, 7/15/05 . 500,000 515,000
-------------
Technology and Information Systems 2.2%
Adaptec, Inc., cvt. sub. notes, 144A, 4.75%, 2/01/04 ................... 190,000 215,650
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 (Canada) 500,000 541,875
Dovatron International, Inc., cvt. sub. notes, 144A, 6.00%, 10/15/02 ... 250,000 443,750
HMT Technology Corp., cvt. sub. notes, 5.75%, 1/15/04 .................. 100,000 95,250
Reptron Electronics, Inc., sub. notes, 6.75%, 8/01/04 .................. 200,000 189,000
-------------
1,485,525
-------------
Telecommunications 2.8%
DSC Communications Corp., cvt. sub. notes, 144A, 7.00%, 8/01/04 ........ 500,000 482,500
Intermedia Communications, senior disc. notes, Series B,
zero coupon to 7/15/02, (original accretion rate 11.25%)
11.25% thereafter, 7/15/07 ............................................. 1,250,000 865,620
Nextlink Communications, Inc., senior notes, 9.625%, 10/01/07 .......... 500,000 517,500
-------------
1,865,620
-------------
Textiles and Apparel 1.5%
Collins & Aikman Floorcoverings, senior sub. notes,
Series B, 10.00%, 1/15/07 ............................................. 1,000,000 1,027,500
-------------
Wireless Communication 11.3%
Arch Communications Group, Inc., senior disc. notes,
zero coupon to 3/15/01, (original accretion rate
10.85%), 10.875% thereafter, 3/15/08 .................................. 2,000,000 1,310,000
Comcast Cellular Corp., senior notes, 144A, 9.50%, 5/01/07 ............. 1,000,000 1,050,000
Wireless Communication (cont.)
Millicom International Cellular, Inc., senior disc. notes,
zero coupon to 6/01/01, (original accretion rate
13.50%), 13.50% thereafter, 6/01/06 (Luxembourg)....................... $2,000,000 $ 1,557,500
Nextel Communications, senior disc. notes, zero coupon to 2/15/99,
(original accretion rate 9.75%) 9.75%
thereafter, 8/15/04 ................................................... 1,000,000 872,500
Orion Network Systems, Inc., units, zero coupon to 1/15/02,
(original accretion rate 6.13%), 12.50%
thereafter, 1/15/07 ................................................... 1,000,000 695,000
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 .............. 1,000,000 1,042,500
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 .................. 1,000,000 1,070,000
-------------
7,597,500
-------------
Total Bonds (Cost $39,709,489) ......................................... 42,532,272
-------------
b Repurchase Agreement 5.1%
Joint Repurchase Agreement, 6.010%, 10/01/97, (Maturity Value $3,409,058)
(Cost $3,408,489) Aubrey G. Lanston & Co., Inc.
BA Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
CIBC Wood Gundy Securities Corp.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Bank
Fuji Securities, Inc.
Lehman Brothers, Inc.
Sanwa Securities (USA) Co., L.P.
Swiss Bank Corp. Investment Bank
The Nikko Securities Co. International, Inc.
UBS Securities L.L.C.
Collateralized by U.S. Treasury Bills & Notes ........................ 3,408,489 $ 3,408,489
-------------
Total Investments (Cost $74,283,281) 126.1% ............................ 84,817,803
Other Assets, less Liabilities (26.1%) ................................. (17,540,453)
-------------
Net Assets 100.0% ...................................................... $67,277,350
=============
</TABLE>
CURRENCY ABBREVIATIONS:
COM - South African COM RAND
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At September 30, 1997, all repurchase agreements held
by the Fund had been entered into on that date.
cSee Note 7 regarding defaulted securities.
dSee Note 8 regarding restricted securities.
eSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN MULTI-INCOME TRUST
Financial Statements
<TABLE>
<CAPTION>
Statement of Assets and Liabilities
September 30, 1997 (unaudited)
<S> <C>
Assets:
Investments in securities, at value (cost $74,283,281) .................................... $84,817,803
Receivables:
Investment securities sold ............................................................... 74,033
Dividends and interest ................................................................... 1,273,257
Note issuance costs (Note 3) .............................................................. 57,240
-------------
Total assets ......................................................................... 86,222,333
-------------
Liabilities:
Payables:
Investment securities purchased .......................................................... 2,420,490
Affiliates ............................................................................... 58,484
Notes (Note 3) ........................................................................... 16,000,000
Accrued Interest (Note 3) ................................................................ 48,000
Distributions to shareholders ............................................................. 374,886
Other liabilities ......................................................................... 43,123
-------------
Total liabilities .................................................................... 18,944,983
-------------
Net assets, at value ................................................................ $67,277,350
=============
Net assets consist of:
Accumulated distributions in excess of net investment income .............................. $ (155,255)
Net unrealized appreciation ............................................................... 10,534,306
Accumulated net realized gain ............................................................. 3,107,519
Capital shares ............................................................................ 53,790,780
-------------
Net assets, at value ................................................................. $67,277,350
=============
Net asset value per share ($67,277,350 / 5,857,600 shares of beneficial interest outstanding) $11.49
=============
</TABLE>
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
Statement of Operations
for the six months ended September 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Investment income:
Dividends ...................................................................... $1,021,215
Interest ....................................................................... 1,984,594
-------------
Total investment income ................................................... $3,005,809
Expenses:
Management fees (Note 4) ....................................................... 339,675
Transfer agent fees ............................................................ 20,345
Custodian fees ................................................................. 828
Reports to shareholders ........................................................ 5,958
Registration and filing fees ................................................... 134
Professional fees .............................................................. 14,318
Trustees' fees and expenses (Note 4) ........................................... 5,789
Amortization of note issuance costs............................................. 14,625
Other .......................................................................... 16,464
-------------
Total expenses ............................................................ 418,136
Interest expense .......................................................... 576,000
-------------
Net expenses ............................................................. 994,136
-------------
Net investment income ................................................... 2,011,673
-------------
Realized and unrealized gains:
Net realized gain from:
Investments ................................................................... 2,035,162
Foreign currency transactions ................................................. 2,939
-------------
Net realized gain ............................................................ 2,038,101
Net unrealized appreciation (depreciation) on:
Investments ................................................................... 4,883,842
Translation of assets and liabilities denominated in foreign currencies ....... (759)
-------------
Net unrealized appreciation .................................................. 4,883,083
-------------
Net realized and unrealized gain ................................................ 6,921,184
-------------
Net increase in net assets resulting from operations ............................ $8,932,857
=============
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
Statements of Changes in Net Assets for the six months ended September 30, 1997
(unaudited) and the year ended March 31, 1997
Six months Year ended
ended 9/30/97 3/31/97
---------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ....................................................... $ 2,011,673 $ 4,655,450
Net realized gain from investments and foreign currency transactions ........ 2,038,101 2,055,620
Net unrealized appreciation (depreciation) on investments
and translation of assets and liabilities
denominated in foreign currencies ............................................ 4,883,083 (2,055,218)
---------------------------
Net increase in net assets resulting from operations .................... 8,932,857 4,655,852
Distributions to shareholders from:
Net investment income: ...................................................... (2,094,063) (4,527,925)
In excess of net investment income .......................................... (155,255)
Net realized gains: ......................................................... -- (1,686,989)
---------------------------
Net increase (decrease) in net assets ................................... 6,683,539 (1,559,062)
Net assets:
Beginning of period .......................................................... 60,593,811 62,152,873
---------------------------
End of period ................................................................ $67,277,350 $60,593,811
===========================
Undistributed net investment income (accumulated distributions in excess of net
investment income) included in net assets:
End of period ............................................................... $ (155,255) $ 82,390
===========================
Statement of Cash Flows
for the six months ended September 30, 1997 (unaudited)
Dividends and interest received ........................................................... $ 2,854,960
Operating expenses paid ................................................................... (391,206)
Interest expense paid ..................................................................... (576,000)
-------------
Cash provided - operations ............................................................... 1,887,754
=============
Investment purchases ...................................................................... (141,605,882)
Investment sales .......................................................................... 141,967,446
-------------
Cash provided - investments .............................................................. 361,564
=============
Distributions to shareholders ............................................................. (2,249,318)
-------------
Cash used - financing activities ......................................................... (2,249,318)
-------------
Net increase in cash ...................................................................... --
Cash at beginning and end of period ....................................................... --
=============
</TABLE>
See notes to financial statements.
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 closed-end, non-diversified investment company. The
Fund has two classes of securities: senior fixed-rate notes (the Notes) and
shares of beneficial interest (the Shares). The Fund seeks to provide investors
with high current income.
The following summarizes the Fund's significant accounting policies.
a. Security Valuation
Securities listed or traded on a recognized national exchange or NASDAQ are
valued at the latest reported sales price. Over-the-counter securities and
listed securities for which no sale is reported are valued within the range of
the latest quoted bid and asked prices. Restricted securities and 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, the difference between the recorded amounts of
dividends and 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 currency 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
distribute all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
e. Accounting Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
2. SHARES OF BENEFICIAL INTEREST
At September 30, 1997, there were an unlimited number of shares authorized
($0.01 par value). During the period ended September 30, 1997, there were no
share transactions; all reinvested distributions were satisfied with previously
issued shares purchased in the open market.
3. SENIOR FIXED-RATE NOTES
On August 16, 1994, the Fund issued $16 million principal amount of a new class
of five-year senior notes. The Notes are general unsecured obligations of the
Fund and rank senior to Trust shares and all existing or future unsecured
indebtedness of the Fund.
The Notes bear interest, payable semi-annually, at the rate of 7.20% per year,
to maturity on September 15, 1999. The Notes were issued in a private placement,
and are not available for resale. Therefore no market value can be obtained for
the Notes. The Fund is required to maintain on a monthly basis a specified
discounted asset value for its portfolio in compliance with guidelines
established by Standard & Poor's Corporation, and is required to maintain asset
coverage for the Notes of at least 300%. The Fund has met these requirements
during the period ended September 30, 1997.
The issuance costs of $146,250 incurred by the Fund are deferred and amortized
on a straight line basis over the term of the Notes.
4. TRANSACTION WITH AFFILIATES AND RELATED PARTIES
Certain officers and trustees of the Fund are also officers and/or trustees of
Franklin Advisers, Inc. (Advisers) and Franklin Templeton Services, Inc. (FT
Services), the Fund's investment manager and administrative manager,
respectively.
The Fund pays an investment management fee to Advisers of 0.85% per year of the
average weekly net assets of the Fund.
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 September 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $74,283,281 was as follows:
Unrealized appreciation $11,116,688
Unrealized depreciation (582,166)
-------------
Net unrealized appreciation $10,534,522
=============
Net investment income and net realized capital gains (losses) differ for
financial statement and tax purposes primarily due to differing treatments of
foreign currency transactions.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended September 30, 1997 aggregated $23,700,110 and $24,552,735,
respectively.
7. CREDIT RISK
The Fund has 58.53% of its portfolio invested in lower rated and comparable
quality unrated high yield securities, which tend to be more sensitive to
economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At September 30, 1997, the
Fund held a defaulted security with a value aggregating $395,000 representing
0.6% of the Fund's net assets. For information as to specific securities, see
the accompanying Statement of Investments.
For financial reporting purposes, the Fund discontinues accruing income on
defaulted bonds and provides an estimate for losses on interest receivable.
The Fund has investments in excess of 10% of its total net assets in the
Wireless Communication industry. Such concentration may subject the Fund more
significantly to economic changes occurring within that industry.
8. RESTRICTED SECURITIES
The Fund may purchase securities through a private offering that generally
cannot be sold to the public without prior registration under the Securities Act
of 1933. The costs of registering such securities are paid by the issuer.
Restricted securities held at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Shares/ Acquisition
Warrants Issuer Date Cost Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
22,000 CMS Energy Corp., 144A, 7.75%, quarterly cvt. pfd. 6/18/97 $1,100,000 $1,197,068
Units
- ---------
1 PG Partners 1, L.P. Preference Units 3/13/93 0 $ 27,333
----------
Total Restricted Securities (1.82% of net assets) $1,224,401
==========
</TABLE>
9. STATEMENT OF CASH FLOWS
Cash provided from operations differs from net investment income due to
amortization of bond discount and note issuance costs, and semi-annual income
and expense accrual changes.
Franklin Universal Trust Annual Report August 31, 1997
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING (PURSUANT TO ITEM
304(a) OF REGULATION S-T)
GRAPHIC MATERIAL (1)
This chart shows in bar format the comparison between the S&P Utilities Index
total return of 10.96% and the CS First Boston High Yield Corporate Index total
return of 9.23% over a one year period from 9/30/96 to 9/30/97.
GRAPHIC MATERIAL (2)
This chart shows in pie format the breakdown of the fund's securities on
9/30/97, based on total market value.
Portfolio Breakdown
Corporate Bonds 47.5%
Utilities 35.3%
Miscellaneous Equities & 10.6%
Preferred Stock
Convertible Bonds 2.2%
Foreign Currency Denominated Bonds 0.4%
Cash & Equivalents 4.0%
