SEMI
ANNUAL
REPORT
SEPTEMBER 30, 1998
FRANKLIN MULTI-INCOME TRUST
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective and remember that all securities markets move
both up and down, as do mutual fund share prices. We appreciate your past
support and look forward to serving your investment needs in the years ahead.
Charles B. Johnson
Chairman
Franklin Multi-Income Trust
Daily Closing Prices Now Available
Many newspapers now publish Franklin MultiIncome Trust's daily closing market
price in their business sections under "New York Stock Exchange Composite
Transactions." In addition, the Trust's net asset value, 52-week market return
and premium/ discount, as well as market price, are published each Monday in The
Wall Street Journal and weekly in Barron's. Shares of Franklin Multi-Income
Trust trade on the New York Stock Exchange under the symbol "FMI."
CONTENTS
Shareholder Letter ........................................... 1
Manager's Discussion ......................................... 4
Performance Summary .......................................... 11
Dividend Reinvestment
and Cash Purchase Plan ....................................... 14
Financial Highlights &
Statement of Investments ..................................... 18
Financial Statements ......................................... 24
Notes to
Financial Statements ......................................... 28
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin Multi-Income Trust's semiannual report for
the period ended September 30, 1998.
The U.S. economy continued its expansion during much of the period under review,
demonstrating healthy growth with few signs of inflation. Strong consumer demand
for goods, services and housing contributed to continued growth. However, in our
annual report for the period ended March 31, 1998, we mentioned the likelihood
of U.S. economic slowdown brought on, for the most part, by the Asian financial
crisis. Soon thereafter, this came to pass. U.S. economic growth slowed, from a
torrid 5.5% annualized rate in the first three months of the year, to a
diminished 1.8% annualized rate in the April-June period, reflecting weak Asian
demand for goods and a buildup of business inventories. The Asian turmoil's
impact on the U.S. economy was mixed -- it slowed the economy through a decline
in American exports, while the U.S. dollar's resulting strength helped keep
inflation under control through a decline in import prices. In addition, the
recent Russian crisis exacerbated concerns in a global market that was already
fragile. Although Russia and many of these Asian countries in crisis are
implementing reforms, it will likely take some time for their economies to
recover.
Despite generally favorable domestic economic conditions for most of the
reporting period, recent global developments took a toll on U.S. stock markets,
which proved unable to withstand the foreign pressure. The Dow Jones(R)
Industrial Average (DJIA), after reaching an all-time high of 9337.97 on July
17, 1998, suffered the second-largest, one-day point decline in its history,
falling 512.61 points to 7539.07 on August 31, 1998. The DJIA continued to
experience greater than normal volatility in September, ending the period at
7842.62.
During the six months under review, the yield on the benchmark 30-year U.S.
Treasury bond hit record lows, largely in response to weak financial markets
abroad. The 30-year Treasury's yield fell, from 5.94% on March 31, 1998, to
4.98% on September 30, 1998. Falling yields increasingly reflected the 30-year
Treasury bond's popularity and "flight to quality" among investors fleeing
Asia's and Russia's deteriorating markets.
For most of the fund's fiscal year, Franklin Multi-Income Trust performed
favorably; however, recent weakness in the domestic equity market had a negative
effect on utility stocks and high yield bonds, two of the Trust's major
investment sectors. The following Manager's Discussion provides specific details
about your fund's performance and investment strategies.
The recent global problems contributed to dramatic U.S. market ups and downs,
which understandably create investor uncertainty. Such conditions remind us of
the importance of investing for the long term, so daily market fluctuations and
short-term volatility have minimal impact on overall investment goals. We
encourage you to discuss your financial goals with your investment
representative. He or she can address concerns about market volatility, and help
you diversify your investments and stay focused on the long term.
As always, we appreciate your continued investment in Franklin Multi-Income
Trust and look forward to serving your future investment needs.
Sincerely,
Charles B. Johnson
Chairman
Franklin Multi-Income Trust
MANAGER'S DISCUSSION
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
You will find a complete listing of the trust's portfolio holdings, including
dollar value and number of shares or principal amount, beginning on page 19 of
this report.
Your Fund's Objective: Franklin Multi-Income Trust seeks to provide high,
current income consistent with preservation of capital.
Despite relatively stable market conditions at the beginning of the reporting
period, the environment for high yield bonds and utility equities came under
considerable pressure as the six months progressed. Deteriorating global
markets, spurred on by crises in Asia and Russia, eventually impacted asset
prices in the domestic market, which had managed to remain insulated for much of
the past six months. Unfortunately, the recent volatility negatively affected
the Trust's performance. Franklin Multi-Income Trust (NYSE:FMI) generated a
cumulative total return of -6.87% for the six-month period ended September 30,
1998, based on its change in market price on the New York Stock Exchange.
However, it should be noted for the twelve-month period ended September 30,
1998, the fund returned +12.69%, and we believe the volatility seen over the
last few months was unusually high and should diminish with time.
Sector Discussions
Wireless
Overall, increased subscriber growth and sustained demand for high value-added
services benefited several of the Trust's wireless-sector holdings. On the
cellular side, Nextel Communications, Inc. performed well due to adherence to
its solid business plan, as the company continued to roll out its nationwide
network and add subscribers at a healthy pace. In addition, the company was able
to realize above-average revenue per unit largely because of high-quality
service and attractive handset designs that captured more business users.
Another noteworthy cellular holding, Sygnet Wireless, Inc., benefited from
consolidation within the rural sector, a trend that is resulting in less
competition from digital providers in Sygnet's markets. Sygnet recently
announced that it will be acquired by Dobson Communications Corp., and we expect
Dobson to offer to buy the bonds, which should improve their value.
Within the paging sector, stronger industry fundamentals benefited selected
names during the period. In particular, industry pricing power improved, while
the subscriber base continued to grow. Holdings such as Paging Network, Inc. and
Metrocall, Inc. were successful at shifting their customer bases to
higher-priced, value-added service plans that, while adding costs, increased
revenues to a greater extent.
Industrial
During the reporting period, the Trust focused mainly on strong domestic
manufacturers, which performed well relative to their foreign counterparts. In
contrast, exposure to foreign industrials was minimal. Consolidation and
leverage reduction remained two prevalent industry trends, and the Trust
benefited from several publicly held companies, which can issue additional
equity rather than debt to fill their financing needs. In particular, Allied
Waste Industries, Inc.'s successful acquisition strategy -- focusing on the
consolidation and integration of other waste management companies -- bolstered
Allied's performance. Nortek, Inc. benefited from strength in the building
cycle. With significant exposure to the robust aerospace cycle, Derlan
Industries, Ltd. also performed strongly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Broadcasting
Mergers and acquisitions continued within the broadcasting sector, and the Trust
maintained its focus on the larger consolidators and acquisition targets within
the industry, seeking to take advantage of this trend. The purchase of LIN
Television Corp., a leading network broadcast television operator, exemplifies
this strategy. Recently, LIN Television announced it will be acquired by
Chancellor Broadcasting, a company of higher credit quality, which contributed
to the relatively solid performance of the Trust's LIN Television bonds.
Cable
During the reporting period, the cable sector outperformed the overall high
yield market. Domestic cable companies, including a Trust holding, Cablevision
Systems Corp., generally enjoyed strong revenue growth and benefited from the
promotion of up-and-coming services such as digital cable, cable modems and
cable telephony. In addition, valuations improved, as non-traditional investors
entered the market for cable sector assets. On the international side, our
position in Diamond Holdings, Plc., a leading U.K. cable operator, performed
relatively well as a result of improved operating results and the announcement
that it will be acquired by NTL, the U.K.'s third-largest cable operator.
Telecommunications
The telecommunications sector continues to evolve rapidly, evidenced by the
increased merger and acquisition activity among regional bell operating
companies. In addition to consolidation, another significant industry trend is
the rise of new, alternative local service providers such as Intermedia
Communications, Inc. and NEXTLINK Communications, Inc., two of the Trust's
holdings. Such alternative providers increase access line penetration as they
grow from start-up companies to stronger, alternative sources of local service.
During the reporting period, Intermedia expanded its role in data communications
(Internet, intranet, extranet) by furthering its development of a
regionally-based data network to exploit the strong growth in this market
segment.
Utilities
During the six months under review, the utility industry showed signs of
improvement as issues surrounding deregulation were clarified and several states
completed their deregulation plans. With this in mind, we focused our investment
decisions on electric utility companies we believe will do well in a competitive
environment. Such companies generally have low-cost operations, strong
management teams and domestically and internationally diversified businesses. On
September 30, 1998, our three largest electric utility holdings were New Century
Energies, Inc., Sempra Energy and FPL Group, Inc.
What's Ahead
Recent economic data suggest benign inflation, relatively stable interest rates
and continued domestic growth, although the effects of the foreign market
volatility may temper growth rates somewhat. The recent turmoil in global
financial markets may impact the domestic high yield and utility equity markets
in the short term, but we believe that current volatility should not
significantly affect these asset classes' fundamentals over the long term. In
addition, the Trust's international exposure is relatively small, comprising
less than 8% of total net assets on September 30, 1998. We remain optimistic
regarding the high yield and utility equity markets, in general, and Franklin
Multi-Income Trust, in particular, and believe that there will continue to be
attractive opportunities in high yield corporate bonds and utility stocks over
the long term.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of September 30, 1998, the end of the reporting period. However,
market and economic conditions are changing constantly, which can be expected to
affect our strategies and the fund's portfolio composition. Although historical
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
YEAR 2000 UPDATE
The fund's business operations use a worldwide network of computer systems. Many
of them have date fields that use two digits to represent the date and these
systems must be replaced or modified, so that they can distinguish the year 1900
from the year 2000 (commonly referred to as the Year 2000 bug).
When the year 2000 arrives, the fund's operations could be affected if the
computer systems used by the manager, its service providers and other third
parties it does business with are not Year 2000 ready. For example, the fund's
portfolio and operational areas could be impacted, including securities trade
processing, interest and dividend payments, securities pricing, shareholder
account services, reporting, custody functions and others. The fund could
experience difficulties in effecting transactions if any of its foreign
subcustodians, or if foreign broker/dealers or foreign markets are not ready for
the year 2000.
The fund's manager and its affiliated service providers are making a concerted
effort to take steps they believe are reasonably designed to get ready for Year
2000. Of course, the fund's ability to reduce the effects of Year 2000 issues is
also very much dependent upon the efforts of third parties.
In evaluating current and potential portfolio positions, Year 2000 is one of the
factors that the fund's manager takes into consideration. It will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S., and in particular in
emerging markets, may not be required to make the level of disclosure regarding
Year 2000 readiness that is required in the U.S. Like with many other matters,
the manager, of course, cannot audit each portfolio company and its major
suppliers, and so cannot verify their Year 2000 readiness. If the value of a
fund investment is adversely affected by a Year 2000 problem, the net asset
value of the fund will be affected as well.
PERFORMANCE SUMMARY
Franklin Multi-Income Trust's closing price on the New York Stock Exchange
(NYSE) decreased $1.125, from $11.00 on March 31, 1998, to $9.875 on September
30, 1998. The Trust's share price, as measured by net asset value, decreased
$1.03, from $11.98 to $10.95 for the same period.
During the six-month reporting period, shareholders received per-share
distributions consisting of dividend income totaling 38.4 cents ($0.384) per
share. Distributions will vary based on the fund's income, and past
distributions are not predictive of future trends.
Based on an annualization of September's monthly per-share dividend of 6.4 cents
($0.064) and the NYSE closing price of $9.875 on September 30, 1998, the Trust's
distribution rate was 7.78%.
Franklin Multi-Income Trust reported a -6.87% cumulative total return for the
six-month period ended September 30, 1998. Total return reflects the change in
the Trust's market price on the NYSE. Based on the change in net asset value (as
opposed to market price), total return for the same period was -5.17%. All total
returns assume reinvestment of dividends and capital gains according to the
terms specified in the Trust's dividend reinvestment plan.
We urge you to view your investment in Franklin Multi-Income Trust with a
long-term perspective. As the chart below shows, the Trust reported a cumulative
total return of +213.75%, based on net asset value, since its inception on
October 9, 1989.
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Periods ended 9/30/98
Since
Inception
1-Year 5-Year (10/9/89)
- ----------------------------------------------------------------
Cumulative Total Return1
Based on change in net asset value +7.40% +62.18% +213.75%
Based on change in market price +12.69% +45.23% +144.71%
Average Annual Total Return1
Based on change in net asset value +7.40% +10.15% +13.72%
Based on change in market price +12.69% +7.75% +10.59%
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 an annualization of September's 6.4 cent per
share monthly dividend and the New York Stock Exchange closing price of $9.875
on September 30, 1998.
PORTFOLIO OPERATIONS
Christopher Molumphy
Senior Portfolio Manager
Franklin Advisers, Inc.
Christopher Molumphy earned his Bachelor of Arts degree in economics from
Stanford University and his master's degree in finance from the University of
Chicago. He has been with Franklin Advisers, Inc. since 1988. Mr. Molumphy is a
Chartered Financial Analyst (CFA) and a member of several securities industry
associations. He has managed Franklin Multi-Income Trust since 1991.
DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Trust's Dividend Reinvestment Plan and Cash Purchase Plan (the "Plan")
offers you a prompt and simple way to reinvest income dividends and capital gain
distributions in shares of the Trust. The Plan also allows you to purchase
additional shares of the Trust by making voluntary cash payments. First Data
Investor Services Group (the "Plan Agent"), P.O. Box 8030, Boston,
Massachusetts, 02266-8030, acts as your Plan Agent in administering the Plan.
The complete Terms and Conditions of the Dividend Reinvestment and Cash Purchase
Plan are contained in the Trust's Dividend Reinvestment and Cash Purchase Plan
Brochure dated December 1997. A copy of that Brochure 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 a dividend or capital gain distribution, you, as a
participant in the Plan, will automatically receive an equivalent amount of
shares of the Trust purchased on your behalf by the Plan Agent.
The Plan permits you on a voluntary basis to submit in cash payments of not less
than $100 each up to a total of $5,000 per month to purchase additional shares
of the Trust. It is entirely up to you whether you wish to buy additional shares
with voluntary cash payments, and you do not have to send in the same amount
each time if you do. These payments should be made by check or money order
payable to Franklin Multi-Income Trust and sent to First Data Investor Services
Group, P.O. Box 8030, Boston, Massachusetts, 02266-8030.
Your cash payment will be aggregated with the payments of other participants and
invested on your behalf by the Plan Agent in shares of the Trust which are
purchased in the open market.
The Plan Agent will invest cash payments on approximately the 15th of each month
in which no dividend or distribution is payable and, during each month in which
a dividend or distribution is payable, will invest cash payments beginning on
the dividend payments 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 written notice is received by the Plan Agent not less than 48 hours
before an investment date.
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 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 such 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 you have been paid.
The Trust does not issue new shares in connection with the Plan. All investments
are in full and fractional shares, carried to three decimal places. If the
market price exceeds the net asset value you will receive shares that were
purchased 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 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 full shares; or (b) that you prefer the
Plan Agent to sell your shares and send your 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 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.
<TABLE>
<CAPTION>
FRANKLIN MULTI-INCOME TRUST
Financial Highlights
Six Months Ended
September 30, 1998 Year Ended March 31,
(unaudited) 1998 1997 1996 1995 1994
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the period)
Net asset value, beginning of period ..... $11.98 $10.34 $10.61 $9.60 $9.97 $11.38
---------------------------------------------------------------
Income from investment operations:
Net investment income ................... .38 .72 .79 .78 .78 .84
Net realized and unrealized gains (losses) (1.03) 2.18 -- 1.11 (.08) (.78)
---------------------------------------------------------------
Total from investment operations ......... (.65) 2.90 .79 1.89 .70 .06
===============================================================
Less distributions from:
Net investment income ................... (.38) (.74) (.77) (.77) (.78) (.85)
In excess of net investment income ...... -- (.03) -- -- (.01) --
Net realized gains ...................... -- (.49) (.29) (.11) (.28) (.62)
---------------------------------------------------------------
Total distributions ...................... (.38) (1.26) (1.06) (.88) (1.07) (1.47)
---------------------------------------------------------------
Net asset value, end of period ........... $10.95 $11.98 $10.34 $10.61 $9.60 $9.97
===============================================================
Market value, end of period1............. $9.875 $11.000 $9.375 $9.000 $8.750 $9.750
===============================================================
Total return (based on market value per share)2 (6.87)% 32.57% 16.24% 12.87% 1.46% 5.47%
Ratios/supplemental data
Net assets, end of period (000's) ........ $64,163 $70,190 $60,594 $62,153 $56,230 $58,391
Ratios to average net assets:
Expenses ................................ 3.00%* 3.00% 3.14% 3.21% 3.00% 2.90%
Net investment income ................... 6.74%* 6.47% 7.48% 7.53% 6.37% 6.00%
Portfolio turnover rate .................. 6.72% 45.31% 44.40% 35.06% 29.77% 28.90%
Total debt outstanding at end of period (000's) $16,000 $16,000 $16,000 $16,000 $16,000 $15,974
Asset coverage per $1,000 of debt ........ $4,010 $4,387 $3,787 $3,885 $3,514 $3,655
Average amount of notes per share during the period $2.73 $2.73 $2.73 $2.73 $2.73 $2.73
1Based on the last sale on the New York Stock Exchange.
2Total return is not annualized.
*Annualized.
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Statement of Investments, September 30, 1998 (unaudited)
SHARES/
WARRANTS VALUE
Common Stocks & Warrants 53.0%
<S> <C> <C>
Food & Beverage .6%
RJR Nabisco Holdings Corp. ................................................ 14,000 $ 352,625
------------
Industrial .4%
a Anacomp, Inc. ............................................................. 20,565 269,916
------------
Lodging
a Host Marriott Corp. ....................................................... 526 6,674
Marriott International, Inc., Class A ..................................... 1,052 25,117
Sodexho Marriott Services, Inc. ........................................... 131 3,930
------------
35,721
------------
Metals & Mining 1.2%
a Gulf States Steel, Inc., warrants ......................................... 1,000 1,000
Ultramar Diamond Shamrock Corp. ........................................... 33,300 757,575
------------
758,575
------------
Telecommunications 2.3%
BellSouth Corp. ........................................................... 12,000 903,000
a Loral Orion Network Systems, Inc., warrants ............................... 1,000 6,995
SBC Communications, Inc.................................................... 7,000 311,063
Telecom Corp. of New Zealand, Ltd. (New Zealand)........................... 17,500 238,438
------------
1,459,496
------------
Utilities 48.5%
Allegheny Energy, Inc. .................................................... 40,000 1,262,500
American Electric Power Co., Inc........................................... 30,000 1,464,375
Central & South West Corp. ................................................ 29,900 854,019
Cinergy Corp. ............................................................. 57,200 2,187,900
Conectiv, Inc.............................................................. 20,000 456,250
Dominion Resources, Inc. .................................................. 41,000 1,829,625
DPL, Inc. ................................................................. 50,900 998,913
Duke Energy Corp. ......................................................... 17,000 1,125,188
Edison International ...................................................... 14,500 372,469
Enron Corp. ............................................................... 21,626 1,142,123
Entergy Corp. ............................................................. 25,400 781,050
Florida Progress Corp. .................................................... 25,000 1,082,813
FPL Group, Inc. ........................................................... 33,900 2,362,406
Montana Power Co. ......................................................... 7,600 339,625
New Century Energies, Inc. ................................................ 71,000 3,456,813
New England Electric System ............................................... 6,800 282,200
New Jersey Resources Corp. ................................................ 43,900 1,563,938
OGE Energy Corp. .......................................................... 31,200 900,900
PacifiCorp ................................................................ 50,000 959,375
Puget Sound Energy, Inc.................................................... 25,000 693,750
SCANA Corp. ............................................................... 40,000 1,342,500
Sempra Energy ............................................................. 108,588 2,830,075
Utilities (cont.)
Southern Co. .............................................................. 51,300 $ 1,510,144
Texas Utilities Co. ....................................................... 28,100 1,308,406
------------
31,107,357
------------
Total Common Stocks & Warrants (Cost $23,366,456) ......................... 33,983,690
------------
Preferred Stocks 6.9%
Broadcasting 1.6%
Sinclair Capital, 11.625% pfd. ............................................ 10,000 1,037,500
------------
Food & Beverage .9%
Ralston Purina Co., 7.00% cvt. pfd. ....................................... 9,300 567,300
------------
Lodging .3%
Host Marriott Corp., 6.75% cvt. pfd. ...................................... 4,400 173,525
------------
Telecommunications 1.2%
Nortel Inversora SA, 10.00% cvt. pfd. (Argentina) ......................... 15,000 781,875
------------
Transportation 1.0%
Union Pacific Corp., 6.25% cvt. pfd. ...................................... 13,300 605,150
------------
Utilities 1.9%
CMS Energy Corp., 7.75% cvt. pfd. ......................................... 22,000 1,199,000
Texas Utilities Co., 9.25% cvt. pfd. ...................................... 700 39,375
------------
1,238,375
------------
Total Preferred Stocks (Cost $4,174,034)................................... 4,403,725
------------
PRINCIPAL
AMOUNT*
Non-Convertible Bonds 61.4%
Automotive 3.2%
Advanced Accessory Systems, senior sub. notes, Series B, 9.75%, 10/01/07 .. $ 500,000 475,000
Aetna Industries, Inc., senior notes, 11.875%, 10/01/06 ................... 1,000,000 1,040,000
a,b Harvard Industries, Inc., senior notes,11.125%, 8/01/05 ................... 1,000,000 170,000
Oshkosh Truck Corp., senior sub notes, 8.75%, 3/01/08 ..................... 400,000 382,000
------------
2,067,000
------------
Broadcasting 2.6%
Chancellor Media Corp., senior sub. notes, Series B, 8.75%, 6/15/07 ....... 1,000,000 995,000
LIN Television Corp., senior disc. notes, zero coupon to 3/01/03,
10.00% thereafter, 3/01/08.................................................. 1,000,000 657,500
------------
1,652,500
------------
Cable 3.1%
Century Communication Corp., senior disc. notes,
Series B, zero coupon, 1/15/08 ............................................ 1,000,000 475,000
Comcast Cellular Corp., senior notes, Series B, 9.50%, 5/01/07 ............ 1,000,000 1,030,000
Diamond Holdings, Plc., senior notes, 9.125%, 2/01/08 (United Kingdom) .... 500,000 482,500
------------
1,987,500
------------
Chemical Products 1.5%
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 ................... 1,000,000 950,000
------------
Consumer Products 2.0%
E & S Holdings Corp., senior sub. notes, Series B, 10.375%, 10/01/06 ...... $ 500,000 $ 302,500
Revlon Consumer Products Corp., senior sub notes, 8.625%, 2/01/08 ......... 1,000,000 982,500
------------
1,285,000
------------
Containers & Packaging 3.5%
Anchor Glass, first mortgage, 11.25%, 4/01/05 ............................. 1,000,000 1,045,000
Ball Corp., senior notes, 144A, 7.75%, 8/01/06 ............................ 250,000 257,500
Ball Corp., senior sub notes, 144A, 8.25%, 8/01/08 ........................ 150,000 154,500
Graham Packaging Holdings, senior sub. notes, Series B, 8.75%, 1/15/08 .... 200,000 193,000
Graham Packaging Holdings, senior disc. notes, Series B,
zero coupon to 1/15/01, 10.75% thereafter, 1/15/09 ....................... 200,000 121,000
U.S. Can Corp., senior sub. notes, Series B, 10.125%, 10/15/06 ............ 500,000 507,500
------------
2,278,500
------------
Energy 5.4%
Abraxas Petroleum Corp., senior notes, Series D, 11.50%, 11/01/04 ......... 800,000 652,000
Chesapeake Energy Corp., senior notes, Series B, 9.625%, 5/01/05 .......... 200,000 177,000
Clark R&M Inc., senior sub. notes, 8.875%,11/15/07 ........................ 1,000,000 865,000
Conproca SA, senior secured notes, 144A, 12.00%, 6/16/10 (Mexico) ......... 900,000 769,500
Dailey International, Inc., senior notes, Series B, 9.50%, 2/15/08 ........ 300,000 175,500
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ...................... 500,000 367,500
Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07 ............. 500,000 475,000
------------
3,481,500
------------
Food & Beverage .8%
RJR Nabisco, Inc., senior notes, 9.25%, 8/15/13 ........................... 500,000 526,439
------------
Food Retailing 2.8%
Fleming Cos., Inc., senior sub. notes, Series B, 10.50%, 12/01/04 ......... 1,000,000 975,000
Penn Traffic Co., senior notes, 8.625%, 12/15/03 .......................... 1,000,000 585,000
Shoppers Food Warehouse Corp., senior notes, 9.75%, 6/15/04 ............... 250,000 266,870
------------
1,826,870
------------
Foreign Government Agencies .4%
ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) ................. 2,175,000 ZAR 253,084
------------
Health Care 2.3%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 .......... 1,000,000 937,500
Magellan Health Services, Inc., senior sub notes, 9.00%, 2/15/08 .......... 600,000 513,000
------------
1,450,500
------------
Industrial 6.2%
Allied Waste Industries, Inc., senior disc. notes, zero coupon to 6/01/02,
11.30% thereafter, 6/01/07 ............................................... 1,500,000 1,117,500
Derlan Industries, Ltd., senior notes, 10.00%, 1/15/07 (Canada) ........... 500,000 452,500
Falcon Building Products, Inc., senior sub notes, Series B, 9.50%, 6/15/07 500,000 422,500
Falcon Building Products, Inc., senior sub notes, Series B,
zero coupon to 6/15/02, 10.50% thereafter,
6/15/07 .................................................................. 500,000 287,500
Intertek Finance, Plc., senior sub. notes, Series B, 10.25%, 11/01/06 (United Kingdom) 700,000 640,500
Nortek, Inc., senior notes, Series B, 9.125%, 9/01/07 ..................... 500,000 492,500
Industrial (cont.)
Nortek, Inc., senior notes, 144A, 8.875%, 8/01/08 ......................... $ 250,000 $ 242,500
Universal Compression, Inc., senior disc. notes, 144A,
zero coupon to 2/15/03, 9.875% thereafter, 2/15/08 ....................... 500,000 292,500
------------
3,948,000
------------
Information & Technology Systems .5%
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 (Canada) 325,000 346,125
------------
Media 4.5%
Big Flower Press Holdings, Inc., senior sub. notes, 8.875%, 7/01/07 ....... 500,000 487,500
Fox Family Worldwide, Inc., senior notes, 9.25%, 11/01/07 ................. 300,000 294,000
Fox/Liberty Network L.L.C., senior disc. notes,
zero coupon to 8/15/02, 9.75% thereafter, 8/15/07 ........................ 1,000,000 660,000
Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 ................. 1,000,000 1,037,500
Six Flags Entertainment Corp., senior notes, 8.875%, 4/01/06 .............. 400,000 396,000
------------
2,875,000
------------
Metals & Mining 1.5%
LTV Corp., senior notes, 8.20%, 9/15/07 ................................... 1,000,000 937,500
------------
Paper and Forest Products .6%
Pindo Deli Finance Mauritius, Ltd., senior notes, 10.75%, 10/01/07 (Indonesia) 1,000,000 400,000
------------
Restaurant 1.4%
AmeriServe Food Co., senior sub. notes, 10.125%, 7/15/07 .................. 750,000 660,000
AmeriServe Food Dist., Inc., senior sub. notes, 8.875%, 10/15/06 .......... 250,000 222,500
------------
882,500
------------
Retail .7%
Specialty Retailers, Inc., senior notes, Series B, 8.50%, 7/15/05 ......... 500,000 455,000
------------
Telecommunications 4.9%
Flag Limited, senior notes, 8.25%, 1/30/08 (Bermuda) ...................... 200,000 191,000
Intermedia Communications, Inc., senior disc. notes,
Series B, zero coupon to 7/15/02, 11.25% thereafter, 7/15/07 ............. 1,250,000 900,000
IXC Communications, Inc., senior sub. notes, 9.00%, 4/15/08 ............... 450,000 445,500
NEXTLINK Communications, Inc., senior notes, 9.625%, 10/01/07 ............. 500,000 487,500
NEXTLINK Communications, Inc., senior notes, 9.00%, 3/15/08 ............... 500,000 473,750
Orion Network Systems, Inc., units, senior disc. notes,
zero coupon to 1/15/02, 12.50% thereafter, 1/15/07 ....................... 1,000,000 665,000
------------
3,162,750
------------
Textiles & Apparel 1.5%
Collins & Aikman Floor Coverings, Inc., senior sub. notes, Series B, 10.00%, 1/15/07 1,000,000 980,000
------------
Transportation .9%
American Commercial Lines, L.L.C., 144A, 10.25%, 6/30/08 .................. 600,000 594,000
------------
Utilities - Electric 2.1%
AES Corp., senior sub. notes, 8.50%, 11/01/07 ............................. 750,000 712,500
Niagara Mohawk Power Corp., senior notes, Series G, 7.75%, 10/01/08 ....... 600,000 639,000
------------
1,351,500
------------
Wireless Communication 9.0%
Arch Communications Group, Inc., senior disc. notes,
zero coupon to 3/15/01, 10.875% thereafter, 3/15/08 ...................... $1,000,000 $ 485,000
Metrocall, Inc., senior sub. notes, 9.75%, 11/01/07 ....................... 1,000,000 925,000
Millicom International Cellular SA, senior disc. notes,
zero coupon to 6/01/01, 13.50% thereafter,
6/01/06 (Luxembourg) ..................................................... 2,000,000 1,260,000
Nextel Communications, senior disc. notes, zero coupon to 2/15/99,
9.75% thereafter, 8/15/04 ................................................ 1,000,000 957,500
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ................. 1,000,000 997,500
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ..................... 1,000,000 1,130,000
------------
5,755,000
------------
Total Non-Convertible Bonds (Cost $42,459,203) ............................ 39,446,268
------------
Convertible Bonds 1.7%
Consumer Products .3%
Rent-Way, Inc., cvt. sub. deb., 7.00%, 2/01/07 ............................ 100,000 194,000
------------
Information & Technology Systems .7%
Dovatron International, Inc., cvt. sub. notes, 6.00%, 10/15/02 ............ 500,000 442,500
------------
Real Estate Investment Trust .7%
Macerich Co., cvt. sub. notes, 144A, 7.25%, 12/15/02 ...................... 500,000 470,000
------------
Total Convertible Bonds (Cost $1,186,750) ................................. 1,106,500
------------
c Repurchase Agreement .9%
Joint Repurchase Agreement, 5.275%, 10/1/98, (Maturity Value $558,902)
(Cost $558,820) ........................................................... 558,820 558,820
BankAmerica Securities, Inc.
Barclays Capital Group, Inc.
BT Alex Brown, Inc.
Chase Securities, Inc.
CIBC Wood Gundy Securities Corp.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
Paribas Corp.
Warburg Dillon Read, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $71,745,263) 123.9% ............................... 79,499,003
Other Assets, less Liabilities (23.9)% .................................... (15,335,942)
------------
Net Assets 100.0% ......................................................... $ 64,163,061
============
</TABLE>
CURRENCY ABBREVIATIONS
ZAR - South African Rand
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bSee Note 7 regarding defaulted securities.
cInvestment is through participation in a joint account with other funds managed
by the investment advisor. At September 30, 1998, all repurchase agreements held
by the Fund had been entered into on that date.
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN MULTI-INCOME TRUST
Financial Statements
Statement of Assets and Liabilities
September 30, 1998 (unaudited)
<S> <C>
Assets:
Investments in securities, at value (cost $71,745,263) ................................ $79,499,003
Receivables:
Investment securities sold ........................................................... 32,000
Dividends and interest ............................................................... 1,238,080
Note issuance costs (Note 3) .......................................................... 27,855
--------------
Total assets ..................................................................... 80,796,938
--------------
Liabilities:
Payables:
Investment securities purchased ...................................................... 102,360
Affiliates ........................................................................... 55,774
Notes (Note 3) ....................................................................... 16,000,000
Accrued interest (Note 3) ............................................................ 48,000
Distributions to shareholders ......................................................... 374,886
Other liabilities ..................................................................... 52,857
--------------
Total liabilities ................................................................ 16,633,877
--------------
Net assets, at value ............................................................ $64,163,061
==============
Net assets consist of:
Accumulated distributions in excess of net investment income .......................... $ (172,853)
Net unrealized appreciation ........................................................... 7,753,978
Accumulated net realized gain ......................................................... 2,791,822
Capital shares ........................................................................ 53,790,114
--------------
Net assets, at value ............................................................. $64,163,061
==============
Net asset value per share ($64,163,061 / 5,857,600 shares outstanding).................. $10.95
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
Statement of Operations
for the six months ended September 30, 1998 (unaudited)
<S> <C> <C>
Investment income:
(net of foreign taxes of $2,779)
Dividends ................................................................ $ 980,149
Interest ................................................................. 2,268,607
------------
Total investment income ............................................. $3,248,756
Expenses:
Management fees (Note 4) ................................................. 351,280
Transfer agent fees ...................................................... 14,456
Custodian fees ........................................................... 767
Reports to shareholders .................................................. 6,902
Registration and filing fees ............................................. 51
Professional fees ........................................................ 12,544
Trustees' fees and expenses .............................................. 4,779
Amortization of note issuance costs ...................................... 14,853
Other .................................................................... 18,936
------------
Total expenses ...................................................... 424,568
Interest expense (Note 3) ........................................... 576,000
------------
Net expenses ....................................................... 1,000,568
------------
Net investment income ............................................. 2,248,188
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ............................................................. 1,465,625
Foreign currency transactions ........................................... (902)
------------
Net realized gain ................................................... 1,464,723
Net unrealized appreciation (depreciation) on:
Investments ............................................................. (7,490,962)
Translation of assets and liabilities denominated in foreign currencies . 600
------------
Net unrealized depreciation ......................................... (7,490,362)
------------
Net realized and unrealized loss .......................................... (6,025,639)
------------
Net decrease in net assets resulting from operations ...................... $(3,777,451)
============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended September 30, 1998 (unaudited)
and the year ended March 31, 1998
Six Months Year
Ended Ended
September 30, 1998 March 31, 1998
---------------------------------
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ................................................... $ 2,248,188 $ 4,244,894
Net realized gain from investments and foreign currency transactions .... 1,464,723 3,138,584
Net unrealized appreciation (depreciation) on investments and translation of assets
and liabilities denominated in foreign currencies ...................... (7,490,362) 9,593,117
---------------------------------
Net increase (decrease) in net assets resulting from operations ..... (3,777,451) 16,976,595
Distributions to shareholders from:
Net investment income ................................................... (2,248,188) (4,326,914)
In excess of net investment income ...................................... (1,130) (171,723)
Net realized gains ...................................................... -- (2,881,939)
---------------------------------
Total distributions to shareholders ...................................... (2,249,318) (7,380,576)
---------------------------------
Net increase (decrease) in net assets ............................... (6,026,769) 9,596,019
Net assets:
Beginning of period ...................................................... 70,189,830 60,593,811
---------------------------------
End of period ............................................................ $64,163,061 $70,189,830
=================================
Accumulated distributions in excess of net investment income included in net assets:
End of period ............................................................ $ (172,853) $ (171,723)
=================================
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
<S> <C>
Statement of Cash Flows
for the six months ended September 30, 1998 (unaudited)
Dividends and interest received .......................................................... $ 2,500,244
Operating expenses paid .................................................................. (408,220)
Interest expense paid .................................................................... (576,000)
---------------
Cash provided - operations .............................................................. 1,516,024
===============
Investment purchases ..................................................................... (116,273,414)
Investment sales ......................................................................... 117,098,575
---------------
Cash provided - investments ............................................................. 825,161
===============
Distributions to shareholders ............................................................ (2,249,318)
---------------
Cash used - financing activities ........................................................ (2,249,318)
===============
Net increase in cash ..................................................................... 91,867
Cash at beginning of period .............................................................. (91,867)
---------------
Cash at end of period .................................................................... --
===============
Reconciliation of Net Investment Income to Net Cash Provided by Operations:
Net investment income .................................................................... $ 2,248,188
Adjustments to reconcile net investment income to net cash provided by operations:
Dividends and interest ................................................................. (748,512)
Operating expenses ..................................................................... 16,348
---------------
Cash provided by operations .............................................................. $ 1,516,024
===============
</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 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 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 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, 1998, there were an unlimited number of shares authorized
($0.01 par value). During the period ended September 30, 1998, 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). 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, 1998.
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. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Fund are also officers 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 .85% per year of the
average weekly net assets of the Fund, excluding the principal amount of the
Notes.
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, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $71,745,263 was as follows:
Unrealized appreciation $11,937,453
Unrealized depreciation (4,183,713)
------------
Net unrealized appreciation $ 7,753,740
============
Net investment income and net realized capital gains differs 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, 1998 aggregated $5,754,966 and $5,477,872,
respectively.
7. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 55.8% 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, 1998, the
Fund held one defaulted security with a value aggregating $170,000 representing
.3% 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.
8. OTHER CONSIDERATIONS
Advisers, as the Fund's manager, may serve as a member of various credit
committees, representing credit interests in certain corporate restructuring
negotiations. Currently, the manager serves on the credit committee for Harvard
Industries. As a result of this involvement, Advisers may be in possession of
certain material non-public information. Advisers has not nor does it intend to
sell any of its holdings in this security while in possession of this
information.
Franklin Multi-Income Trust
Semiannual Report
September 30, 1998.
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 horizontal bar format the portfolio breakdown of the
Franklin Multi-Income Trust based on total market value as of 9/30/98.
Corporate Bonds 49.30%
Utilities Stocks 39.13%
Miscellaneous Equities & Preferred Stock 9.16%
Convertible Bonds 1.39%
Foreign Currency Denominated Bonds 0.32%
Cash & Equivalent 0.70%
GRAPHIC MATERIAL (2)
This chart shows the portfolio's top ten holdings based on the percentage of
total market value on 9/30/98 for the Franklin Multi-Income Trust.
New Century Energies, Inc. 4.35%
UTILITY (STOCK)
Sempra Energy 3.56%
UTILITY (STOCK)
FPL Group, Inc. 2.97%
UTILITY (STOCK)
Cinergy Corp. 2.75%
UTILITY (STOCK)
Dominion Resources, Inc. 2.30%
UTILITY (STOCK)
New Jersey Resources, Corp. 1.97%
UTILITY (STOCK)
Southern Co. 1.90%
UTILITY (STOCK)
American Electric Power Co., Inc. 1.84%
UTILITY (STOCK)
SCANA Corp. 1.69%
UTILITY (STOCK)
Texas Utilities Co. 1.65%
UTILITY (STOCK)
GRAPHIC MATERIAL (3)
This chart shows the dividend distributions for Franklin Multi-Income Trust from
4/1/98 to 9/30/98.
April 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
