SHAREHOLDER LETTER
Your Fund's Objective: Franklin Multi-Income Trust seeks to provide high,
current income consistent with preservation of capital.
This annual report for Franklin Multi-Income Trust covers the 12-month period
ended March 31, 2000.
During the 12 months under review, the domestic economy expanded beyond
expectations, stoking inflationary fears that prompted the Federal Reserve Board
(the Fed) to raise interest rates five times. The repeated interest-rate hikes
complicated the environment for high yield bonds and utility company equities,
the two asset classes representing the majority of the Trust's holdings. While
companies with high yield debt generally benefited from strong economic growth,
rising interest rates largely outweighed improving corporate sector
fundamentals. The risk premium for high yield bonds, as measured by the
interest-rate spread over U.S. Treasuries, increased during the period and
remained high by historical standards through the period's close. Utility
equities, as a group, fared marginally better, but electric utilities suffered
due to the sector's sensitivity to interest rates.
CONTENTS
Shareholder Letter ......... 1
Performance Summary ........ 6
Dividend Reinvestment and
Cash Purchase Plan ......... 8
Annual Meeting
of Shareholders ............ 12
Financial Highlights &
Statement of Investments ... 14
Financial Statements ....... 19
Notes to
Financial Statements ....... 23
Independent
Auditors' Report ........... 26
Tax Designation ............ 27
All portfolio holdings mentioned in the report are listed by their complete
legal titles in the Trust's Statement of Investments (SOI), which is a complete
listing of the Trust's portfolio holdings, including dollar value and number of
shares or principal amount. The SOI begins on page 15.
[PORTFOLIO BREAKDOWN PIE CHART]
Corporate Bonds 49.49%
Utilities Stocks 40.93%
Misc. Equities &
Preferred Stocks 5.54%
Convertible Bonds 1.75%
Foreign Currency
Denominated Bonds 0.41%
Cash & Other
Net Assets 1.88%
High yield bonds and electric utilities equities generated returns over the
12-month period of 0.0% and -12.0%, respectively, negatively impacting the
Trust's performance.(1) However, despite recent sector underperformance, we
believe ongoing deregulation should benefit utilities equities over the medium
to long term, and this sector's performance should improve as interest-rate
volatility abates. In addition, high yield valuations are low by historical
standards, and our focus on growth-oriented companies should benefit the Trust
going forward as corporate fundamentals remain healthy.
SECTOR DISCUSSIONS
TELECOMMUNICATIONS
The telecommunications sector was again one of the strongest in the high yield
universe during the Trust's annual period. Increasing Internet usage drove
growing demand for data services, creating tremendous opportunities for
companies with solid business plans that were able to provide this capacity. The
Trust sought to take advantage of this demand for bandwidth by initiating
positions in PSINet, an Internet service provider that is evolving into an
Internet supercarrier, and Williams Communications, a wholesale provider of
Internet services. Due to the high elasticity of demand, as the cost of
bandwidth comes down, demand grows at an increasing rate. The Trust expects to
benefit from this positive dynamic and from the Internet's enduring growth.
(1) Sources: Chase High Yield Global Index; Standard and Poor's(R) Electric
Companies Index.
WIRELESS
The wireless sector experienced solid growth during the period, as the U.S.
penetration rate, the number of users, increased from 25% of the population at
the end of 1998 to approximately 31% at the end of 1999. Because the overall
industry revenue pie continued to expand, many companies were able to generate
strong revenue growth despite competitive pricing pressures. During the
reporting period, Nextel made significant strides signing up subscribers, and
also raised additional liquidity to fund the build-out of its network. The Trust
swapped out of short-term Nextel bonds and into longer-term securities to more
fully participate in Nextel's expected upside. In addition, the Trust initiated
a position in Nextel Partners, a Nextel affiliate focusing on the acceleration
of the company's network build-out in smaller markets. Consolidation also
boosted the sector, and the Trust took advantage of this trend by initiating a
position in VoiceStream Wireless, a leading consolidator in personal
communications services (PCS).
BROADCASTING & MEDIA
The broadcasting and media sectors benefited from strong advertising revenues
and the robust domestic economy. Consolidation remained a prevalent trend as
many companies sought to improve their cost structures and gain operating
efficiencies through mergers and acquisitions. AMFM, a leading domestic
broadcaster, is one beneficiary of the propensity toward consolidation. AMFM
agreed to be acquired by ClearChannel, an investment grade media consolidator,
and this should improve AMFM's credit profile once the merger is completed.
TOP 10 HOLDINGS
3/31/00
% OF TOTAL
COMPANY MARKET
SECTOR (SECURITY TYPE) VALUE
Enron Corp. 4.78%
Utility (stock)
New Century Energies Inc. 2.47%
Utility (stock)
Duke Energy Corp. 2.31%
Utility (stock)
FPL Group Inc. 2.31%
Utility (stock)
Unicom Corp. 2.26%
Utility (stock)
U.S. West Inc. 2.15%
Utility (stock)
Southern Co. 1.93%
Utility (stock)
Reliant Energy Inc. 1.92%
Utility (stock)
Millicom International
Cellular SA 1.85%
Telecommunications (bond)
Texas Utilities Co. 1.75%
Utility (stock)
DIVIDEND DISTRIBUTIONS
4/1/99 - 3/31/00
DIVIDEND
MONTH PER SHARE
April 6.4 cents
May 6.4 cents
June 6.4 cents
July 6.4 cents
August 6.4 cents
September 5.6 cents
October 5.6 cents
November 5.6 cents
December 5.6 cents
January 5.6 cents
February 5.6 cents
March 5.6 cents
TOTAL 71.2 CENTS
ELECTRIC UTILITIES
Electric utility deregulation represented the dominant trend in this sector
during the period. Overall, deregulation will impact 60%-70% of each integrated
electric company's assets, and this change is forcing many company managements
to alter their business plans in anticipation of a more competitive landscape.
Another of the Trust's investment strategies, and one that is starting to be
recognized in the marketplace, entails investing in companies that have
unregulated investments of significant "hidden" value, which we believe are not
fully reflected in company valuations. Two such companies, Montana Power and
Puget Sound Energy, were Trust holdings on March 31, 2000.
Despite deregulation's positive effects, equity valuations within the utilities
industry suffered from detrimental market forces, particularly the rise in
interest rates during the year under review. Historically, higher interest rates
have negatively affected utilities companies' stock valuations, and this was the
case over the past 12 months. However, we are still positive about electric
utilities' fundamentals. We believe over the next few years electric companies
could have higher earnings growth prospects through innovation and technological
change, as have the gas and communications industries.
WHAT'S AHEAD
We expect the domestic economy's expansion to continue over the near term as few
signs of slowing are evident. Although inflation, as measured by the Consumer
Price Index, remains low by historical standards, it increased from a 1.8%
annual pace at the beginning of the period to 3.2% at its close, sparking
concerns from the Fed that the economy may be overheating. While the Fed may
continue to raise short-term interest rates over the near term, intermediate-
and long-term rates have already started moving back down over the past couple
of months and we suspect that the worst may be behind us. Economic strength is
likely to help many high yield and utilities companies execute their business
plans, producing solid results, and our outlook for corporate sector
fundamentals remains optimistic. Valuations of high yield bonds and utilities
stocks are attractive on a historical basis, and with fundamentals for both
asset classes still favorable, the Trust expects to continue to find attractive
investment opportunities in the near to intermediate term.
Sincerely,
Christopher J. Molumphy
Portfolio Manager
Franklin Multi-Income Trust
This discussion reflects our views, opinions and portfolio holdings as of March
31, 2000, the end of the reporting period. The information provided is not a
complete analysis of every aspect of any country, industry, security or the
Trust. Our strategies and the Trust's portfolio composition will change
depending on market and economic conditions. Although historical performance is
no guarantee of future results, these insights may help you understand our
investment and management philosophy.
1. Total return calculations represent the cumulative and average annual changes
in value of an investment over the periods indicated.
2. Distribution rate is based on an annualization of the Trust's 5.6 cent per
share March monthly dividend and the NYSE closing price of $7.00 on March 31,
2000.
Since markets can go down as well as up, investment return and principal value
will fluctuate with market conditions, currency volatility, and the economic,
social and political climates of countries where the Trust invests. Emerging
markets involve heightened risks related to the same factors, in addition to
those associated with their relatively small size and lesser liquidity. You may
have a gain or loss when you sell your shares.
ONE-YEAR PERFORMANCE SUMMARY
AS OF 3/31/00
Distributions will vary based on earnings of the Trust's portfolio and any
profits realized from the sale of the portfolio's securities. Past distributions
are not indicative of future trends. All total returns include reinvested
distributions according to the terms specified in the Trust's dividend
reinvestment and cash purchase plan.
One-Year Total Return +0.48% Based on change in Net Asset Value
-12.29% Based on change in Market Price on
the New York Stock Exchange (NYSE)
Net Asset Value (NAV) $8.97 (3/31/00) $10.05 (3/31/99)
Change in NAV -$1.08
Market Price (NYSE) $7.00 (3/31/00) $9.00 (3/31/99)
Change in Market Price -$2.00
Distributions (4/1/99 - 3/31/00) Dividend Income $0.7120
Long-Term Capital Gain $0.2412
Total $0.9532
ADDITIONAL PERFORMANCE
<TABLE>
<CAPTION>
INCEPTION
1-YEAR 5-YEAR 10-YEAR (10/9/89)
<S> <C> <C> <C> <C> <C>
Cumulative Total Return(1)
Based on change in
net asset value +0.48% +60.84% +227.52% +217.91%
Based on change in
market price -12.29% +37.95% +167.21% +131.13%
Average Annual Total Return (1)
Based on change in
net asset value +0.48% +9.97% +12.60% +11.68%
Based on change in
market price -12.29% +6.65% +10.33% +8.33%
Distribution Rate(2) 9.60%
</TABLE>
Franklin Multi-Income Trust paid distributions derived from long-term capital
gains of 24.12 cents ($0.2412) per share in November 1999. The Trust hereby
designates such distributions as capital gain dividends per Internal Revenue
Code Section 852 (b)(3).
For updated performance figures, call Franklin Templeton at 1-800/342-5236.
Past performance does not guarantee future results.
PORTFOLIO OPERATIONS
CHRISTOPHER J. 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 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 and Cash Purchase Plan (the "Plan") offers you
a prompt and simple way to reinvest dividends and capital gain distributions in
shares of the Trust. The Plan also allows you to purchase additional shares of
the Trust by making voluntary cash payments. PFPC Global Fund Services (the
"Plan Agent"), 101 Federal Street, Boston, Massachusetts 02110, acts as your
Plan Agent in administering the Plan. The complete Terms and Conditions of the
Dividend Reinvestment and Cash Purchase Plan are contained in the Trust's
Dividend Reinvestment and Cash Purchase Plan Brochure. A copy of that Brochure
may be obtained from the Trust at the address on the back cover of this report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the Plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the Trust declares a dividend or capital gain distribution, you, as a
participant in the Plan, will automatically receive an equivalent amount of
shares of the Trust purchased on your behalf by the Plan Agent.
The Plan permits you on a voluntary basis to submit in cash payments of not less
than $100 each up to a total of $5,000 per month to purchase additional shares
of the Trust. It is entirely up to you whether you wish to buy additional shares
with voluntary cash payments, and you do not have to send in the same amount
each time if you do. These payments should be made by check or money order
payable to Franklin Multi-Income Trust and sent to PFPC Global Fund Services,
101 Federal Street, Boston, Massachusetts 02110.
Your cash payment will be aggregated with the payments of other participants and
invested on your behalf by the Plan Agent in shares of the Trust which are
purchased in the open market.
The Plan Agent will invest cash payments on approximately the 15th of each month
in which no dividend or distribution is payable and, during each month in which
a dividend or distribution is payable, will invest cash payments beginning on
the dividend payment date. Under no circumstances will interest be paid on your
funds held by the Plan Agent. Accordingly, you should send any voluntary cash
payments which you wish to make shortly before an investment date but in
sufficient time to ensure that your payment will reach the Plan Agent not less
than 2 business days before an investment date. Payments received less than 2
business days before an investment date will be invested during the next month
or, if there are more than 30 days until the next investment date, will be
returned to you. You may obtain a refund of any cash payment by written notice,
if the Plan Agent receives the written notice not less than 48 hours before an
investment date.
There is no direct charge to participants for reinvesting dividends and capital
gain distributions, since the Plan Agent's fees are paid by the Trust. However,
when shares are purchased in the open market, each participant will pay a pro
rata portion of any brokerage commissions incurred. The Plan Agent will deduct a
$5.00 service fee from each of your voluntary cash payments.
The automatic reinvestment of dividends and capital gain distributions does not
relieve you of any taxes which may be payable on dividends or distributions. In
connection with the reinvestment of dividends and capital gain distributions,
shareholders generally will be treated as having received a distribution equal
to the cash distribution that would have been paid.
The Trust does not issue new shares in connection with the Plan. All investments
are in full and fractional shares, carried to three decimal places. If the
market price exceeds the net asset value you will receive shares at a price
greater than net asset value per share in connection with purchases through the
Plan.
You will receive a monthly account statement from the Plan Agent, showing total
dividends and capital gain distributions, date of investment, shares acquired
and price per share, and total shares of record held by you and by the Plan
Agent for you. You are entitled to vote all shares of record, including shares
purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will
include all such shares.
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in its name or in the name of its nominee.
This convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you.
You may withdraw from the Plan at any time, without penalty, by notifying the
Plan Agent in writing at the address above. If you withdraw from the Plan, you
may specify either: (a) that you wish to receive, without charge, stock
certificates issued in your name for all full shares; or (b) that you prefer the
Plan Agent to sell your shares and send you the proceeds less brokerage
commissions and a $5.00 fee. The Plan Agent will convert any fractional shares
you hold at the time of your withdrawal to cash at current market price and send
you a check for the proceeds.
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to the Plan Agent at the
address noted above. If your shares are not held in your name, you should
contact your brokerage firm, bank, or other nominee for more information and to
determine if your nominee will participate in the Plan on your behalf.
The Trust or the Plan Agent may amend or terminate the Plan. You will receive
written notice at least 90 days before the effective date of termination or of
any amendment. In the case of termination, you will receive written notice at
least 90 days before the record date of any dividend or capital gain
distribution by the Trust.
FRANKLIN MULTI-INCOME TRUST
MINUTES OF THE ANNUAL
SHAREHOLDERS' MEETING
At an Annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund")
held on October 7, 1999, shareholders approved the following:
1. Regarding the proposal to elect nominees for Trustees:
WITHHELD OR BROKER
TRUSTEES SHARES FOR ABSTAIN NON-VOTE
Frank H. Abbott, III 3,678,099 86,825 0
Harris J. Ashton 3,679,905 85,019 0
Gordon S. Macklin 3,680,205 84,719 0
2. Regarding the proposal to ratify the selection of PricewaterhouseCoopers LLP,
as independent auditors for the Fund's fiscal year ending March 31, 2000:
SHARES SHARES WITHHELD BROKER
FOR AGAINST OR ABSTAIN NON-VOTE
3,642,710 45,829 76,385 0
3. Regarding the proposal to eliminate the Fund's fundamental investment
restriction regarding investment in other investment companies:
SHARES SHARES WITHHELD BROKER
FOR AGAINST OR ABSTAIN NON-VOTE
2,860,330 136,909 117,627 650,058
4. Regarding the proposal to amend the Fund's fundamental investment restriction
regarding lending:
SHARES SHARES WITHHELD BROKER
FOR AGAINST OR ABSTAIN NON-VOTE
2,818,000 186,738 110,128 650,058
5. Regarding the proposal to grant the proxyholders the authority to vote upon
any other business that may properly come before the Meeting or any adjournments
thereof:
SHARES SHARES WITHHELD BROKER
FOR AGAINST OR ABSTAIN NON-VOTE
3,450,972 115,506 198,446 0
FRANKLIN MULTI-INCOME TRUST
Financial Highlights
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------------------------
2000 1999 1998 1997 1996
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year ................ $ 10.04 $ 11.98 $ 10.34 $ 10.61 $ 9.60
-----------------------------------------------------------------------
Income from investment operations:
Net investment income ............................ .71 .76 .72 .79 .78
Net realized and unrealized gains (losses) ....... (.84) (1.70) 2.18 -- 1.11
-----------------------------------------------------------------------
Total from investment operations .................. (.13) (.94) 2.90 .79 1.89
-----------------------------------------------------------------------
Less distributions from:
Net investment income ............................ (.70) (.76) (.74) (.77) (.77)
In excess of net investment income ............... -- (.01) (.03) -- --
Net realized gains ............................... (.24) (.23) (.49) (.29) (.11)
-----------------------------------------------------------------------
Total distributions ............................... (.94) (1.00) (1.26) (1.06) (.88)
-----------------------------------------------------------------------
Net asset value, end of year ...................... $ 8.97 $ 10.04 $ 11.98 $ 10.34 $ 10.61
-----------------------------------------------------------------------
Market value, end of year(a) ...................... $ 7.000 $ 9.000 $ 11.000 $ 9.375 $ 9.000
=======================================================================
Total return (based on market value per share)(b).. (12.29)% (9.58)% 32.57% 16.24% 12.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) .................. $ 52,559 $ 58,827 $ 70,190 $ 60,594 $ 62,153
Ratios to average net assets:
Expenses ........................................ 3.30% 3.07% 3.00% 3.14% 3.21%
Net investment income ........................... 7.33% 6.87% 6.47% 7.48% 7.53%
Portfolio turnover rate .......................... 30.42% 24.31% 45.31% 44.40% 35.06%
Total debt outstanding at end of year (000's) .... $ 16,000 $ 16,000 $ 16,000 $ 16,000 $ 16,000
Asset coverage per $1,000 of debt ................ $ 3,285 $ 3,677 $ 4,387 $ 3,787 $ 3,885
Average amount of notes per share during the year $ 2.73 $ 2.73 $ 2.73 $ 2.73 $ 2.73
</TABLE>
(a) Based on the last sale on the New York Stock Exchange.
(b) Total return is not annualized for periods less than one year.
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2000
<TABLE>
<CAPTION>
SHARES/
WARRANTS VALUE
<S> <C> <C>
COMMON STOCKS AND WARRANTS 55.3%
CONSUMER SERVICES .1%
Marriott International Inc., A ......................... 1,052 $ 33,138
----------
ENERGY MINERALS 1.6%
Ultramar Diamond Shamrock Corp. ........................ 33,300 844,988
----------
NON-ENERGY MINERALS
(a)Gulf States Steel Inc., wts., 4/15/03 .................. 1,000 1
----------
PRODUCER MANUFACTURING .9%
(a)Anacomp Inc. ........................................... 20,565 320,043
(a)Harvard Industries Inc. ................................ 27,466 137,330
----------
457,373
----------
TELECOMMUNICATIONS 4.1%
BellSouth Corp. ........................................ 24,000 1,128,000
GTE Corp. .............................................. 10,000 710,000
(a)Loral Space & Communications Ltd., wts., 1/15/07 ....... 1,000 4,831
SBC Communications Inc. ................................ 7,000 294,000
----------
2,136,831
----------
UTILITIES 48.6%
Allegheny Energy Inc. .................................. 20,000 551,250
American Electric Power Co. Inc. ....................... 17,500 521,719
CMS Energy Corp. ....................................... 13,400 242,875
Conectiv Inc. .......................................... 1,200 21,000
Constellation Energy Group Inc. ........................ 28,800 918,000
Dominion Resources Inc. ................................ 30,000 1,153,125
DPL Inc. ............................................... 30,948 686,659
DTE Energy Co. ......................................... 37,050 1,074,450
Duke Energy Corp. ...................................... 29,800 1,564,500
Enron Corp. ............................................ 43,252 3,238,494
Entergy Corp. .......................................... 40,000 807,500
FirstEnergy Corp. ...................................... 20,000 412,500
Florida Progress Corp. ................................. 10,000 458,750
FPL Group Inc. ......................................... 33,900 1,561,519
Montana Power Co. ...................................... 15,000 960,000
New Century Energies Inc. .............................. 55,700 1,674,481
Northwestern Corp. ..................................... 11,700 241,313
PECO Energy Co. ........................................ 20,900 770,688
Pinnacle West Capital Corp. ............................ 36,400 1,026,025
Puget Sound Energy Inc. ................................ 25,000 554,688
Reliant Energy Inc. .................................... 55,400 1,298,438
SCANA Corp. ............................................ 12,621 310,003
Sempra Energy .......................................... 3,202 53,634
Southern Co. ........................................... 60,000 1,305,000
Texas Utilities Co. .................................... 40,000 1,187,500
U.S. West Inc. ......................................... 20,000 1,452,500
Unicom Corp. ........................................... 42,000 1,533,000
----------
25,579,611
----------
TOTAL COMMON STOCKS AND WARRANTS (COST $24,744,655) .... 29,051,942
----------
</TABLE>
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (CONT.)
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
PREFERRED STOCKS 1.7%
Sinclair Capital, 11.625%, pfd. (COST $1,000,000) ........................ 10,000 $ 905,000
----------
CONVERTIBLE PREFERRED STOCKS 2.9%
REAL ESTATE .3%
Host Marriott Corp., 6.75%, cvt. pfd. .................................... 4,400 138,600
----------
UTILITIES 2.6%
CMS Energy Trust I, 7.75%, cvt. pfd. ..................................... 22,000 759,000
Utilicorp United Inc., 9.75%, cvt. pfd. .................................. 27,300 607,425
----------
1,366,425
----------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,970,768) ..................... 1,505,025
----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT (d)
----------
<S> <C> <C>
BONDS 64.2%
COMMERCIAL SERVICES 2.8%
(c)AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ........... $ 250,000 31,250
(c)AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 ...... 650,000 35,750
Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ................... 900,000 814,500
Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 (United Kingdom) 700,000 581,000
----------
1,462,500
----------
CONSUMER NON-DURABLES 1.1%
Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 .......... 1,000,000 445,000
Specialty Retailers Inc., senior note, B, 8.50%, 7/15/05 ................... 500,000 152,500
----------
597,500
----------
CONSUMER SERVICES 12.6%
AMFM Inc., senior note, 8.00%, 11/01/08 .................................... 500,000 496,250
AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ............................. 500,000 500,000
Charter Communications Holdings LLC, senior disc. note, zero cpn. to
4/01/04, 9.92% thereafter, 4/01/11 ....................................... 1,000,000 552,500
Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) ........ 500,000 480,000
Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75%
thereafter, 8/15/07 ...................................................... 1,000,000 805,000
Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 .......... 1,000,000 915,000
LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00%
thereafter, 3/01/08 ...................................................... 850,000 529,125
Park Place Entertainment, senior sub. note, 144A, 9.375%, 2/15/07 .......... 1,000,000 977,500
Six Flags Entertainment Corp., senior note, 8.875%, 4/01/06 ................ 600,000 561,000
Telewest Communications PLC, senior disc. note, 144A, zero cpn. to 4/15/04,
9.25% thereafter, 4/15/09 (United Kingdom) ............................ 500,000 292,500
United Pan-Europe Communications NV, senior disc. note, zero cpn. to
8/01/04, 12.50% thereafter, 8/01/09 (Netherlands) ..................... 1,000,000 500,000
----------
6,608,875
----------
ELECTRONIC TECHNOLOGY .6%
Celestica International Inc., senior sub. note, 10.50%, 12/31/06 (Canada) .. 325,000 339,625
----------
ENERGY MINERALS 3.9%
Chesapeake Energy Corp., senior note, B, 9.625%, 5/01/05 ................... 500,000 472,500
Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ......................... 1,000,000 605,000
Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 (Mexico) ..... 900,000 978,750
----------
2,056,250
----------
</TABLE>
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2000 (CONT.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(d) VALUE
<S> <C> <C>
BONDS (CONT.)
HEALTH SERVICES 2.6%
Abbey Healthcare Group Inc., senior sub. note, 9.50%, 11/01/02 ............ $ 1,000,000 $ 967,500
Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ........... 600,000 417,000
-----------
1,384,500
-----------
INDUSTRIAL SERVICES 3.3%
Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 .......... 900,000 724,500
RBF Finance Co., senior note, 11.375%, 3/15/09 ............................ 650,000 689,000
Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875%
thereafter, 2/15/08 ..................................................... 500,000 297,500
-----------
1,711,000
-----------
NON-ENERGY MINERALS 1.4%
LTV Corp., senior note, 8.20%, 9/15/07 .................................... 900,000 753,750
-----------
PROCESS INDUSTRIES 7.0%
Anchor Glass, first mortgage, 11.25%, 4/01/05 ............................. 1,000,000 725,000
Consolidated Container Co. LLC, senior sub. note, 10.125%, 7/15/09 ........ 1,000,000 977,500
Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75%
thereafter, 1/15/09 ..................................................... 200,000 113,000
Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ................. 200,000 163,000
Huntsman ICI Chemicals LLC, senior disc. note, zero cpn., 12/31/09 ........ 2,000,000 610,000
Lyondell Chemical Co., 9.875%, 5/01/07 .................................... 300,000 285,000
Pindo Deli Finance Mauritius Ltd., senior note, 10.25%, 10/01/02 (Indonesia) 1,000,000 822,500
-----------
3,696,000
-----------
PRODUCER MANUFACTURING 5.1%
Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 .......... 500,000 435,000
Aetna Industries Inc., senior note, 11.875%, 10/01/06 ..................... 1,000,000 910,000
Derlan Industries Ltd., senior note, 10.00%, 1/15/07 (Canada) ............. 291,000 284,453
Nortek Inc., 8.875%, 8/01/08 .............................................. 250,000 225,000
Nortek Inc., senior note, B, 9.125%, 9/01/07 .............................. 500,000 460,000
Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ..................... 400,000 382,000
-----------
2,696,453
-----------
TELECOMMUNICATIONS 19.8%
Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04,
11.25% thereafter, 8/01/11 .............................................. 1,000,000 585,000
Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ........... 1,000,000 1,032,500
Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02,
11.25% thereafter, 7/15/07 .............................................. 1,250,000 1,000,000
Level 3 Communications Inc., senior note, 9.125%, 5/01/08 ................. 1,000,000 867,500
Loral Space and Communications Ltd., senior disc. note, zero cpn. to
1/15/02, 12.50% thereafter, 1/15/07 ..................................... 1,000,000 465,000
Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ......................... 1,000,000 815,000
Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01,
13.50% thereafter, 6/01/06 (Luxembourg) ................................. 1,500,000 1,252,500
Nextel Communications Inc., senior note, 9.375%, 11/15/09 ................. 1,000,000 922,500
Nextel Partners Inc., senior sub. note, 144A, 11.00%, 3/15/10 ............. 300,000 289,500
NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ............... 500,000 475,000
NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ................. 500,000 461,250
PSINet Inc., senior note, 11.00%, 8/01/09 ................................. 750,000 735,000
Voicestream Wireless Corp., senior note, 144A, 10.375%, 11/15/09 .......... 500,000 500,000
Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ........ 1,000,000 985,000
-----------
10,385,750
-----------
</TABLE>
FRANKLIN MULTI-INCOME TRUST
Statement of Investments, March 31, 2000 (cont.)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT(d) VALUE
<S> <C> <C>
BONDS (CONT.)
TRANSPORTATION 1.0%
American Commercial Lines LLC, senior note, 10.25%, 6/30/08 ............. $ 600,000 $ 501,000
------------
UTILITIES 3.0%
AES Corp., senior note, 9.50%, 6/01/09 .................................. 750,000 720,000
ESCOM, E168, 11.00%, 6/01/08 (South Africa) ............................. 2,175,000 ZAR 276,652
Niagara Mohawk Power Corp., senior note, G, 7.75%, 10/01/08 ............. 600,000 589,628
------------
1,586,280
------------
TOTAL BONDS (COST $38,469,423) .......................................... 33,779,483
------------
CONVERTIBLE BONDS 2.3%
ELECTRONIC TECHNOLOGY 1.1%
Amkor Technology Inc., cvt., 144A, 5.00%, 3/15/07 ....................... 500,000 556,875
------------
HEALTH SERVICES .7%
Omnicare Inc., cvt. sub. deb., 5.00%, 12/01/07 .......................... 500,000 369,115
------------
TELECOMMUNICATIONS .5%
Global Telesystems Group Inc., cvt., 5.75%, 7/01/10 ..................... 300,000 259,500
------------
TOTAL CONVERTIBLE BONDS (COST $1,276,092) ............................... 1,185,490
------------
(b)REPURCHASE AGREEMENT 2.4%
Joint Repurchase Agreement, 6.081%, 4/03/00 (Maturity Value $1,270,333)
(COST $1,269,690) ...................................................... 1,269,690 1,269,690
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Dresdner Kleinwort Benson, North America LLC
Goldman, Sachs & Co.
Lehman Brothers Inc.
Nesbitt Burns Securities Inc.
Paribas Corp.
Societe Generale
Warburg Dillon Read LLC
Collateralized by U.S. Treasury Bills and Notes
------------
TOTAL INVESTMENTS (COST $68,730,628) 128.8% ............................. 67,696,630
OTHER ASSETS, LESS LIABILITIES (28.8)% .................................. (15,138,018)
------------
NET ASSETS 100.0% ....................................................... $ 52,558,612
============
</TABLE>
CURRENCY ABBREVIATION:
ZAR - South African Rand
(a) Non-income producing.
(b) Investment is through participation in a joint account with other funds
managed by the investment advisor. At March 31, 2000, all repurchase
agreements had been entered into on that date.
(c) See Note 7 regarding defaulted securities.
(d) The principal amount is stated in U.S. dollars unless otherwise indicated.
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2000
<TABLE>
<S> <C>
Assets:
Investments in securities:
Cost ............................................................. $ 68,730,628
============
Value ............................................................ 67,696,630
Receivables:
Investment securities sold ....................................... 210,509
Dividends and interest ........................................... 1,022,482
Note issuance costs (Note 3) ....................................... 85,620
------------
Total assets ................................................... 69,015,241
------------
Liabilities:
Payables:
Affiliates ......................................................... 48,604
Notes (Note 3) ..................................................... 16,000,000
Accrued interest (Note 3) .......................................... 48,000
Distributions to shareholders ..................................... 328,026
Other liabilities ................................................. 31,999
------------
Total liabilities .............................................. 16,456,629
------------
Net assets, at value ........................................... $ 52,558,612
============
Net assets consist of:
Accumulated distributions in excess of net investment income ...... $ (134,370)
Net unrealized depreciation ....................................... (1,034,560)
Accumulated net realized loss ..................................... (62,572)
Capital shares .................................................... 53,790,114
------------
Net assets, at value ............................................... $ 52,558,612
============
Net asset value per share (52,558,612 divided by 5,857,600 shares
outstanding) $ 8.97
============
</TABLE>
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C>
Investment income:
Dividends ......................................................... $ 1,717,467
Interest .......................................................... 4,377,502
-----------
Total investment income ............................................ 6,094,969
-----------
Expenses:
Management fees (Note 4) .......................................... 623,691
Transfer agent fees ............................................... 24,969
Custodian fees .................................................... 942
Reports to shareholders ........................................... 31,875
Professional fees ................................................. 38,304
Trustees' fees and expenses ....................................... 4,266
Amortization of note issuance costs (Note 3) ...................... 23,575
Other ............................................................. 27,528
-----------
Expenses before interest expense ............................... 775,150
Interest expense (Note 3) ...................................... 1,116,000
-----------
Total expenses ................................................. 1,891,150
-----------
Net investment income .......................................... 4,203,819
-----------
Realized and unrealized losses:
Net realized loss from:
Investments ...................................................... (64,723)
Foreign currency transactions .................................... (836)
-----------
Net realized loss .............................................. (65,559)
Net unrealized depreciation on:
Investments ...................................................... (4,869,724)
Translation of assets and liabilities denominated in foreign
currencies ...................................................... (261)
-----------
Net unrealized depreciation .................................... (4,869,985)
-----------
Net realized and unrealized loss ................................... (4,935,544)
-----------
Net decrease in net assets resulting from operations ............... $ (731,725)
===========
</TABLE>
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................ $ 4,203,819 $ 4,451,696
Net realized gain (loss) from investments and foreign currency
transactions ............................................................... (65,559) 1,446,657
Net unrealized depreciation on investments and translation of assets and
liabilities denominated in foreign currencies .............................. (4,869,985) (11,408,915)
------------- --------------
Net decrease in net assets resulting from operations ...................... (731,725) (5,510,562)
Distributions to shareholders from:
Net investment income ......................................................... (4,123,750) (4,451,432)
In excess of net investment income ............................................ -- (47,205)
Net realized gains ............................................................ (1,412,853) (1,353,691)
------------ -------------
Total distributions to shareholders ............................................. (5,536,603) (5,852,328)
------------ -------------
Net decrease in net assets .................................................. (6,268,328) (11,362,890)
Net assets:
Beginning of year .............................................................. 58,826,940 70,189,830
------------ -------------
End of year .................................................................... $ 52,558,612 $ 58,826,940
============ =============
Accumulated distributions in excess of net investment income included in net
assets:
End of year .................................................................... $ (134,370) $ (218,928)
============ ============
</TABLE>
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Financial Statements (continued)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED MARCH 31, 2000
<TABLE>
<S> <C>
Cash flow from operating activities:
Dividends and interest received ........................................... $ 5,096,124
Operating expenses paid ................................................... (888,627)
Interest expense paid ..................................................... (1,116,000)
-------------
Cash provided - operations .............................................. 3,091,497
=============
Cash flow from investing activities:
Investment purchases ...................................................... (400,600,122)
Investment sales and maturities ........................................... 403,092,088
-------------
Cash provided - investments ............................................. 2,491,966
=============
Cash flow from financing activities:
Issuance of notes ......................................................... 16,000,000
Defeasance of notes (Note 3) .............................................. (16,000,000)
Distributions to shareholders ............................................. (5,583,463)
-------------
Cash used - financing .................................................... (5,583,463)
=============
Net change in cash ......................................................... --
Cash at beginning of year .................................................. --
-------------
Cash at end of year ........................................................ $ --
=============
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATIONS FOR
THE YEAR ENDED MARCH 31, 2000
Net investment income ...................................................... $ 4,203,819
Amortization income ....................................................... (1,045,719)
Amortization of note issuance costs ....................................... 23,575
Note issuance costs paid .................................................. (96,069)
Decrease in dividends and interest receivable ............................. 46,874
Decrease in other liabilities ............................................. (40,983)
-------------
Cash provided - operations ................................................. $ 3,091,497
=============
</TABLE>
See notes to financial statements.
FRANKLIN MULTI-INCOME TRUST
Notes to Financial Statements
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Multi-Income Trust (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end investment company. The
Fund has two classes of securities: senior fixed-rate notes (the 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. Securities for which market quotations
are not readily available are valued at fair value as determined by management
in accordance with procedures established by the Board of Trustees.
b. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities and income items denominated in foreign currencies are translated
into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
c. INCOME TAXES
No provision has been made for income taxes because the Fund's policy is to
qualify as a regulated investment company under the Internal Revenue Code and to
distribute substantially all of its 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.
FRANKLIN MULTI-INCOME TRUST
Notes to Financial Statements (continued)
2. SHARES OF BENEFICIAL INTEREST
At March 31, 2000, there were an unlimited number of shares authorized ($0.01
par value). During the year ended March 31, 2000, 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, 1999, 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 proceeds of the Notes were used
to defease previously issued notes that matured on September 15, 1999.
The Notes bear interest, payable semi-annually, at the rate of 6.75% per year,
to maturity on September 15, 2004. 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 year ended March 31, 2000.
The issuance costs of $96,069 incurred by the Fund are deferred and amortized on
a straight line basis over the term of the Notes.
4. TRANSACTION WITH AFFILIATES
Certain officers and trustees of the Fund are also officers or directors 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.
Included in professional fees are legal fees of $21,034 that were paid to a law
firm in which a partner is an officer of the Fund.
5. INCOME TAXES
At March 31, 2000, the Fund had tax basis capital losses of $62,572 which may be
carried over to offset future capital gains. Such losses expire in 2008.
At March 31, 2000, the net unrealized depreciation based on the cost of
investments for income tax purposes of $68,730,628 was as follows:
Unrealized appreciation $ 7,346,931
Unrealized depreciation (8,380,929)
-----------
Net unrealized depreciation $(1,033,998)
===========
FRANKLIN MULTI-INCOME TRUST
Notes to Financial Statements (continued)
5. INCOME TAXES (CONT.)
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions.
Net realized capital losses differ for financial statement and tax purposes
primarily due to differing treatment of foreign currency transactions.
At March 31, 2000, the Fund has deferred currency losses occurring subsequent to
October 31, 1999 of $285. For tax purposes, such losses will be reflected in the
year ending March 31, 2001.
6. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the year
ended March 31, 2000 aggregated $21,730,329 and $23,906,204, respectively.
7. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 63.4% 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 March 31, 2000, the Fund
held two defaulted securities with a value aggregating $67,000 representing .1%
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
Consumer Services and Telecommunications industries. Such concentration may
subject the Fund more significantly to economic changes occurring within those
industries.
FRANKLIN MULTI-INCOME TRUST
Independent Auditors' Report
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS
OF FRANKLIN MULTI-INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, cash
flows, and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Franklin Multi-Income Trust
(the "Fund") at March 31, 2000, the results of its operations and its cash flows
for the year then ended, the changes in its net assets for each of the two years
in the period then ended and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted in the
United States. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
San Francisco, California
May 4, 2000
FRANKLIN MULTI-INCOME TRUST
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
31.24% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended March 31, 2000.
