UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-05873
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FRANKLIN MULTI-INCOME TRUST
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(Exact name of registrant as specified in charter)
ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
(Address of principal executive offices) (Zip code)
MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906
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(Name and address of agent for service)
Registrant's telephone number, including area code: (650) 312-2000
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Date of fiscal year end: 3/31
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Date of reporting period: 3/31/05
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ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMITTED]
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MARCH 31, 2005
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ANNUAL REPORT | INCOME
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FRANKLIN
MULTI-INCOME TRUST
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[LOGO](R)
FRANKLIN TEMPLETON
INVESTMENTS
FRANKLIN o Templeton o Mutual Series
FRANKLIN TEMPLETON INVESTMENTS
GAIN FROM OUR PERSPECTIVE
Franklin Templeton's distinct multi-manager
structure combines the specialized expertise
of three world-class investment management
groups--Franklin, Templeton and Mutual
Series.
SPECIALIZED EXPERTISE Each of our portfolio management groups
operates autonomously, relying on its own
research and staying true to the unique
investment disciplines that underlie its
success.
FRANKLIN. Founded in 1947, Franklin is a
recognized leader in fixed income investing
and also brings expertise in growth- and
value-style U.S. equity investing.
TEMPLETON. Founded in 1940, Templeton
pioneered international investing and, in
1954, launched what has become the industry's
oldest global fund. Today, with research
offices in over 25 countries, they offer
investors the broadest global reach in the
industry.
MUTUAL SERIES. Founded in 1949, Mutual Series
is dedicated to a unique style of value
investing, searching aggressively for
opportunity among undervalued stocks,
arbitrage situations and distressed
companies.
TRUE DIVERSIFICATION Because our management groups work
independently and adhere to distinctly
different investment approaches, Franklin,
Templeton and Mutual Series funds typically
have a low overlap of securities. That's why
our funds can be used to build truly
diversified portfolios covering every major
asset class.
RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to
consistently provide investors with
exceptional risk-adjusted returns over the
long term, as well as the reliable account
services that have helped us become one of
the most trusted names in financial services.
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MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS
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[GRAPHIC OMITTED]
Not part of the annual report
CONTENTS
ANNUAL REPORT
Franklin Multi-Income Trust ............................................... 1
Performance Summary ....................................................... 5
Annual Shareholders' Meeting .............................................. 6
Dividend Reinvestment and Cash Purchase Plan .............................. 7
Financial Highlights and Statement of Investments ......................... 10
Financial Statements ...................................................... 16
Notes to Financial Statements ............................................. 20
Report of Independent Registered Public Accounting Firm ................... 28
Tax Designation ........................................................... 29
Board Members and Officers ................................................ 30
Shareholder Information ................................................... 35
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ANNUAL REPORT
FRANKLIN MULTI-INCOME TRUST
YOUR FUND'S GOAL: Franklin Multi-Income Trust seeks to provide high, current
income consistent with preservation of capital as well as growth of income
through dividend increases and capital appreciation.
PORTFOLIO BREAKDOWN
Based on Total Investments*
3/31/05
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
Corporate Bonds 52.2%
Utilities Common Stocks 42.5%
Misc. Common & Preferred Stocks 3.3%
Foreign Currency Denominated Bonds 0.5%
Cash & Other Net Assets 1.5%
* Total investments include long-term and short-term investments and other
net assets, excluding long-term debt issued by the Fund.
Dear Shareholder:
We are pleased to bring you Franklin Multi-Income Trust's annual report for the
fiscal year ended March 31, 2005.
PERFORMANCE OVERVIEW
For the 12 months under review, Franklin Multi-Income Trust delivered cumulative
total returns of +14.32% based on change in net asset value and +21.29% based on
change in market price on the New York Stock Exchange. For comparison, the
Credit Suisse First Boston (CSFB) High Yield Index returned 7.84%, while
utilities stocks, as measured by the Standard & Poor's (S&P) Utilities Index,
returned 24.60% for the 12 months ended March 31, 2005.(1) You can find the
Fund's long-term performance data in the Performance Summary on page 5.
ECONOMIC AND MARKET OVERVIEW
Overall domestic economic growth remained healthy, with annualized quarterly
growth of gross domestic product (GDP) ranging from 4.0% to 3.1% over the past
year. In terms of drivers supporting this economic expansion, approximately
(1) Sources: Credit Suisse First Boston; Standard & Poor's Micropal. The CSFB
High Yield Index is designed to mirror the investible universe of the U.S.
dollar denominated high yield debt market. The S&P Utilities Index is a
market capitalization-weighted index that includes utility stocks in the
S&P 500 Composite Index. The indexes are unmanaged and include
reinvestment of any income or distributions. One cannot invest directly in
an index, nor is an index representative of the Fund's portfolio.
THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND NAMES OF ALL
PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE
SOI BEGINS ON PAGE 11.
Annual Report | 1
DIVIDEND DISTRIBUTIONS
4/1/04-3/31/05
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MONTH DIVIDEND PER SHARE
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April 3.50 cents
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May 3.50 cents
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June 3.50 cents
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July 3.50 cents
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August 3.50 cents
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September 3.50 cents
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October 3.50 cents
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November 3.50 cents
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December 3.50 cents
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January 3.50 cents
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February 3.50 cents
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March 3.50 cents
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TOTAL 42.00 CENTS
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two-thirds of GDP is generated by consumer spending, and almost one-fifth by
business spending. Since consumer spending relies on consumers' ability to
remain gainfully employed, many analysts study the employment picture for
indications of consumer spending. Over the past 12 months, nonfarm payroll data,
as well as other indexes, showed growing employment. This, along with 6.0%
growth in personal income over the past year, helped consumer spending increase
6.1% (not adjusted for inflation) for the 12 months ended March 31, 2005, which
supported U.S. economic growth.(2)
Business spending also rose during the reporting period, contributing to
economic growth. For example, annualized nonresidential investment spending
recorded double-digit gains for most of the period before experiencing a
slowdown in its pace of growth during first quarter 2005. Historically low
interest rates and ample cash and liquidity allowed many corporations to
increase their capital investment plans to meet expected demand increases.
Domestic inflationary pressures increased over the past 12 months, driven by
economic strength as well as rising energy prices, as oil prices neared $57 a
barrel.(3) Moreover, although corporate productivity continued to grow, the pace
of productivity growth slowed from that of recent years. In this environment,
the Federal Reserve Board (Fed) raised the federal funds target rate to 2.75%
from 1.00% during the reporting period, with expectations for further measured
increases continuing in 2005. Nonetheless, with some slack remaining in the
labor force and businesses still unable in many industries to pass along
significant price increases to the consumer, nominal inflation was relatively
contained, as measured by the 2.3% rise in the core Consumer Price Index (CPI),
which excludes volatile food and energy costs. Although higher than in the past
two calendar years, this matched the core CPI's 10-year average of 2.3%.(2) With
the rise in short-term rates, the yield curve flattened during the period;
however, longer-term interest rates, as measured by the 10-year U.S. Treasury
yield, did increase, with the 10-year yield rising from 3.86% to 4.50% by
period-end.
INVESTMENT STRATEGY
We invest primarily in two asset classes: high yield bonds and utility stocks.
Within the high yield portion of the portfolio, we use fundamental research to
invest in a diversified portfolio of bonds. Within the utility portion of the
portfolio, we focus on companies with attractive dividend yields and a history
of increasing their dividends.
(2) Source: Bureau of Labor Statistics.
(3) Source: Bloomberg Energy/Commodity Service.
2 | Annual Report
MANAGER'S DISCUSSION
During the year under review, the Fund benefited from positive returns in each
of its primary asset classes. High yield corporate bonds gained from a strong
fundamental environment as well as continued investor interest in higher
yielding assets. Due to a continuing economic recovery, the default rate fell to
1.25% in 2004, well below the 4.40% historical average experienced since
1985.(4) Utility stocks benefited from investor preference for dividend paying
stocks and a continued low interest rate environment. Many utility companies
maintained their "back to basics" strategy, which focused on core, regulated
assets and generating shareholder returns through dividend increases or share
repurchases.
HIGH YIELD CORPORATE BONDS
The Fund benefited from its overweighted positions in wireless
telecommunications and chemicals relative to the CSFB High Yield Index.(5) The
wireless telecommunications industry benefited from merger and acquisition
activity, in particular the merger of Fund holding Nextel Communications with
investment grade-rated Sprint. In addition, industry growth remained positive
and the feared demise of revenue from roaming charges failed to materialize. The
chemicals industry experienced renewed pricing power, as demand for plastics and
other chemical end-products improved along with the economy. Since very little
new capacity was built during the recent industry downturn, the increase in
demand led to higher operating rates, which enabled companies to expand margins
in spite of high oil and natural gas costs. In this favorable fundamental
environment, several companies, including Fund holdings Nalco, Celanese (BCP
Chrystal Holding in the SOI) and Huntsman International Holdings (redeemed
during the period), issued equity via initial public offerings.
The Fund's underweighted position in utilities and overweighted position in
broadcasting hindered performance in the high yield sector. Utility bonds
generated returns greater than that of the overall index. However, the Fund
intentionally kept its high yield utility exposure fairly low given its large
exposure to that sector through utility stocks. More defensive sectors such as
broadcasting underperformed the index during the fiscal year's strong market
environment. We held a greater exposure than the index because we preferred
broadcasters' free cash flow generation and the asset protection afforded by the
value of radio and television stations.
(4) Source: Altman, Dr. Edward, "Default Returns in the High Yield Bond
Market," Spring 2005.
(5) In the SOI, the wireless telecommunications industry is part of
communications; the chemicals industry is part of process industries.
TOP 10 HOLDINGS
3/31/05
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COMPANY
SECTOR/INDUSTRY % OF TOTAL
(SECURITY TYPE) INVESTMENTS*
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Exelon Corp. 3.2%
UTILITIES (STOCK)
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Dominion Resources Inc. 2.5%
UTILITIES (STOCK)
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Entergy Corp. 2.4%
UTILITIES (STOCK)
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TXU Corp. 2.3%
UTILITIES (STOCK)
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FPL Group 2.2%
UTILITIES (STOCK)
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Edison International 2.0%
UTILITIES (STOCK)
--------------------------------------------------------------------------------
Southern Co. 2.0%
UTILITIES (STOCK)
--------------------------------------------------------------------------------
NiSource 1.9%
UTILITIES (STOCK)
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ONEOK 1.8%
UTILITIES (STOCK)
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FirstEnergy 1.7%
UTILITIES (STOCK)
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* Total investments include long-term and short-term investments and other
net assets, excluding long-term debt issued by the Fund.
Annual Report | 3
UTILITY STOCKS
The Fund's utility exposure remained below the middle of our normal investment
range during the year, at 44.0% of the Fund's total net assets excluding
long-term debt issued by the Fund as of March 31, 2005. This positioning
constrained Fund performance as utility stocks generated a greater return than
high yield bonds. Utility stocks were supported by strong industry fundamentals,
which enabled companies to generate free cash flow and increase their dividends.
In addition, the continued low interest rate environment and investor appetite
for dividend paying stocks also helped support utility performance.
Thank you for your continued participation in Franklin Multi-Income Trust. We
look forward to serving your future investment needs.
Sincerely,
[PHOTO OMITTED]
/s/ Christopher J. Molumphy
Christopher J. Molumphy, CFA
Senior Portfolio Manager
[PHOTO OMITTED]
/s/ Glenn I. Voyles
Glenn I. Voyles, CFA
Portfolio Manager
Franklin Multi-Income Trust
THE FOREGOING INFORMATION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS
AS OF MARCH 31, 2005, THE END OF THE REPORTING PERIOD. THE WAY WE IMPLEMENT OUR
MAIN INVESTMENT STRATEGIES AND THE RESULTING PORTFOLIO HOLDINGS MAY CHANGE
DEPENDING ON FACTORS SUCH AS MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY
NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY.
THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET,
COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES
CONSIDERED RELIABLE, BUT THE ADVISER MAKES NO REPRESENTATION OR WARRANTY AS TO
THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE
OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT
MANAGEMENT PHILOSOPHY.
4 | Annual Report
PERFORMANCE SUMMARY AS OF 3/31/05
Your dividend income will vary depending on dividends or interest paid by
securities in the Fund's portfolio, adjusted for operating expenses. Capital
gain distributions are net profits realized from the sale of portfolio
securities. Total return reflects reinvestment of the Fund's dividends and
capital gain distributions, if any, and any unrealized gains or losses. All
total returns include reinvested distributions according to the terms specified
in the Fund's dividend reinvestment and cash purchase plan and do not reflect
any sales charges paid at inception or brokerage commissions paid on secondary
market purchases.
PRICE AND DISTRIBUTION INFORMATION
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SYMBOL: FMI CHANGE 3/31/05 3/31/04
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Net Asset Value (NAV) +$0.70 $9.12 $8.42
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Market Price (NYSE) +$1.14 $8.79 $7.65
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DISTRIBUTIONS (4/1/04-3/31/05)
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Dividend Income $0.4200
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PERFORMANCE
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1-YEAR 5-YEAR 10-YEAR
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Cumulative Total Return(1)
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Based on change in NAV +14.32% +45.22% +133.91%
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Based on change in market price +21.29% +79.38% +147.38%
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Average Annual Total Return(1)
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Based on change in NAV +14.32% +7.75% +8.87%
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Based on change in market price +21.29% +12.40% +9.48%
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Distribution Rate(2) 4.78%
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PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE, AND YOU
MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. CURRENT PERFORMANCE MAY
DIFFER FROM FIGURES SHOWN.
FOR MORE CURRENT PERFORMANCE, CALL FRANKLIN TEMPLETON INVESTMENTS AT
1-800/342-5236.
ENDNOTES
THE FUND'S PORTFOLIO INCLUDES A SUBSTANTIAL PORTION OF HIGHER-YIELDING,
LOWER-RATED CORPORATE BONDS BECAUSE OF THE RELATIVELY HIGHER YIELDS THEY OFFER.
THESE SECURITIES CARRY A GREATER DEGREE OF CREDIT RISK RELATIVE TO
INVESTMENT-GRADE SECURITIES. IN ADDITION TO OTHER FACTORS, SECURITIES ISSUED BY
UTILITY COMPANIES ARE PARTICULARLY SENSITIVE TO INTEREST RATE MOVEMENTS. WHEN
INTEREST RATES FALL, UTILITY SECURITIES PRICES TEND TO RISE; WHEN INTEREST RATES
RISE, THEIR PRICES GENERALLY FALL.
(1) Total return calculations represent the cumulative and average annual
changes in value of an investment over the periods indicated.
(2) Distribution rate is based on an annualization of the Fund's 3.5 cent per
share March dividend and the NYSE closing price of $8.79 on 3/31/05.
Annual Report | 5
ANNUAL SHAREHOLDERS' MEETING
SEPTEMBER 8, 2004
At an annual Meeting of Shareholders of Franklin Multi-Income Trust (the "Fund")
held on September 8, 2004, shareholders approved the following:
1. Regarding the proposal to elect nominees for Trustees:
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% OF % OF
SHARES OUTSTANDING % OF WITHHELD OR OUTSTANDING % OF
TRUSTEES FOR SHARES VOTED ABSTAIN SHARES VOTED
-----------------------------------------------------------------------------------------------------------
Edward B. Jamieson 4,983,495.006 85.007% 96.473% 182,213.785 3.111% 3.527%
-----------------------------------------------------------------------------------------------------------
Charles B. Johnson 4,979,498.006 85.009% 96.395% 186,210.785 3.179% 3.605%
-----------------------------------------------------------------------------------------------------------
Rupert H. Johnson, Jr. 4,980,991.006 85.035% 96.424% 184,717.785 3.153% 3.576%
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6 | Annual Report
DIVIDEND REINVESTMENT
AND CASH PURCHASE PLAN
The Fund's Dividend Reinvestment and Cash Purchase Plan (the "Plan") offers you
a prompt and simple way to reinvest dividends and capital gain distributions in
shares of the Fund. The Plan also allows you to purchase additional shares of
the Fund by making voluntary cash payments. PFPC Inc. (the "Plan Agent"), P.O.
Box 9223, Chelsea, MA 02150-9223, acts as your Plan Agent in administering the
Plan. The complete Terms and Conditions of the Dividend Reinvestment and Cash
Purchase Plan are contained in the Fund's Dividend Reinvestment and Cash
Purchase Plan Brochure. A copy of that Brochure may be obtained from the Fund at
the address on the back cover of this report.
You are automatically enrolled in the Plan unless you elect to receive dividends
or distributions in cash. If you own shares in your own name, you should notify
the Plan Agent, in writing, if you wish to receive dividends or distributions in
cash.
If the Fund declares a dividend or capital gain distribution, you, as a
participant in the Plan, will automatically receive an equivalent amount of
shares of the Fund purchased on your behalf by the Plan Agent.
The Plan permits you on a voluntary basis to submit in cash payments of not less
than $100 each up to a total of $5,000 per month to purchase additional shares
of the Fund. It is entirely up to you whether you wish to buy additional shares
with voluntary cash payments, and you do not have to send in the same amount
each time if you do. These payments should be made by check or money order
payable to PFPC Inc. and sent to PFPC Inc., Attn: Franklin Multi-Income Trust,
P.O. Box 9223, Chelsea, MA 02150-9223.
Your cash payment will be aggregated with the payments of other participants and
invested on your behalf by the Plan Agent in shares of the Fund which are
purchased in the open market.
The Plan Agent will invest cash payments on approximately the 15th of each month
in which no dividend or distribution is payable and, during each month in which
a dividend or distribution is payable, will invest cash payments beginning on
the dividend payment date. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON YOUR
FUNDS HELD BY THE PLAN AGENT. Accordingly, you should send any voluntary cash
payments which you wish to make shortly before an investment date but in
sufficient time to ensure that your payment will reach the Plan Agent not less
than 2 business days before an investment date. Payments received less than 2
business days before an investment date will be invested during the next month
or, if there are more than 30 days until the next investment date, will be
returned to you. You may obtain a refund of any cash payment by written notice,
if the Plan Agent receives the written notice not less than 48 hours before an
investment date.
Annual Report | 7
There is no direct charge to participants for reinvesting dividends and capital
gain distributions, since the Plan Agent's fees are paid by the Fund. However,
when shares are purchased in the open market, each participant will pay a pro
rata portion of any brokerage commissions incurred. The Plan Agent will deduct a
$5.00 service fee from each of your voluntary cash payments.
The automatic reinvestment of dividends and capital gain distributions does not
relieve you of any taxes which may be payable on dividends or distributions. In
connection with the reinvestment of dividends and capital gain distributions,
shareholders generally will be treated as having received a distribution equal
to the cash distribution that would have been paid.
The Fund does not issue new shares in connection with the Plan. All investments
are in full and fractional shares, carried to three decimal places. If the
market price exceeds the net asset value you will receive shares at a price
greater than net asset value per share in connection with purchases through the
Plan.
You will receive a monthly account statement from the Plan Agent, showing total
dividends and capital gain distributions, date of investment, shares acquired
and price per share, and total shares of record held by you and by the Plan
Agent for you. You are entitled to vote all shares of record, including shares
purchased for you by the Plan Agent, and, if you vote by proxy, your proxy will
include all such shares.
As long as you participate in the Plan, the Plan Agent will hold the shares it
has acquired for you in safekeeping, in its name or in the name of its nominee.
This convenience provides added protection against loss, theft or inadvertent
destruction of certificates. However, you may request that a certificate
representing your Plan shares be issued to you.
You may withdraw from the Plan at any time, without penalty, by notifying the
Plan Agent in writing at the address above. If you withdraw from the Plan, you
may specify either: (a) that you wish to receive, without charge, stock
certificates issued in your name for all full shares; or (b) that you prefer the
Plan Agent to sell your shares and send you the proceeds less brokerage
commissions and a $5.00 fee. The Plan Agent will convert any fractional shares
you hold at the time of your withdrawal to cash at current market price and send
you a check for the proceeds.
8 | Annual Report
If you hold shares in your own name, please address all notices, correspondence,
questions, or other communications regarding the Plan to the Plan Agent at the
address noted above. If your shares are not held in your name, you should
contact your brokerage firm, bank, or other nominee for more information and to
determine if your nominee will participate in the Plan on your behalf.
The Fund or the Plan Agent may amend or terminate the Plan. You will receive
written notice at least 90 days before the effective date of termination or of
any amendment. In the case of termination, you will receive written notice at
least 90 days before the record date of any dividend or capital gain
distribution by the Fund.
Annual Report | 9
FRANKLIN MULTI-INCOME TRUST
FINANCIAL HIGHLIGHTS
--------------------------------------------------------
YEAR ENDED MARCH 31,
2005 2004 2003 2002 2001
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PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value, beginning of year .............. $ 8.42 $ 6.40 $ 8.71 $ 9.80 $ 8.97
--------------------------------------------------------
Income from investment operations:
Net investment income .......................... 0.44 0.44 0.51 0.63 0.66
Net realized and unrealized gains (losses) ..... 0.68 2.00 (2.25) (1.05) 0.84
--------------------------------------------------------
Total from investment operations ................ 1.12 2.44 (1.74) (0.42) 1.50
Less distributions from net investment income ... (0.42) (0.42) (0.57) (0.67) (0.67)
--------------------------------------------------------
Net asset value, end of year .................... $ 9.12 $ 8.42 $ 6.40 $ 8.71 $ 9.80
========================================================
Market value, end of year(a) .................... $ 8.79 $ 7.65 $ 6.10 $ 8.70 $ 8.62
========================================================
Total return (based on market value per share) .. 21.29% 32.84% (23.67)% 9.23% 33.54%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) ................. $53,446 $49,322 $37,511 $51,047 $57,412
Ratios to average net assets:
Expenses ....................................... 2.98% 3.49% 4.47% 3.45% 3.23%
Net investment income .......................... 5.07% 5.71% 7.52% 6.97% 6.88%
Portfolio turnover rate ......................... 26.59% 45.82% 48.45% 18.27% 26.72%
Total debt outstanding at end of year (000's) ... $16,000 $14,000 $14,000 $16,000 $16,000
Asset coverage per $1,000 of debt(b) ............ $ 4,340 $ 4,523 $ 3,679 $ 4,190 $ 4,588
Average amount of notes per share during the year $ 2.57 $ 2.39 $ 2.54 $ 2.73 $ 2.73
(a) Based on the last sale on the New York Stock Exchange.
(b) Asset coverage per $1,000 of debt has been corrected. As of March 31,
2004, 2003, 2002 and 2001 the asset coverage previously presented were
$3,523, $2,679, $3,190 and $3,588, respectively.
10 | See notes to financial statements. | Annual Report
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2005
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COUNTRY SHARES/WARRANTS VALUE
-----------------------------------------------------------------------------------------------------------------
COMMON STOCKS AND WARRANTS 56.2%
COMMUNICATIONS 0.9%
(a) Telewest Global Inc. ................................ United Kingdom 17,056 $ 303,426
(a) USA Mobility Inc. ................................... United States 5,053 163,717
------------
467,143
------------
CONSUMER SERVICES 0.1%
Marriott International Inc., A ...................... United States 1,052 70,336
------------
ELECTRONIC TECHNOLOGY 0.0%(b)
(a) Loral Space & Communications Ltd., wts., 12/27/06 ... United States 4,188 63
(a) Loral Space & Communications Ltd., wts., 1/15/07 .... United States 1,000 --
------------
63
------------
TRANSPORTATION 0.0%(b)
(a) Continental Airlines Inc., B .................... United States 357 4,298
------------
UTILITIES 55.2%
Alliant Energy Corp. ................................ United States 15,000 401,700
Ameren Corp. ........................................ United States 20,000 980,200
American Electric Power Co. Inc. .................... United States 33,800 1,151,228
Atmos Energy Corp. .................................. United States 35,000 945,000
Cinergy Corp. ....................................... United States 24,500 992,740
Dominion Resources Inc. ............................. United States 23,400 1,741,662
DTE Energy Co. ...................................... United States 20,000 909,600
Edison International ................................ United States 40,000 1,388,800
Energy East Corp. ................................... United States 30,000 786,600
Entergy Corp. ....................................... United States 24,000 1,695,840
Exelon Corp. ........................................ United States 49,000 2,248,610
FirstEnergy Corp. ................................... United States 27,500 1,153,625
FPL Group Inc. ...................................... United States 38,000 1,525,700
Nicor Inc. .......................................... United States 29,000 1,075,610
NiSource Inc. ....................................... United States 57,000 1,299,030
NSTAR ............................................... United States 15,500 841,650
ONEOK Inc. .......................................... United States 40,200 1,238,964
Pepco Holdings Inc. ................................. United States 20,500 430,295
Pinnacle West Capital Corp. ......................... United States 24,000 1,020,240
PPL Corp. ........................................... United States 11,700 631,683
Progress Energy Inc. ................................ United States 21,000 880,950
Public Service Enterprise Group Inc. ................ United States 15,000 815,850
Puget Energy Inc. ................................... United States 37,000 815,480
SCANA Corp. ......................................... United States 12,621 482,375
Sempra Energy ....................................... United States 26,000 1,035,840
Southern Co. ........................................ United States 43,000 1,368,690
TXU Corp. ........................................... United States 20,400 1,624,452
------------
29,482,414
------------
TOTAL COMMON STOCKS AND WARRANTS (COST $19,132,325) . 30,024,254
------------
Annual Report | 11
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------
COUNTRY SHARES/WARRANTS VALUE
------------------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK (COST $625,000) 1.2%
UTILITIES
Heco Capital Trust III, 6.50%, pfd. .............................. United States 25,000 $ 637,750
------------
CONVERTIBLE PREFERRED STOCKS 2.1%
CONSUMER DURABLES 1.3%
Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ................ United States 15,300 693,702
------------
UTILITIES 0.8%
CMS Energy Trust I, 7.75%, cvt. pfd. ............................. United States 8,000 408,000
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (COST $1,023,846) ............. 1,101,702
------------
-------------------
PRINCIPAL AMOUNT(C)
-------------------
BONDS 68.5%
COMMERCIAL SERVICES 1.4%
Corrections Corp. of America, senior note, 7.50%, 5/01/11 ........ United States $ 500,000 508,750
JohnsonDiversey Inc., senior sub. note, B, 9.625%, 5/15/12 ....... United States 200,000 216,000
------------
724,750
------------
COMMUNICATIONS 8.1%
Dobson Cellular Systems Inc., secured note, 144A, 9.875%, 11/01/12 United States 400,000 410,000
Inmarsat Finance PLC, senior note, 7.625%, 6/30/12 ............... United Kingdom 600,000 600,000
Intelsat Bermuda Ltd., senior note, 144A, 8.25%, 1/15/13 ......... Bermuda 600,000 609,000
Millicom International Cellular SA, senior note, 144A, 10.00%,
12/01/13 ........................................................ Luxembourg 500,000 512,500
Nextel Communications Inc., senior note, 7.375%, 8/01/15 ......... United States 600,000 636,750
Qwest Communications International Inc., senior note, 144A, 7.50%,
2/15/14 ......................................................... United States 500,000 491,250
Rogers Wireless Communications Inc., senior secured note, 7.25%,
12/15/12 ........................................................ Canada 500,000 512,500
Time Warner Telecom Holdings Inc., senior note, 144A, 9.25%,
2/15/14 ......................................................... United States 300,000 289,500
Time Warner Telecom Holdings Inc., senior note, 9.25%, 2/15/14 ... United States 300,000 289,500
------------
4,351,000
------------
CONSUMER DURABLES 3.4%
D.R. Horton Inc., senior note, 8.50%, 4/15/12 .................... United States 500,000 547,983
Jostens IH Corp., senior sub. note, 7.625%, 10/01/12 ............. United States 300,000 298,500
Simmons Co., senior sub. note, 7.875%, 1/15/14 ................... United States 400,000 410,000
William Lyon Homes Inc., senior note, 7.625%, 12/15/12 ........... United States 600,000 564,000
------------
1,820,483
------------
CONSUMER NON-DURABLES 3.5%
Del Monte Corp., senior sub. note, 144A, 6.75%, 2/15/15 .......... United States 400,000 392,000
Rayovac Corp., senior sub. note, 144A, 7.375%, 2/01/15 ........... United States 600,000 577,500
Smithfield Foods Inc., senior note, 7.00%, 8/01/11 ............... United States 400,000 411,500
Smithfield Foods Inc., senior note, 7.75%, 5/15/13 ............... United States 200,000 213,000
William Carter, senior sub. note, 10.875%, 8/15/11 ............... United States 242,000 268,620
------------
1,862,620
------------
CONSUMER SERVICES 11.7%
(d) Adelphia Communications Corp., senior note, 10.875%, 10/01/10 .... United States 600,000 534,000
Cablevision Systems Corp., senior note, 144A, 8.00%, 4/15/12 ..... United States 600,000 619,500
Charter Communications Holdings II, senior note, 10.25%, 9/15/10 . United States 600,000 615,000
12 | Annual Report
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
---------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT(C) VALUE
---------------------------------------------------------------------------------------------------------------------------
BONDS (CONT.)
CONSUMER SERVICES (CONT.)
Dex Media West LLC, senior sub. note, 9.875%, 8/15/13 ............. United States $ 490,000 $ 548,800
DIRECTV Holdings LLC, senior note, 8.375%, 3/15/13 ................ United States 500,000 543,750
Emmis Operating Co., senior sub. note, 6.875%, 5/15/12 ............ United States 600,000 591,000
Marquee Inc., senior note, 144A, 8.625%, 8/15/12 .................. United States 400,000 428,000
Park Place Entertainment Corp., senior sub. note, 7.875%, 3/15/10 . United States 500,000 547,500
Pinnacle Entertainment Inc., senior sub. note, 8.75%, 10/01/13 .... United States 100,000 104,000
Radio One Inc., senior sub. note, 144A, 6.375%, 2/15/13 ........... United States 200,000 197,500
Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 ......... United States 200,000 220,750
Royal Caribbean Cruises Ltd., senior note, 6.875%, 12/01/13 ....... United States 400,000 419,000
Station Casinos Inc., senior sub. note, 6.875%, 3/01/16 ........... United States 600,000 603,750
Young Broadcasting Inc., senior sub. note, 8.75%, 1/15/14 ......... United States 300,000 285,750
------------
6,258,300
------------
ELECTRONIC TECHNOLOGY 3.4%
Flextronics International Ltd., senior sub. note, 6.50%, 5/15/13 .. Singapore 400,000 399,000
Sanmina-SCI Corp., sub. note, 144A, 6.75%, 3/01/13 ................ United States 600,000 565,500
Solectron Corp., senior note, 9.625%, 2/15/09 ..................... United States 300,000 324,750
Xerox Corp., senior note, 7.125%, 6/15/10 ......................... United States 500,000 519,375
------------
1,808,625
------------
ENERGY MINERALS 3.5%
Chesapeake Energy Corp., senior note, 144A, 6.375%, 6/15/15 ....... United States 200,000 198,500
Foundation PA Coal Co., senior note, 7.25%, 8/01/14 ............... United States 300,000 306,000
Markwest Energy Partners LP, senior note, 144A, 6.875%, 11/01/14 .. United States 300,000 301,500
Peabody Energy Corp., senior note, B, 6.875%, 3/15/13 ............. United States 300,000 310,500
Plains Exploration & Production Co., senior note, 7.125%, 6/15/14 . United States 200,000 210,000
Vintage Petroleum, senior sub. note, 7.875%, 5/15/11 .............. United States 500,000 532,500
------------
1,859,000
------------
GOVERNMENT BONDS 0.7%
Eskom, E168, 11.00%, 6/01/08 ...................................... South Africa 2,175,000 ZAR 374,386
------------
HEALTH SERVICES 3.4%
Davita Inc., senior sub. note, 144A, 7.25%, 3/15/15 ............... United States 600,000 591,000
Tenet Healthcare Corp., senior note, 7.375%, 2/01/13 .............. United States 600,000 568,500
Vanguard Health Holding Co. II LLC, senior sub. note, 9.00%,
10/01/14 ......................................................... United States 600,000 634,500
------------
1,794,000
------------
HEALTH TECHNOLOGY 1.1%
Bio-Rad Laboratories Inc., senior sub. note, 144A, 6.125%, 12/15/14 United States 600,000 591,000
------------
INDUSTRIAL SERVICES 2.7%
Allied Waste North America Inc., senior note, 7.875%, 4/15/13 ..... United States 600,000 601,500
Grant Prideco Escrow, senior note, 9.00%, 12/15/09 ................ United States 200,000 217,000
Hanover Equipment Trust 01, senior secured note, B, 8.75%, 9/01/11 United States 600,000 636,000
------------
1,454,500
-----------
NON-ENERGY MINERALS 1.6%
Ispat Inland ULC, senior secured note, 9.75%, 4/01/14 ............. United States 402,000 470,139
Novelis Inc., senior note, 144A, 7.25%, 2/15/15 ................... Canada 400,000 394,000
------------
864,139
------------
Annual Report | 13
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
------------------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT(C) VALUE
------------------------------------------------------------------------------------------------------------------------------------
BONDS (CONT.)
PROCESS INDUSTRIES 8.4%
Abitibi-Consolidated Inc., senior note, 8.375%, 4/01/15 ............ Canada $ 600,000 $ 586,500
BCP Crystal Holding U.S., senior sub. note, 144A, 9.625%, 6/15/14 .. Luxembourg 385,000 440,825
Georgia-Pacific Corp., senior note, 8.00%, 1/15/24 ................. United States 600,000 672,000
JSG Funding PLC, senior sub. note, 144A, 7.75%, 4/01/15 ............ Irish Republic 250,000 233,750
MDP Acquisitions PLC, senior note, 9.625%, 10/01/12 ................ Irish Republic 300,000 324,000
Nalco Co., senior sub. note, 8.875%, 11/15/13 ...................... United States 400,000 430,000
Owens-Brockway Glass Container Inc., senior note, 144A, 6.75%,
12/01/14 ......................................................... United States 600,000 591,000
(d),(e),(f) Pindo Deli Finance Mauritius Ltd., senior note, 10.25%,
10/01/04 ......................................................... Indonesia 1,000,000 235,520
PQ Corp., senior sub. note, 144A, 7.50%, 2/15/13 ................... United States 300,000 297,000
Rhodia SA, senior note, 10.25%, 6/01/10 ............................ France 600,000 657,000
------------
4,467,595
------------
PRODUCER MANUFACTURING 5.5%
Case New Holland Inc., senior note, 144A, 9.25%, 8/01/11 ........... United States 600,000 642,000
Invensys PLC, senior note, 144A, 9.875%, 3/15/11 ................... United Kingdom 400,000 409,000
Fimep SA, senior note, 10.50%, 2/15/13 ............................. France 500,000 567,500
Milacron Escrow Corp., senior secured note, 11.50%, 5/15/11 ........ United States 600,000 657,000
Nortek Inc., senior sub. note, 8.50%, 9/01/14 ...................... United States 200,000 194,000
TRW Automotive Inc., senior note, 9.375%, 2/15/13 .................. United States 272,000 293,760
Westinghouse Air Brake Technologies Corp., senior note, 6.875%,
7/31/13 .......................................................... United States 200,000 200,000
------------
2,963,260
------------
REAL ESTATE INVESTMENT TRUSTS 1.2%
Host Marriott LP, senior note, 9.25%, 10/01/07 ..................... United States 500,000 537,500
Host Marriott LP, senior note, 144A, 6.375%, 3/15/15 ............... United States 100,000 96,000
------------
633,500
------------
RETAIL TRADE 1.4%
Leslie's Poolmart, senior note, 144A, 7.75%, 2/01/13 ............... United States 300,000 304,500
Rite Aid Corp., senior note, 144A, 6.125%, 12/15/08 ................ United States 500,000 467,500
------------
772,000
------------
TECHNOLOGY SERVICES 1.2%
UGS Corp., senior sub. note, 144A, 10.00%, 6/01/12 ................. United States 600,000 666,000
------------
TRANSPORTATION 1.9%
Great Lakes Dredge & Dock Corp., senior sub. note, 7.75%, 12/15/13 . United States 400,000 334,000
Laidlaw International Inc., senior note, 10.75%, 6/15/11 ........... United States 600,000 682,500
------------
1,016,500
------------
14 | Annual Report
FRANKLIN MULTI-INCOME TRUST
STATEMENT OF INVESTMENTS, MARCH 31, 2005 (CONTINUED)
-----------------------------------------------------------------------------------------------------------------------------
COUNTRY PRINCIPAL AMOUNT(C) VALUE
-----------------------------------------------------------------------------------------------------------------------------
BONDS (CONT.)
UTILITIES 4.4%
Aquila Inc., senior note, 14.875%, 7/01/12 ...................... United States $ 400,000 $ 550,000
Calpine Corp., senior secured note, 144A, 8.75%, 7/15/13 ........ United States 600,000 456,000
Dynegy Holdings Inc., senior note, 8.75%, 2/15/12 ............... United States 500,000 481,250
Midwest Generation LLC, senior secured note, 8.75%, 5/01/34 ..... United States 600,000 672,000
Texas Genco LLC, senior note, 144A, 6.875%, 12/15/14 ............ United States 200,000 201,500
------------
2,360,750
------------
TOTAL BONDS (COST $36,195,888) .................................. 36,642,408
------------
TOTAL LONG TERM INVESTMENTS (COST $56,977,059) .................. 68,406,114
------------
---------
SHARES
---------
SHORT TERM INVESTMENT (COST $528,805) 1.0%
MONEY FUND
(g) Franklin Institutional Fiduciary Trust Money Market Portfolio ... United States 528,805 528,805
------------
TOTAL INVESTMENTS (COST $57,505,864) 129.0% ..................... 68,934,919
OTHER ASSETS, LESS LIABILITIES (29.0)% .......................... (15,488,796)
------------
NET ASSETS 100.0% ............................................... $53,446,123
============
CURRENCY ABBREVIATION | ZAR - South African Rand
(a) Non-income producing.
(b) Rounds to less than 0.05% of net assets.
(c) The principal amount is stated in U.S. dollars unless otherwise indicated.
(d) Defaulted securities. See Note 9.
(e) See Note 10 regarding restricted securities.
(f) See Note 11 regarding other considerations.
(g) See Note 8 regarding investments in the Franklin Institutional Fiduciary
Trust Money Market Portfolio.
Annual Report | See notes to financial statements. | 15
FRANKLIN MULTI-INCOME TRUST
FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2005
Assets:
Investments in securities:
Cost - Unaffiliated issuers ........................................ $ 56,977,059
Cost - Sweep Money Fund (Note 8) ................................... 528,805
-------------
Total cost of investments .................................... 57,505,864
=============
Value - Unaffiliated issuers ....................................... 68,406,114
Value - Sweep Money Fund (Note 8) .................................. 528,805
-------------
Total value of investments ......................................... 68,934,919
Receivables:
Dividends and interest ............................................. 802,375
Note issuance costs (Note 3) ....................................... 118,009
-------------
Total assets ................................................. 69,855,303
-------------
Liabilities:
Payables:
Affiliates ......................................................... 49,425
Note (Note 3) ...................................................... 16,000,000
Accrued interest (Note 3) .......................................... 29,370
Distributions to shareholders ...................................... 205,016
Deferred sale proceeds (Note 11) ................................... 78,171
Other liabilities .................................................. 47,198
-------------
Total liabilities ............................................ 16,409,180
-------------
Net assets, at value ....................................... $ 53,446,123
=============
Net assets consist of:
Distributions in excess of net investment income .................... $ (399,477)
Net unrealized appreciation (depreciation) .......................... 11,428,114
Accumulated net realized gain (loss) ................................ (11,366,136)
Paid-in capital ..................................................... 53,783,622
-------------
Net assets, at value ....................................... $ 53,446,123
=============
Net asset value per share ($53,446,123 / 5,857,600 shares outstanding) $ 9.12
=============
16 | See notes to financial statements. | Annual Report
FRANKLIN MULTI-INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF OPERATIONS
for the year ended March 31, 2005
Investment income:
Dividends:
Unaffiliated issuers .................................................. $ 1,227,590
Sweep Money Fund (Note 8) ............................................. 15,308
Other income (Note 12) ................................................. 1,750
Interest ............................................................... 2,844,221
------------
Total investment income ......................................... 4,088,869
------------
Expenses:
Management fees (Note 4) ............................................... 557,240
Interest expense (Note 3) .............................................. 792,895
Transfer agent fees .................................................... 27,510
Custodian fees (Note 5) ................................................ 1,354
Reports to shareholders ................................................ 30,093
Registration and filing fees ........................................... 75
Professional fees ...................................................... 43,200
Trustees' fees and expenses ............................................ 5,707
Amortization of note issuance costs (Note 3) ........................... 23,063
Other .................................................................. 32,092
------------
Total expenses ................................................ 1,513,229
Expense reductions (Note 5) ................................... (81)
------------
Net expenses ................................................. 1,513,148
------------
Net investment income ........................................ 2,575,721
------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments ........................................................... (1,269,160)
Foreign currency transactions ......................................... 1,862
------------
Net realized gain (loss) ..................................... (1,267,298)
Net change in unrealized appreciation (depreciation) on:
Investments ........................................................... 5,277,256
Translation of assets and liabilities denominated in foreign currencies (1,545)
------------
Net change in unrealized appreciation (depreciation) .................... 5,275,711
------------
Net realized and unrealized gain (loss) ................................. 4,008,413
------------
Net increase (decrease) in net assets resulting from operations ......... $ 6,584,134
============
Annual Report | See notes to financial statements. | 17
FRANKLIN MULTI-INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CHANGES IN NET ASSETS
for the years ended March 31, 2005 and 2004
----------------------------
2005 2004
----------------------------
Increase (decrease) in net assets:
Operations:
Net investment income ........................................................................... $ 2,575,721 $ 2,574,538
Net realized gain (loss) from investments ....................................................... (1,267,298) (1,276,521)
Net change in unrealized appreciation (depreciation) on investments and translation of assets and
liabilities denominated in foreign currencies ................................................. 5,275,711 12,973,693
----------------------------
Net increase (decrease) in net assets resulting from operations ........................... 6,584,134 14,271,710
Distribution to shareholders from net investment income .......................................... (2,460,192) (2,460,192)
----------------------------
Net increase (decrease) in net assets ..................................................... 4,123,942 11,811,518
Net assets:
Beginning of year ................................................................................ 49,322,181 37,510,663
----------------------------
End of year ...................................................................................... $53,446,123 $49,322,181
============================
Distributions in excess of net investment income included in net assets:
End of year ...................................................................................... $ (399,477) $ (523,205)
============================
18 | See notes to financial statements. | Annual Report
FRANKLIN MULTI-INCOME TRUST
FINANCIAL STATEMENTS (CONTINUED)
STATEMENT OF CASH FLOWS
for the year ended March 31, 2005
Cash flow from operating activities:
Dividends and interest received ............................................................ $ 3,866,925
Operating expenses paid .................................................................... (602,894)
Interest expense paid ...................................................................... (802,900)
-------------
Cash provided - operating activities ...................................................... 2,461,131
=============
Cash flow from investing activities:
Investment purchases ....................................................................... (20,782,427)
Investment sales and maturities ............................................................ 18,581,052
Short term investment securities, net ...................................................... 331,399
-------------
Cash used - investing activities .......................................................... (1,869,976)
=============
Cash flow from financing activities:
Proceeds from note maturity ................................................................ (14,000,000)
Note issuance .............................................................................. 16,000,000
Payment of Note Issuance costs ............................................................. (130,963)
Distributions to shareholders .............................................................. (2,460,192)
-------------
Cash used - financing activities .......................................................... (591,155)
=============
Net increase (decrease) in cash ............................................................. --
Cash at beginning of year ................................................................... --
-------------
Cash at end of year ......................................................................... $ --
=============
RECONCILIATION OF NET INVESTMENT INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
FOR THE YEAR ENDED MARCH 31, 2005
Net investment income ....................................................................... $ 2,575,721
Adjustments to reconcile net investment income to net cash provided by operating activities:
Amortization income ........................................................................ (113,432)
Amortization of note issuance costs ........................................................ 23,063
Increase in dividends and interest receivable .............................................. (108,512)
Increase in liabilities .................................................................... 84,291
-------------
Net cash provided by operating activities ................................................... $ 2,461,131
=============
Annual Report | See notes to financial statements. | 19
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Franklin Multi-Income Trust (the Fund) is registered under the Investment
Company Act of 1940 as a non-diversified, closed-end investment company. The
Fund has two classes of securities: senior fixed-rate note (the Note) and shares
of beneficial interest (the Shares).
On February 28, 2005, the Board of Trustees for the Fund approved a proposal to
merge into the Franklin Income Fund, subject to approval by the shareholders of
the Fund.
The following summarizes the Fund's significant accounting policies.
A. SECURITY VALUATION
Securities listed on a securities exchange or on the NASDAQ National Market
System are valued at the last quoted sale price or the official closing price of
the day, respectively. Over-the-counter securities and listed securities for
which there is no reported sale are valued within the range of the most recent
quoted bid and ask prices. Securities that trade in multiple markets or on
multiple exchanges are valued according to the broadest and most representative
market. Investments in open-end mutual funds are valued at the closing net asset
value.
Corporate debt securities generally trade in the over-the-counter market rather
than on a securities exchange. The Fund may utilize independent pricing
services, quotations from bond dealers and information with respect to bond and
note transactions, to assist in determining a current market value for each
security. The Fund's pricing services may use valuation models or matrix pricing
which considers information with respect to comparable bond and note
transactions, quotations from bond dealers, or by reference to other securities
that are considered comparable in such characteristics as rating, interest rate
and maturity date, option adjusted spread models, prepayment projections,
interest rate spreads and yield curves, to determine current value.
Foreign securities are valued as of the close of trading on the foreign stock
exchange on which the security is primarily traded, or the NYSE, whichever is
earlier. If no sale is reported at that time, the foreign security will be
valued within the range of the most recent quoted bid and ask prices. The value
is then converted into its U.S. dollar equivalent at the foreign exchange rate
in effect at the close of the NYSE on the day that the value of the foreign
security is determined.
The Fund has procedures to determine the fair value of individual securities and
other assets for which market prices are not readily available or which may not
be reliably priced. Some methods for valuing these securities may include:
fundamental analysis, matrix pricing, discounts from market prices of similar
securities, or discounts applied due to the nature and duration of restrictions
on the disposition of the securities. Due to the inherent uncertainty of
valuations of such securities, the fair values may differ significantly from the
values that would have been used had a ready market for such investments
existed. Occasionally, events occur between the time at which trading in a
security
20 | Annual Report
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A. SECURITY VALUATION (CONTINUED)
is completed and the close of the NYSE that might call into question the
availability (including the reliability) of the value of a portfolio security
held by the Fund. If such an event occurs, the securities may be valued using
fair value procedures, which may include the use of independent pricing
services. All security valuation procedures are approved by the Fund's Board of
Trustees.
B. FOREIGN CURRENCY TRANSLATION
Portfolio securities and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars based on the exchange rate of such
currencies against U.S. dollars on the date of valuation. Purchases and sales of
securities, income and expense items denominated in foreign currencies are
translated into U.S. dollars at the exchange rate in effect on the transaction
date. Occasionally, events may impact the availability or reliability of foreign
exchange rates used to convert the U.S. dollar equivalent value. If such an
event occurs, the foreign exchange rate will be valued at fair value using
procedures established and approved by the Fund's Board of Trustees.
The Fund does not separately report the effect of changes in foreign exchange
rates from changes in market prices on securities held. Such changes are
included in net realized and unrealized gain or loss from investments on the
Statement of Operations.
Realized foreign exchange gains or losses arise from sales of foreign
currencies, currency gains or losses realized between the trade and settlement
dates on securities transactions and the difference between the recorded amounts
of dividends, interest, and foreign withholding taxes and the U.S. dollars
equivalent of the amounts actually received or paid. Net unrealized foreign
exchange gains and losses arise from changes in foreign exchange rates on
foreign denominated assets and liabilities other than investments in securities
held at the end of the reporting period.
C. FOREIGN CURRENCY CONTRACTS
When the Fund purchases or sells foreign securities it may enter into foreign
exchange contracts to minimize foreign exchange risk from the trade date to the
settlement date of the transactions. A foreign exchange contract is an agreement
between two parties to exchange different currencies at an agreed upon exchange
rate on a specified date. Realized and unrealized gains and losses on these
contracts are included in the Statement of Operations.
The risks of these contracts include movement in the values of the foreign
currencies relative to the U.S. dollar and the possible inability of the
counterparties to fulfill their obligations under the contracts.
Annual Report | 21
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
D. INCOME TAXES
No provision has been made for U.S. income taxes because the Fund's policy is to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code and to distribute substantially all of its taxable income. Fund
distributions to shareholders are determined on an income tax basis and may
differ from net investment income and realized gains for financial reporting
purposes.
E. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Discounts and premiums
on securities purchased are amortized over the lives of the respective
securities. Dividend income and distributions to shareholders are recorded on
the ex-dividend date.
F. ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the amounts of income
and expenses during the reporting period. Actual results could differ from those
estimates.
G. GUARANTEES AND INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and trustees are
indemnified by the Fund against certain liabilities arising out of the
performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund enters into contracts with service providers that contain
general indemnification clauses. The Fund's maximum exposure under these
arrangements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
2. SHARES OF BENEFICIAL INTEREST
At March 31, 2005 there were an unlimited number of shares authorized ($0.01 par
value). During the year ended March 31, 2005, there were no share transactions;
all reinvested distributions were satisfied with previously issued shares
purchased in the open market.
3. SENIOR FIXED RATE NOTES
On September 15, 2004, the Fund's $14 million, 6.75% senior note matured and was
replaced with a new note described below.
22 | Annual Report
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. SENIOR FIXED RATE NOTES (CONTINUED)
On September 15, 2004, the Fund issued $16 million principal amount of a new
class of five-year senior notes (the Note). The Note is a general unsecured
obligation of the Fund and rank senior to Trust shares and all existing or
future unsecured indebtedness of the Fund.
The Note bears interest, payable semi-annually, at the rate of 4.13% per year,
to maturity on September 15, 2009. The Note was issued in a private placement,
and is not available for resale; therefore, no market value can be obtained for
the Note. The Fund is required to maintain on a monthly basis a specified
discounted asset value for its portfolio in compliance with guidelines
established by Standard & Poor's Corporation, and is required to maintain asset
coverage for the Note of at least 300%. The Fund has met these requirements
during the year ended March 31, 2005.
The issuance costs of $130,963 incurred by the Fund are deferred and amortized
on an interest method basis over the term of the Note.
4. TRANSACTIONS WITH AFFILIATES
Franklin Resources, Inc. is the holding company for various subsidiaries that
together are referred to as Franklin Templeton Investments. Certain officers and
trustees of the Fund are also officers or directors of the following
subsidiaries:
--------------------------------------------------------------------------------
SUBSIDIARY AFFILIATION
--------------------------------------------------------------------------------
Franklin Advisers Inc. (Advisers) Investment manager
Franklin Templeton Services LLC (FT Services) Administrative manager
A. MANAGEMENT FEES
The Fund pays an investment management fee to Advisers of 0.85% per year of the
average weekly net assets plus the principal amount of the Note.
B. ADMINISTRATIVE FEES
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
5. EXPENSE OFFSET ARRANGEMENT
The Fund has entered into an arrangement with its custodian whereby credits
realized as a result of uninvested cash balances are used to reduce a portion of
the Fund's custodian expenses. During the year ended March 31, 2005, the
custodian fees were reduced as noted in the Statement of Operations.
Annual Report | 23
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES
At March 31, 2005, the Fund had tax basis capital losses which may be carried
over to offset future capital gains. Such losses expire as follows:
Capital loss carryovers expiring in:
2008 ............................. $ 24,985
2010 ............................. 150,106
2011 ............................. 5,087,216
2012 ............................. 4,348,077
2013 ............................. 496,170
-----------
$10,106,554
===========
At March 31, 2005, the Fund had deferred capital losses occurring subsequent to
October 31, 2004 of $890,804. For tax purposes, such losses will be reflected in
the year ending March 31, 2006.
The tax character of distributions paid during the years ended March 31, 2005
and 2004, was as follows:
-------------------------
2005 2004
-------------------------
Distributions paid from - ordinary income ......... $2,460,192 $2,460,192
At March 31, 2005, the cost of investments, net unrealized appreciation
(depreciation) and undistributed ordinary income for income tax purposes were as
follows:
Cost of investments .................................. $ 58,091,729
=============
Unrealized appreciation .............................. $ 12,746,607
Unrealized depreciation .............................. (1,903,417)
-------------
Net unrealized appreciation (depreciation) ........... $ 10,843,190
=============
Distributable earnings - undistributed ordinary income $ 190,925
=============
Net investment income (loss) differs for financial statement and tax purposes
primarily due to differing treatments of defaulted securities, foreign currency
transactions, amortization of note issuance costs and bond discounts and
premiums.
Net realized gains (losses) differ for financial statement and tax purposes
primarily due to differing treatments of wash sales, foreign currency
transactions and bond discounts and premiums.
7. INVESTMENT TRANSACTIONS
Purchases and sales of investments (excluding short-term securities) for the
year ended March 31, 2005 aggregated $20,182,427 and $17,225,629, respectively.
24 | Annual Report
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INVESTMENTS IN FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO
The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market
Portfolio (the Sweep Money Fund), an open-end investment company managed by
Advisers. Management fees paid by the Fund are reduced on assets invested in the
Sweep Money Fund, in an amount not to exceed the management fees paid by the
Sweep Money Fund.
9. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 53.53% of its portfolio invested in below investment grade and
comparable quality unrated high yield securities, which tend to be more
sensitive to economic conditions than higher rated securities. The risk of loss
due to default by the issuer may be significantly greater for the holders of
high yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer.
The Fund held defaulted securities and/or other securities for which the income
has been deemed uncollectible. At March 31, 2005, the value of these securities
was $769,520, representing 1.12% of the Fund's portfolio. The Fund discontinues
accruing income on securities for which income has been deemed uncollectible and
provides an estimate for losses on interest receivable. For information as to
specific securities, see the accompanying Statement of Investments.
10. RESTRICTED SECURITIES
At March 31, 2005, investments in securities included issues that are restricted
and illiquid. Restricted securities are often purchased in private placement
transactions, are not registered under the Securities Act of 1933, may have
contractual restrictions on resale, and are valued under methods approved by the
Board of Trustees as reflecting fair value. A security may also be considered
illiquid if it lacks a readily available market or if its valuation has not
changed for a certain period of time. At March 31, 2005, the Fund held
investments in restricted and illiquid securities, as follows:
ACQUISITION
PRINCIPAL AMOUNT ISSUER DATE COST VALUE
-------------------------------------------------------------------------------------------------------------
$1,000,000 Pindo Deli Finance Mauritius Ltd., senior note,
10.25%, 10/01/04 (Indonesia)
(0.44% OF NET ASSETS) 10/28/98 $699,704 $235,520
11. OTHER CONSIDERATIONS
Subject to certain terms and conditions, the Fund has agreed to sell its
holdings in Pindo Deli Finance Mauritius Ltd. in November 2006. Until the
completion of the sale, the transaction will be accounted for as a secured
borrowing with a pledge of collateral and any preliminary sales proceeds
received are deferred until the completion of the transaction.
Annual Report | 25
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY MATTERS
INVESTIGATIONS AND SETTLEMENTS
As part of various investigations by a number of federal, state, and foreign
regulators and governmental entities, including the Securities and Exchange
Commission ("SEC"), the California Attorney General's Office ("CAGO"), and the
National Association of Securities Dealers, Inc. ("NASD"), relating to certain
practices in the mutual fund industry, including late trading, market timing and
marketing support payments to securities dealers who sell fund shares, Franklin
Resources, Inc. and certain of its subsidiaries (as used in this section,
together, the "Company"), as well as certain current or former executives and
employees of the Company, provided documents and information in response to
subpoenas and/or requests for documents, information and/or testimony. Beginning
in August 2004, the Company entered into settlements with certain of the
regulators and a governmental entity investigating the mutual fund industry
practices noted above. The Company believes that settlement of each of the
matters is in the best interest of the Company and shareholders of the Franklin,
Templeton, and Mutual Series mutual funds (the "funds").
Two of the settlement agreements, those with the SEC and the CAGO concerning
marketing support payments, provide that the distribution of settlement monies
are to be made to the relevant funds, not to individual shareholders. The CAGO
has approved the distribution plan pertaining to the distribution of the monies
owed under the CAGO settlement agreement and, in accordance with the terms and
conditions of that settlement, the monies were disbursed to the participating
funds and are recorded as other income in the current period. The SEC has not
yet approved the distribution plan pertaining to the SEC settlement. When
approved, disbursements of settlement monies under the SEC's settlement will be
made promptly in accordance with the terms and conditions of that order.
OTHER LEGAL PROCEEDINGS
On April 12, 2005, the Attorney General of West Virginia filed a complaint in
the Circuit Court of Marshall County, West Virginia against a number of
companies engaged in the mutual fund industry, including Franklin Resources,
Inc. and its subsidiary, Franklin Advisers, Inc., and certain other parties
alleging violations of the West Virginia Consumer Credit and Protection Act and
seeking, among other things, civil penalties and attorneys' fees and costs. To
the extent applicable to the Company, the complaint arises from activity that
occurred in 2001 and duplicates, in whole or in part, the allegations asserted
in the February 4, 2004 Massachusetts Administrative Complaint concerning one
instance of market timing (the "Administrative Complaint") and the SEC's
findings regarding market timing in its August 2, 2004 Order (the "SEC Order"),
both of which matters were previously reported.
26 | Annual Report
FRANKLIN MULTI-INCOME TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. REGULATORY MATTERS (CONTINUED)
OTHER LEGAL PROCEEDINGS (CONTINUED)
The Company and other funds, and certain current and former officers, employees,
and directors have been named in multiple lawsuits in different courts alleging
violations of various federal securities laws and seeking, among other relief,
monetary damages, restitution, removal of fund trustees, directors, advisers,
administrators, and distributors, rescission of management contracts and 12b-1
plans, and/or attorneys' fees and costs. Specifically, the lawsuits claim breach
of duty with respect to alleged arrangements to permit market timing and/or late
trading activity, or breach of duty with respect to the valuation of the
portfolio securities of certain Templeton funds managed by Franklin Resources,
Inc. subsidiaries, resulting in alleged market timing activity. The majority of
these lawsuits duplicate, in whole or in part, the allegations asserted in the
Administrative Complaint and the SEC's findings regarding market timing in the
SEC Order. The lawsuits are styled as class actions, or derivative actions on
behalf of either the named funds or Franklin Resources, Inc.
In addition, the Company, as well as certain current and former officers,
employees, and directors, have been named in multiple lawsuits alleging
violations of various securities laws and pendent state law claims relating to
the disclosure of marketing support payments and/or payment of allegedly
excessive commissions and/or advisory or distribution fees, and seeking, among
other relief, monetary damages, restitution, rescission of advisory contracts,
including recovery of all fees paid pursuant to those contracts, an accounting
of all monies paid to the named advisers, declaratory relief, injunctive relief,
and/or attorneys' fees and costs. These lawsuits are styled as class actions or
derivative actions brought on behalf of the Fund and other funds.
The Company and fund management strongly believe that the claims made in each of
the lawsuits described above are without merit and intends to defend against
them vigorously. The Company cannot predict with certainty the eventual outcome
of these lawsuits, nor whether they will have a material negative impact on the
Company. Public trust and confidence are critical to the Company's business and
any material loss of investor and/or client confidence could result in a
significant decline in assets under management by the Company, which would have
an adverse effect on future financial results. If it is determined that the
Company bears responsibility for any unlawful or inappropriate conduct that
caused losses to the Fund, it is committed to making the Fund or its
shareholders whole, as appropriate. The Company is committed to taking all
appropriate actions to protect the interests of its funds' shareholders.
Annual Report | 27
FRANKLIN MULTI-INCOME TRUST
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF
FRANKLIN MULTI-INCOME TRUST
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of
changes in net assets, of cash flows and the financial highlights present
fairly, in all material respects, the financial position of Franklin
Multi-Income Trust (the "Fund") at March 31, 2005, the results of its operations
and its cash flows for the year then ended, the changes in its net assets for
each of the two years in the period then ended and the financial highlights for
each of the five years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at March 31, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
San Francisco, California
May 10, 2005
28 | Annual Report
FRANKLIN MULTI-INCOME TRUST
TAX DESIGNATION (UNAUDITED)
Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund hereby
designates up to a maximum of $1,099,867 as qualified dividends for purposes of
the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended
March 31, 2005. In January 2006, shareholders will receive Form 1099-DIV which
will include their share of qualified dividends distributed during the calendar
year 2005. Shareholders are advised to check with their tax advisors for
information on the treatment of these amounts on their individual income tax
returns.
Under Section 854(b)(2) of the Code, the Fund hereby designates 32.90% of the
ordinary income dividends as income qualifying for the dividends received
deduction for the fiscal year ended March 31, 2005.
Annual Report | 29
BOARD MEMBERS AND OFFICERS
The name, age and address of the officers and board members, as well as their
affiliations, positions held with the Trust, principal occupations during the
past five years and number of portfolios overseen in the Franklin Templeton
Investments fund complex are shown below. Each board member will serve until
that person's successor is elected and qualified.
INDEPENDENT BOARD MEMBERS
-------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
-------------------------------------------------------------------------------------------------------------------------
HARRIS J. ASHTON (72) Trustee Since 1989 143 Director, Bar-S Foods (meat packing
One Franklin Parkway company).
San Mateo, CA 94403-1906
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Director, RBC Holdings, Inc. (bank holding company) (until 2002); and
President, Chief Executive Officer and Chairman of the Board, General Host Corporation (nursery and craft centers)
(until 1998).
-------------------------------------------------------------------------------------------------------------------------
ROBERT F. CARLSON (77) Trustee Since 2000 51 None
One Franklin Parkway
San Mateo, CA 94403-1906
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Member and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS);
and FORMERLY, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of
California; and Chief Counsel, California Department of Transportation.
-------------------------------------------------------------------------------------------------------------------------
S. JOSEPH FORTUNATO (72) Trustee Since 1989 144 None
One Franklin Parkway
San Mateo, CA 94403-1906
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Attorney; and FORMERLY, member of the law firm of Pitney, Hardin, Kipp & Szuch (until 2002) (Consultant (2003)).
-------------------------------------------------------------------------------------------------------------------------
EDITH E. HOLIDAY (53) Trustee Since 2004 97 Director, Amerada Hess Corporation
One Franklin Parkway (exploration and refining of oil and
San Mateo, CA 94403-1906 gas), H.J. Heinz Company (processed
foods and allied products), RTI
International Metals, Inc.
(manufacture and distribution of
titanium), Canadian National Railway
(railroad), and White Mountains
Insurance Group, Ltd. (holding
company).
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director or Trustee of various companies and trusts; and FORMERLY, Assistant to the President of the United States and
Secretary of the Cabinet (1990-1993); General Counsel to the United States Treasury Department (1989-1990); and
Counselor to the Secretary and Assistant Secretary for Public Affairs and Public Liaison-United States Treasury
Department (1988-1989).
-------------------------------------------------------------------------------------------------------------------------
FRANK W.T. LAHAYE (76) Trustee Since 1989 117 Director, The California Center for
One Franklin Parkway Land Recycling (redevelopment).
San Mateo, CA 94403-1906
-------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
General Partner, Las Olas L.P. (Asset Management); and FORMERLY, Chairman, Peregrine Venture Management Company
(venture capital).
-------------------------------------------------------------------------------------------------------------------------
30 | Annual Report
-------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
-------------------------------------------------------------------------------------------------------------------------
GORDON S. MACKLIN (77) Trustee Since 1992 143 Director, Martek Biosciences
One Franklin Parkway Corporation, MedImmune, Inc.
San Mateo, CA 94403-1906 (biotechnology), and Overstock.com
(Internet services); and FORMERLY,
Director, MCI Communication
Corporation (subsequently known as
MCI WorldCom, Inc. and WorldCom,
Inc.) (communications services)
(1988-2002), White Mountains
Insurance Group, Ltd. (holding
company) (1987-2004) and Spacehab,
Inc. (aerospace services)
(1994-2003).
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Director of various companies; and FORMERLY, Deputy Chairman, White Mountains Insurance Group, Ltd. (holding company)
(2001-2004); Chairman, White River Corporation (financial services) (1993-1998) and Hambrecht & Quist Group (investment
banking) (1987-1992); and President, National Association of Securities Dealers, Inc. (1970-1987).
-----------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS
---------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
**EDWARD B. JAMIESON (56) Trustee, Trustee and 10 None
One Franklin Parkway President and President since
San Mateo, CA 94403-1906 Chief 1993 and Chief
Executive Executive Officer
Officer - - Investment
Investment Management
Management since 2002
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and Portfolio Manager, Franklin Advisers, Inc.; and officer and/or trustee, as the case may
be, of other subsidiaries of Franklin Resources, Inc. and of five of the investment companies in Franklin Templeton
Investments.
-----------------------------------------------------------------------------------------------------------------------------
**CHARLES B. JOHNSON (72) Trustee and Trustee since 143 None
One Franklin Parkway Chairman of 1989 and
San Mateo, CA 94403-1906 the Board Chairman of the
Board since 1993
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Chairman of the Board, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President, Franklin
Templeton Distributors, Inc.; Director, Fiduciary Trust Company International; and officer and/or director or trustee,
as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 46 of the investment companies
in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
Annual Report | 31
---------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
---------------------------------------------------------------------------------------------------------------------------
**RUPERT H. JOHNSON, JR. (64) Trustee and Trustee since 127 None
One Franklin Parkway Senior Vice 1989 and Senior
San Mateo, CA 94403-1906 President Vice President
since 1992
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc.; Senior Vice President, Franklin Advisory
Services, LLC; and officer and/or director or trustee, as the case may be, of some of the other subsidiaries of
Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
HARMON E. BURNS (60) Vice President Since 1989 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director,
Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; and officer and/or director
or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the
investment companies in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
JAMES M. DAVIS (52) Chief Since July 2004 Not Applicable None
One Franklin Parkway Compliance
San Mateo, CA 94403-1906 Officer
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Director, Global Compliance, Franklin
Resources, Inc.; and FORMERLY, Director of Compliance, Franklin Resources, Inc. (1994-2001).
-----------------------------------------------------------------------------------------------------------------------------
LAURA FERGERSON (43) Treasurer Since July 2004 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 34 of the investment companies in Franklin Templeton Investments; and FORMERLY, Director and member of Audit
and Valuation Committees, Runkel Funds, Inc. (2003-2004); Assistant Treasurer of most of the investment companies in
Franklin Templeton Investments (1997-2003); and Vice President, Franklin Templeton Services, LLC (1997-2003).
-----------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN (44) Vice President Since 1995 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer,
Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide,
Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director,
Franklin Advisers, Inc.; Executive Vice President, Franklin Templeton Investor Services, LLC; Chief Financial Officer,
Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director or trustee, as
the case may be, of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in
Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
32 | Annual Report
----------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------
JIMMY D. GAMBILL (57) Senior Vice Since 2002 Not Applicable Not Applicable
500 East Broward Blvd. President and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Executive
Officer -
Finance and
Administration
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the
investment companies in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
DAVID P. GOSS (58) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Senior Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin
Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and FORMERLY, President,
Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust
(until 2000).
-----------------------------------------------------------------------------------------------------------------------------
BARBARA J. GREEN (57) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Vice President, Deputy General Counsel and Secretary, Franklin Resources, Inc.; Secretary and Senior Vice President,
Templeton Worldwide, Inc.; Secretary, Franklin Advisers, Inc., Franklin Advisory Services, LLC, Franklin Investment
Advisory Services, LLC, Franklin Mutual Advisers, LLC, Franklin Templeton Alternative Strategies, Inc., Franklin
Templeton Investor Services, LLC, Franklin Templeton Services, LLC, Franklin Templeton Distributors, Inc., Templeton
Investment Counsel, LLC, and Templeton/Franklin Investment Services, Inc.; and officer of some of the other
subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments; and
FORMERLY, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman,
Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995);
Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until
1979).
-----------------------------------------------------------------------------------------------------------------------------
GREGORY E. JOHNSON (43) Vice President Since 1989 Not Applicable Not Applicable
One Franklin Parkway
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Co-President and Chief Executive Officer, Franklin Resources, Inc.; Chairman of the Board and Director, Franklin
Templeton Distributors, Inc.; President, Franklin Agency, Inc.; Vice President and Director, Franklin Advisers, Inc.;
Director, Fiduciary Trust Company International; officer and/or director of some of the other subsidiaries of Franklin
Resources, Inc.; and officer of two of the investment companies in Franklin Templeton Investments.
-----------------------------------------------------------------------------------------------------------------------------
Annual Report | 33
----------------------------------------------------------------------------------------------------------------------------
NUMBER OF PORTFOLIOS IN
LENGTH OF FUND COMPLEX OVERSEEN
NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD
----------------------------------------------------------------------------------------------------------------------------
MURRAY L. SIMPSON (67) Vice President Since 2000 Not Applicable Not Applicable
One Franklin Parkway and Secretary
San Mateo, CA 94403-1906
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director, as the case may be, of
some of the subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton
Investments; and FORMERLY, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia)
Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999).
-----------------------------------------------------------------------------------------------------------------------------
GALEN G. VETTER (53) Chief Financial Since 2004 Not Applicable Not Applicable
500 East Broward Blvd. Officer and
Suite 2100 Chief
Fort Lauderdale, FL 33394-3091 Accounting
Officer
-----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DURING PAST 5 YEARS:
Officer of 51 of the investment companies in Franklin Templeton Investments; Senior Vice President, Franklin Templeton
Services, LLC; and FORMERLY, Managing Director of RSM McGladrey, Inc.; and Partner of McGladrey & Pullen, LLP.
-----------------------------------------------------------------------------------------------------------------------------
* We base the number of portfolios on each separate series of the U.S.
registered investment companies within the Franklin Templeton Investments
fund complex. These portfolios have a common investment adviser or
affiliated investment advisers.
** Charles B. Johnson and Rupert H. Johnson, Jr. are considered to be
interested persons of the Trust under the federal securities laws due to
their positions as officers and directors and major shareholders of
Franklin Resources Inc. (Resources), which is the parent company of the
Trust's adviser and distributor. Edward B. Jamieson is considered to be an
interested person of the Trust under the federal securities laws due to
his position as an officer of Franklin Advisers, Inc., which is the
Trust's adviser.
Note: Charles B. Johnson and Rupert H. Johnson, Jr. are brothers and the father
and uncle, respectively, of Gregory E. Johnson.
THE SARBANES-OXLEY ACT OF 2002 AND RULES ADOPTED BY THE SECURITIES AND EXCHANGE
COMMISSION REQUIRE THE FUND TO DISCLOSE WHETHER THE FUND'S AUDIT COMMITTEE
INCLUDES AT LEAST ONE MEMBER WHO IS AN AUDIT COMMITTEE FINANCIAL EXPERT WITHIN
THE MEANING OF SUCH ACT AND RULES. THE FUND'S BOARD OF TRUSTEES HAVE DETERMINED
THAT THERE IS AT LEAST ONE SUCH FINANCIAL EXPERT ON THE AUDIT COMMITTEE AND HAS
DESIGNATED FRANK W.T. LAHAYE AS ITS AUDIT COMMITTEE FINANCIAL EXPERT. THE BOARD
BELIEVES THAT MR. LAHAYE QUALIFIES AS SUCH AN EXPERT IN VIEW OF HIS EXTENSIVE
BUSINESS BACKGROUND AND EXPERIENCE, INCLUDING SERVICE AS PRESIDENT AND DIRECTOR
OF MCCORMICK SELPH ASSOCIATES FROM 1954 THROUGH 1965; DIRECTOR AND CHAIRMAN OF
TELEDYNE CANADA LTD. FROM 1966 THROUGH 1971; DIRECTOR AND CHAIRMAN OF
QUARTERDECK CORPORATION FROM 1982 THROUGH 1998; AND SERVICES AS A DIRECTOR OF
VARIOUS OTHER PUBLIC COMPANIES INCLUDING U.S. TELEPHONE INC. (1981-1984), FISHER
IMAGING INC. (1991-1998) AND DIGITAL TRANSMISSIONS SYSTEMS (1995-1999). IN
ADDITION, MR. LAHAYE SERVED FROM 1981 TO 2000 AS A DIRECTOR AND CHAIRMAN OF
PEREGRINE VENTURE MANAGEMENT CO., A VENTURE CAPITAL FIRM, AND HAS BEEN A MEMBER
AND CHAIRMAN OF THE FUND'S AUDIT COMMITTEE SINCE ITS INCEPTION. AS A RESULT OF
SUCH BACKGROUND AND EXPERIENCE, THE BOARD OF TRUSTEES BELIEVES THAT MR. LAHAYE
HAS ACQUIRED AN UNDERSTANDING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
FINANCIAL STATEMENTS, THE GENERAL APPLICATION OF SUCH PRINCIPLES IN CONNECTION
WITH THE ACCOUNTING ESTIMATES, ACCRUALS AND RESERVES, AND ANALYZING AND
EVALUATING FINANCIAL STATEMENTS THAT PRESENT A BREADTH AND LEVEL OF COMPLEXITY
OF ACCOUNTING ISSUES GENERALLY COMPARABLE TO THOSE OF THE FUND, AS WELL AS AN
UNDERSTANDING OF INTERNAL CONTROLS AND PROCEDURES FOR FINANCIAL REPORTING AND AN
UNDERSTANDING OF AUDIT COMMITTEE FUNCTIONS. MR. LAHAYE IS AN INDEPENDENT TRUSTEE
AS THAT TERM IS DEFINED UNDER THE RELEVANT STOCK EXCHANGE RULES AND SECURITIES
AND EXCHANGE COMMISSION RULES AND RELEASES.
34 | Annual Report
FRANKLIN MULTI-INCOME TRUST
SHAREHOLDER INFORMATION
PROXY VOTING POLICIES AND PROCEDURES
The Fund has established Proxy Voting Policies and Procedures ("Policies") that
the Fund uses to determine how to vote proxies relating to portfolio securities.
Shareholders may view the Fund's complete Policies online at
franklintempleton.com. Alternatively, shareholders may request copies of the
Policies free of charge by calling the Proxy Group collect at 1-954/847-2268 or
by sending a written request to: Franklin Templeton Companies, LLC, 500 East
Broward Boulevard, Suite 1500, Fort Lauderdale, FL 33394, Attention: Proxy
Group. Copies of the Fund's proxy voting records are also made available online
at franklintempleton.com and posted on the U.S. Securities and Exchange
Commission's website at sec.gov and reflect the most recent 12-month period
ended June 30.
QUARTERLY STATEMENT OF INVESTMENTS
The Fund files a complete statement of investments with the U.S. Securities and
Exchange Commission for the first and third quarters for each fiscal year on
Form N-Q. Shareholders may view the filed Form N-Q by visiting the Commission's
website at sec.gov. The filed form may also be viewed and copied at the
Commission's Public Reference Room in Washington, DC. Information regarding the
operations of the Public Reference Room may be obtained by calling
1-800/SEC-0330.
CERTIFICATIONS
The Fund's Chief Executive Officer - Finance and Administration is required by
the New York Stock Exchange's Listing Standards to file annually with the
Exchange a certification that he is not aware of any violation by the Fund of
the Exchange's Corporate Governance Standards applicable to the Fund. The Fund
has filed such certification.
In addition, the Fund's Chief Executive Officer - Finance and Administration and
Chief Financial Officer and Chief Accounting Officer are required by the rules
of the SEC to provide certain certifications with respect to the Fund's Form
N-CSR and Form N-CSRS (which include the Fund's annual and semiannual reports to
shareholders) that are filed semiannually with the SEC. The Fund has filed such
certifications with its Form N-CSRS for the six months ended September 30, 2004.
Additionally, the Fund expects to file, on or about May 31, 2005, such
certifications with its Form N-CSR for the year ended March 31, 2005.
Annual Report | 35
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LITERATURE REQUEST
LITERATURE REQUEST. TO RECEIVE A BROCHURE AND PROSPECTUS, PLEASE CALL US AT
1-800/DIAL BEN(R) (1-800/342-5236) OR VISIT FRANKLINTEMPLETON.COM. INVESTORS
SHOULD CAREFULLY CONSIDER A FUND'S INVESTMENT GOALS, RISKS, CHARGES AND EXPENSES
BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER INFORMATION. PLEASE
CAREFULLY READ THE PROSPECTUS BEFORE INVESTING. To ensure the highest quality of
service, we may monitor, record and access telephone calls to or from our
service departments. These calls can be identified by the presence of a regular
beeping tone.
FRANKLIN TEMPLETON INVESTMENTS
INTERNATIONAL
Mutual European Fund
Templeton China World Fund
Templeton Developing Markets
Trust Templeton Foreign Fund
Templeton Foreign Smaller Companies Fund
Templeton International (Ex EM) Fund
GLOBAL
Mutual Discovery Fund
Templeton Global Long-Short Fund
Templeton Global Opportunities Trust
Templeton Global Smaller Companies Fund
Templeton Growth Fund
Templeton World Fund
GROWTH
Franklin Aggressive Growth Fund
Franklin Capital Growth Fund
Franklin Flex Cap Growth Fund
Franklin Small-Mid Cap Growth Fund
Franklin Small Cap Growth Fund II(1)
VALUE
Franklin Balance Sheet
Investment Fund(2)
Franklin Equity Income Fund
Franklin Large Cap Value Fund
Franklin MicroCap Value Fund(2)
Franklin Small Cap Value Fund
Mutual Beacon Fund
Mutual Qualified Fund
Mutual Recovery Fund(3)
Mutual Shares Fund
BLEND
Franklin Blue Chip Fund
Franklin Convertible Securities Fund
Franklin Growth Fund
Franklin Rising Dividends Fund
Franklin U.S. Long-Short Fund
SECTOR
Franklin Biotechnology Discovery Fund
Franklin DynaTech Fund
Franklin Global Communications Fund
Franklin Global Health Care Fund
Franklin Gold and Precious Metals Fund
Franklin Natural Resources Fund
Franklin Real Estate Securities Fund
Franklin Technology Fund
Franklin Utilities Fund
Mutual Financial Services Fund
ASSET ALLOCATION
Franklin Templeton Corefolio
Allocation Fund
Franklin Templeton Founding Funds Allocation Fund
Franklin Templeton Perspectives Allocation Fund
TARGET FUNDS
Franklin Templeton Conservative Target Fund
Franklin Templeton Growth Target Fund
Franklin Templeton Moderate Target Fund
INCOME
Franklin Adjustable U.S. Government
Securities Fund(4)
Franklin's AGE High Income Fund
Franklin Floating Rate Daily Access Fund
Franklin Income Fund
Franklin Limited Maturity
U.S. Government Securities Fund(4),(5)
Franklin Low Duration Total Return Fund
Franklin Real Return Fund
Franklin Strategic Income Fund
Franklin Strategic Mortgage Portfolio
Franklin Templeton Hard Currency Fund
Franklin Total Return Fund
Franklin U.S. Government Securities Fund(4)
Templeton Global Bond Fund
TAX-FREE INCOME(6)
NATIONAL FUNDS
Double Tax-Free Income Fund
Federal Tax-Free Income Fund
High Yield Tax-Free Income Fund
Insured Tax-Free Income Fund(7)
LIMITED-TERM FUNDS
California Limited-Term Tax-Free Income Fund
Federal Limited-Term Tax-Free Income Fund
New York Limited-Term Tax-Free Income Fund
INTERMEDIATE-TERM FUNDS
California Intermediate-Term
Tax-Free Income Fund
Federal Intermediate-Term
Tax-Free Income Fund
New York Intermediate-Term
Tax-Free Income Fund
STATE-SPECIFIC
Alabama
Arizona
California(8)
Colorado
Connecticut
Florida(8)
Georgia
Kentucky
Louisiana
Maryland
Massachusetts(7)
Michigan(7)
Minnesota(7)
Missouri
New Jersey
New York(8)
North Carolina
Ohio(7)
Oregon
Pennsylvania
Tennessee
Virginia
INSURANCE FUNDS
Franklin Templeton Variable Insurance Products
Trust(9)
(1) The fund is closed to new investors. Existing shareholders can continue
adding to their accounts.
(2) The fund is only open to existing shareholders and select retirement
plans.
(3) The fund is a continuously offered, closed-end fund. Shares may be
purchased daily; there is no daily redemption. However, each quarter,
pending board approval, the fund will authorize the repurchase of 5%-25%
of the outstanding number of shares. Investors may tender all or a portion
of their shares during the tender period.
(4) An investment in the fund is neither insured nor guaranteed by the U.S.
government or by any other entity or institution.
(5) Formerly Franklin Short-Intermediate U.S. Government Securities Fund.
Effective 9/1/04, the fund's name changed; its investment goal and
strategy remained the same.
(6) For investors subject to the alternative minimum tax, a small portion of
fund dividends may be taxable. Distributions of capital gains are
generally taxable.
(7) Portfolio of insured municipal securities.
(8) These funds are available in two or more variations, including long-term
portfolios, portfolios of insured securities, a high-yield portfolio (CA)
and limited-term, intermediate-term and money market portfolios (CA and
NY).
(9) The funds of the Franklin Templeton Variable Insurance Products Trust are
generally available only through insurance company variable contracts.
01/05
Not part of the annual report
[LOGO](R)
FRANKLIN TEMPLETON One Franklin Parkway
INVESTMENTS San Mateo, CA 94403-1906
ANNUAL REPORT
FRANKLIN MULTI-INCOME TRUST
INVESTMENT MANAGER
Franklin Advisers, Inc.
1-800/DIAL BEN(R)
TRANSFER AGENT
PFPC Inc.
P.O. Box 43027
Providence, RI 02940-3027
To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls can be
identified by the presence of a regular beeping tone.
MIT A2005 05/05
ITEM 2. CODE OF ETHICS.
(a) The Registrant has adopted a code of ethics that applies to its principal
executive officers and principal financial and accounting officer.
(c) N/A
(d) N/A
(f) Pursuant to Item 11(A), the Registrant is attaching as an exhibit a copy of
its code of ethics that applies to its principal executive officers and
principal financial and accounting officer.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
(a)(1) The Registrant has an audit committee financial expert serving on its
audit committee.
(2) The audit committee financial expert is Frank W. T. LaHaye and he is
"independent" as defined under the relevant Securities and Exchange Commission
Rules and Releases.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Audit Fees
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant for the audit of the registrant's annual
financial statements or for services that are normally provided by the principal
accountant in connection with statutory and regulatory filings or engagements
were $43,578 for the fiscal year ended March 31, 2005 and $31,069 for the fiscal
year ended March 31, 2004.
(b) Audit-Related Fees
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under paragraph (a) of Item 4 were $8,000 for
the fiscal year ended March 31, 2005 and $0 for the fiscal year ended March 31,
2004. The services for which these fees were paid included attestation services.
The aggregate fees paid to the principal accountant for assurance and related
services rendered by the principal accountant to the registrant's investment
adviser and any entity controlling, controlled by or under common control with
the investment adviser that provides ongoing services to the registrant that are
reasonably related to the performance of the audit of their financial statements
were $0 for the fiscal year ended March 31, 2005 and $51,489 for the fiscal year
ended March 31, 2004. The services for which these fees were paid attestation
services.
(c) Tax Fees
There were no fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant for tax compliance, tax
advice and tax planning.
The aggregate fees paid to the principal accountant for professional services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant for tax
compliance, tax advice and tax planning were $5,253 for the fiscal year ended
March 31, 2005 and $0 for the fiscal year ended March 31, 2004. The services for
which these fees were paid included tax compliance and advise.
(d) All Other Fees
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant not reported in
paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended March 31, 2005
and $29 for the fiscal year ended March 31, 2004. The services for which these
fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
The aggregate fees paid to the principal accountant for products and services
rendered by the principal accountant to the registrant's investment adviser and
any entity controlling, controlled by or under common control with the
investment adviser that provides ongoing services to the registrant not reported
in paragraphs (a)-(c) of Item 4 were $0 for the fiscal year ended March 31, 2005
and $99,971 for the fiscal year ended March 31, 2004. The services for which
these fees were paid included review of materials provided to the fund Board in
connection with the investment management contract renewal process.
(e) (1) The registrant's audit committee is directly responsible for approving
the services to be provided by the auditors, including:
(i) pre-approval of all audit and audit related services;
(ii) pre-approval of all non-audit related services to be provided to the
Fund by the auditors;
(iii)pre-approval of all non-audit related services to be provided to the
registrant by the auditors to the registrant's investment adviser or to any
entity that controls, is controlled by or is under common control with the
registrant's investment adviser and that provides ongoing services to the
registrant where the non-audit services relate directly to the operations or
financial reporting of the registrant; and
(iv) establishment by the audit committee, if deemed necessary or
appropriate, as an alternative to committee pre-approval of services to be
provided by the auditors, as required by paragraphs (ii) and (iii) above, of
policies and procedures to permit such services to be pre-approved by other
means, such as through establishment of guidelines or by action of a designated
member or members of the committee; provided the policies and procedures are
detailed as to the particular service and the committee is informed of each
service and such policies and procedures do not include delegation of audit
committee responsibilities, as contemplated under the Securities Exchange Act of
1934, to management; subject, in the case of (ii) through (iv), to any waivers,
exceptions or exemptions that may be available under applicable law or rules.
(e) (2) None of the services provided to the registrant described in paragraphs
(b)-(d) of Item 4 were pre-approved by the audit committee pursuant to paragraph
(c)(7)(i)(C) of Rule 2-01 of regulation S-X.
(f) No disclosures are required by this Item 4(f).
(g) The aggregate non-audit fees paid to the principal accountant for services
rendered by the principal accountant to the registrant and the registrant's
investment adviser and any entity controlling, controlled by or under common
control with the investment adviser that provides ongoing services to the
registrant were $13,253 for the fiscal year ended March 31, 2005 and $151,489
for the fiscal year ended March 31, 2004.
(h) The registrant's audit committee of the board of trustees has considered
whether the provision of non-audit services that were rendered to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal accountant's
independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Members of the Audit Committee are: Robert F. Carlson, S. Joseph Fortunato
and Frank W. T. LaHaye.
ITEM 6. SCHEDULE OF INVESTMENTS. N/A
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES. The Board has delegated the
authority to vote proxies related to the portfolio securities held by the Fund
to the Fund's manager Franklin Advisers, Inc. (Advisers) in accordance with the
Proxy Voting Policies and Procedures (Policies) adopted by the manager.
The manager has delegated its administrative duties with respect to the voting
of proxies to the Proxy Group within Franklin Templeton Companies, LLC (Proxy
Group), an affiliate and wholly owned subsidiary of Franklin Resources, Inc. All
proxies received by the Proxy Group will be voted based upon the manager's
instructions and/or policies.
To assist it in analyzing proxies, the manager subscribes to Institutional
Shareholder Services (ISS), an unaffiliated third party corporate governance
research service that provides in-depth analyses of shareholder meeting agendas,
vote recommendations, recordkeeping and vote disclosure services. In addition,
the manager subscribes to Glass Lewis & Co., LLC (Glass Lewis), an unaffiliated
third party analytical research firm, to receive analyses and vote
recommendations on the shareholder meetings of publicly held U.S. companies.
Although ISS' and/or Glass Lewis' analyses are thoroughly reviewed and
considered in making a final voting decision, the manager does not consider
recommendations from ISS, Glass Lewis or any other third party to be
determinative of the manager's ultimate decision. The manager votes proxies
solely in the interests of the Fund and its shareholders. As a matter of policy,
the officers, trustees and employees of the Fund, the manager and the Proxy
Group will not be influenced by outside sources whose interests conflict with
the interests of the Fund and its shareholders. All conflicts are resolved in
the interests of the manager's clients. In situations where the manager
perceives a material conflict of interest, the manager may: disclose the
conflict to the Fund's board of trustees; defer to the voting recommendation of
the Fund's board of trustees, ISS, Glass Lewis or those of another independent
third party provider of proxy services; or take such other action in good faith
(in consultation with counsel) which would protect the interests of the Fund and
its shareholders.
The recommendation of management on any issue is a factor which the manager
considers in determining how proxies should be voted, but is not determinative
of the manager's ultimate decision. As a matter of practice, the votes with
respect to most issues are cast in accordance with the position of the company's
management. Each issue, however, is considered on its own merits, and the
manager will not support the position of the company's management in any
situation where it deems that the ratification of management's position would
adversely affect the investment merits of owning that company's shares.
MANAGER'S PROXY VOTING POLICIES AND PRINCIPLES
The manager has adopted general proxy voting guidelines, which are summarized
below. These guidelines are not an exhaustive list of all the issues that may
arise and the manager cannot anticipate all future situations. In all cases,
each proxy will be considered based on the relevant facts and circumstances.
BOARD OF DIRECTORS. The manager supports an independent board of directors, and
prefers that key committees such as audit, nominating, and compensation
committees be comprised of independent directors. The manager will generally
vote against management efforts to classify a board and will generally support
proposals to declassify the board of directors. The manager may withhold votes
from directors who have attended less than 75% of meetings without a valid
reason. While generally in favor of separating Chairman and CEO positions, the
manager will review this issue as well as proposals to restore or provide for
cumulative voting on a case-by-case basis, taking into consideration factors
such as the company's corporate governance guidelines or provisions and
performance.
RATIFICATION OF AUDITORS. In light of several high profile accounting scandals,
the manager will closely scrutinize the role and performance of auditors. On a
case-by-case basis, the manager will examine proposals relating to non-audit
relationships and non-audit fees. The manager will also consider, on a
case-by-case basis, proposals to rotate auditors, and will vote against the
ratification of auditors when there is clear and compelling evidence of
accounting irregularities or negligence.
MANAGEMENT & DIRECTOR COMPENSATION. A company's equity-based compensation plan
should be in alignment with its shareholders' long-term interests. The manager
evaluates plans on a case-by-case basis by considering several factors to
determine whether the plan is fair and reasonable, including the ISS
quantitative model utilized to assess such plans and/or the Glass Lewis
evaluation of the plans. The manager will generally oppose plans that have the
potential to be excessively dilutive, and will almost always oppose plans that
are structured to allow the repricing of underwater options, or plans that have
an automatic share replenishment "evergreen" feature. The manager will generally
support employee stock option plans in which the purchase price is at least 85%
of fair market value, and when potential dilution is 10% or less.
Severance compensation arrangements will be reviewed on a case-by-case basis,
although the manager will generally oppose "golden parachutes" that are
considered to be excessive. The manager will normally support proposals that
require a percentage of directors' compensation to be in the form of common
stock, as it aligns their interests with those of shareholders. The manager will
review on a case-by-case basis any shareholder proposals to adopt policies on
expensing stock option plans.
ANTI-TAKEOVER MECHANISMS AND RELATED ISSUES. The manager generally opposes
anti-takeover measures since they tend to reduce shareholder rights. On
occasion, the manager may vote with management when the research analyst has
concluded that the proposal is not onerous and would not harm the Fund or its
shareholders' interests. The manager generally supports proposals that require
shareholder rights' plans ("poison pills") to be subject to a shareholder vote
and will closely evaluate such plans on a case-by-case basis to determine
whether or not they warrant support. The manager will generally vote against any
proposal to issue stock that has unequal or subordinate voting rights. The
manager generally opposes any supermajority voting requirements as well as the
payment of "greenmail." The manager generally supports "fair price" provisions
and confidential voting.
Changes to capital structure. The manager will review, on a case-by-case basis,
proposals by companies to increase authorized shares and the purpose for the
increase and proposals seeking preemptive rights. The manager will generally not
vote in favor of dual-class capital structures to increase the number of
authorized shares where that class of stock would have superior voting rights.
The manager will generally vote in favor of the issuance of preferred stock in
cases where the company specifies the voting, dividend, conversion and other
rights of such stock and the terms of the preferred stock issuance are deemed
reasonable.
MERGERS AND CORPORATE RESTRUCTURING. Mergers and acquisitions will be subject to
careful review by the research analyst to determine whether each will be
beneficial to shareholders. The manager will analyze various economic and
strategic factors in making the final decision on a merger or acquisition.
Corporate restructuring and reincorporation proposals are also subject to a
thorough examination on a case-by-case basis.
SOCIAL AND CORPORATE POLICY ISSUES. The manager will generally give management
discretion with regard to social, environmental and ethical issues, although the
manager may vote in favor of those that are believed to have significant
economic benefits or implications for the Fund and its shareholders.
GLOBAL CORPORATE GOVERNANCE. Many of the tenets discussed above are applied to
proxy voting decisions for international companies. However, the manager must be
more flexible in these instances and must be mindful of the varied market
practices of each region.
The manager will attempt to process every proxy it receives for all domestic and
foreign proxies. However, there may be situations in which the manager cannot
process proxies, for example, where a meeting notice was received too late, or
sell orders preclude the ability to vote. The manager may abstain from voting
under certain circumstances or vote against items such as "Other Business" when
the manager is not given adequate information from the company.
Shareholders may view the complete Policies on-line at franklintempleton.com.
Alternatively, shareholders may request copies of the Policies free of charge by
calling the Proxy Group collect at 1-954-847-2268 or by sending a written
request to: Franklin Templeton Companies, LLC, 500 East Broward Boulevard, Suite
1500, Fort Lauderdale, FL 33394, Attention: Proxy Group. Copies of the Fund's
proxy voting records are available on-line at franklintempleton.com and posted
on the SEC website at WWW.SEC.GOV and reflect the twelve-month period beginning
July 1, 2003, and ending June 30, 2004.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT
INVESTMENT COMPANY AND AFFILIATED PURCHASERS. N/A
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have
been no changes to the procedures by which shareholders may recommend nominees
to the Registrant's Board of Trustees that would require disclosure herein.
ITEM 10. CONTROLS AND PROCEDURES.
(A) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in the Registrant's filings under the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 is recorded,
processed, summarized and reported within the periods specified in the rules and
forms of the Securities and Exchange Commission. Such information is accumulated
and communicated to the Registrant's management, including its principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure. The Registrant's management,
including the principal executive officer and the principal financial officer,
recognizes that any set of controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired
control objectives.
Within 90 days prior to the filing date of this Shareholder Report on Form
N-CSR, the Registrant had carried out an evaluation, under the supervision and
with the participation of the Registrant's management, including the
Registrant's principal executive officer and the Registrant's principal
financial officer, of the effectiveness of the design and operation of the
Registrant's disclosure controls and procedures. Based on such evaluation, the
Registrant's principal executive officer and principal financial officer
concluded that the Registrant's disclosure controls and procedures are
effective.
(B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the
Registrant's internal controls or in other factors that could significantly
affect the internal controls subsequent to the date of their evaluation in
connection with the preparation of this Shareholder Report on Form N-CSR.
ITEM 11. EXHIBITS.
(A) Code of Ethics
(B) (1) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
(B) (2) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
of Jimmy D. Gambill, Chief Executive Officer - Finance and Administration, and
Galen G. Vetter, Chief Financial Officer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FRANKLIN MULTI-INCOME TRUST
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date May 20, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/Jimmy D. Gambill
Chief Executive Officer - Finance and Administration
Date May 20, 2005
By /s/Galen G. Vetter
Chief Financial Officer
Date May 20, 2005