-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EiVCJEbpohnOj81a1/8aKmkvkfOGq+yFHqIRIn3c+GNNhHH9i4XcrhdI9X1crxRV RzOuUOsunBoZN47/o2si2Q== 0000002768-00-000004.txt : 20000211 0000002768-00-000004.hdr.sgml : 20000211 ACCESSION NUMBER: 0000002768-00-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991130 FILED AS OF DATE: 20000210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000002768 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 941693697 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01608 FILM NUMBER: 531528 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 FORMER COMPANY: FORMER CONFORMED NAME: AGE HIGH INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AGE FUND INC DATE OF NAME CHANGE: 19810128 N-30D 1 SHAREHOLDER LETTER - -------------------------------------------------------------------------------- Your Fund's Goal: Franklin's AGE High Income Fund seeks to provide investors with high, current income, with a secondary objective of principal appreciation. The fund invests in a diversified portfolio consisting primarily of high yield, lower-rated corporate bonds. - -------------------------------------------------------------------------------- Dear Shareholder: This semiannual report for Franklin's AGE High Income Fund covers the six-month period ended November 30, 1999. After slowing somewhat in the second quarter of 1999, the U.S. economy's growth accelerated in the third quarter to an annualized 5.7%, a remarkably strong number. Inflation, as measured by the Consumer Price Index (CPI), edged up from 2.0% at the beginning of the period to 2.6% at its close, and interest rates rose markedly. This environment was challenging for most fixed-income assets, including high yield bonds, the fund's principal investments. Despite robust economic growth and historically low inflation, the Federal Reserve Board's three successive 0.25% interest rate hikes increased corporate financing costs as well as curtailed investor preference for high yield market risk. During the period, the benchmark 10-year Treasury bond's yield rose from 5.76% on June 1, 1999, to 6.19% on November 30, 1999, causing the 10-year bond to return -1.05% for the period. Bond prices generally move in the opposite direction from interest rates, so as one rises the other falls. The risk premium demanded for high yield issues, the additional yield expected for such bonds over U.S. Treasuries, rose 53 basis points, from 4.93% at the beginning of the period to 5.46% at the period's close, as measured by the Chase High Yield Index. The Chase High Yield Index and CS First Boston High Yield Index, the fund's benchmark, returned - -1.23% and -0.70%, respectively, over the six-month period, significantly better than the 10-year U.S. Treasury bond, and reflected the strong corporate sector fundamentals during the six months under review.(1) You will find a complete listing of the fund's portfolio holdings, including dollar value and number of shares or principal amount, beginning on page 16 of this report. CONTENTS Shareholder Letter ..... 1 Performance Summary .... 10 Financial Highlights & Statement of Investments 12 Financial Statements ... 24 Notes to Financial Statements ... 27
[FUND CATEGORY PYRAMID GRAPHIC] PORTFOLIO BREAKDOWN Based on Total Net Assets 11/30/99 [PIE CHART GRAPHIC]
Bonds 92.7% Equities 3.5% Short-Term Obligations & Other Net Assets 3.8%
PORTFOLIO UPDATE Interest-rate volatility caused most fixed-income products' performance to suffer, and the fund generated historically below-average returns during the period. However, the fund's returns were in line with its benchmark index, and the fund's Class A shares produced a -1.03% cumulative total return for the period.(2) During the six months under review, we focused on growth sectors and prudent individual security selection, and by doing this, believed the fund would be well-positioned to take advantage of positive industry trends once interest-rate volatility decreased. Additionally, high yield interest-rate spreads (5.46%) remained wide by historical standards on November 30, 1999, higher than the 10-year average of 5.27% and significantly higher than the 5-year average of 4.28%, as measured by the Chase High Yield Index. If spreads do return to their historical averages, the lower rates could cause high yield bonds' values to increase. 1. Indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index. 2. Cumulative total return measures the change in value of an investment, assuming reinvestment of all distributions and does not include the sales charge. As of November 30, 1999, the fund's largest industry weightings were in telecommunications (13.5% of total net assets), wireless communication (11.6%), cable & broadcasting (8.8%), energy (6.2%) and media (5.4%). SECTOR DISCUSSIONS TELECOMMUNICATIONS The telecommunications sector performed well over the reporting period. We maintained our focus on companies with strong management teams, ready access to capital, their own networks and equipment, and the ability to provide a complete spectrum of services (known as bundling) to their customers. Consolidation was one of the sector's most important trends, and the fund was strategically positioned to take advantage of several mergers and acquisitions during the reporting period. One example is the merger between fund holding IXC Communications Inc. and Cincinnati Bell Inc. The merger significantly improved IXC's performance, as Cincinnati Bell's financial position was substantially stronger than IXC's, which resulted in a healthier credit profile for IXC following the merger. Consolidation for competitive local exchange carriers (CLECs) has taken place a little slower than expected; however, we believe it is likely to accelerate and recent valuations for many CLECs were still attractive. Overall, the fund materially increased its weighting in the telecommunications sector during the period from 10.6% of total net assets on May 31, 1999, to 13.5% at the end of the reporting period. This was largely due to the addition of Williams Communications Group Inc. and PSINet Inc. to the portfolio. Williams is a wholesale communications provider that boasts good access to capital, and a strong engineering and construction background that it is using to build out its network. PSINet is an Internet service provider (ISP) that concentrates primarily on business customers, but also sells wholesale services to other ISPs to maximize its network utilization. PSINet is a global, rapidly growing company, and we believe it will be a valuable addition to the portfolio going forward. WIRELESS During the reporting period, the wireless sector benefited from increased market penetration and strong demand. On the cellular side, ongoing growth in the subscriber base largely offset pricing pressures, as wireless phones continued their transition from a luxury good to a more standard consumer product. In addition to favorable demand dynamics, many of the fund's holdings benefited from growth in voice applications as well as optimism surrounding the future growth of data applications such as the Internet and email. During the six months under review, holdings such as Rogers Cantel Mobile Communications Inc. and Dobson/Sygnet Communications Co. performed well due to their efforts to strengthen their relationships with AT&T Corp. AT&T purchased 33% of Rogers Cantel, and the company used the cash infusion to pay down debt, strengthening its credit profile. Dobson/Sygnet bolstered its strategic relationship with AT&T, and continued using its own free cash flow to rapidly reduce its debt. Several of the fund's other wireless holdings also performed strongly during the period. Triton PCS Inc.'s and Nextel Partners Inc.'s bonds increased in value due to the successful construction of their respective networks ahead of schedule. Triton PCS completed its initial public offering (IPO) successfully in November, and later in the period we sold the position to take advantage of their bond's strong price appreciation. The fund initiated two new positions on the cellular side during the period -- VoiceStream Wireless Corp. and Crown Castle International Corp. Crown Castle is a leading wireless tower operator, and VoiceStream is a consolidator of wireless operators using GSM technology (an international digital radio standard) and is expanding its network to achieve national coverage. We believe both are poised to benefit from strong cellular growth trends going forward. The fund's paging sector positions, unfortunately, came under increasing pressure due to intense industry competition and concern over the substitution effect toward cellular phones from pagers. Pricing power declined, and we expect competition to remain fierce in this sector. However, it should be noted that much of the paging sector competition is coming from the cellular providers, a trend that benefits many of the fund's cellular holdings. TOP 10 HOLDINGS 11/30/99
COMPANY % OF TOTAL INDUSTRY NET ASSETS - ---------------------------------------- AMFM Inc. Consumer Services 1.38% NEXTLINK Communications Inc. Telecommunications 1.35% HMH Properties Inc. Real Estate 1.31% Amkor Technology Inc. Electronic Technology 1.15% P&L Coal Holdings Corp. Energy Minerals 1.15% Allied Waste North America Inc. Industrial Services 1.15% PSINet Inc. Electronic Technology 1.15% Global Crossings Holdings Ltd. Telecommunications 1.14% Level 3 Communications Inc. Telecommunications 1.11% Allegiance Telecom Inc. Telecommunications 1.11%
CABLE & BROADCASTING Mergers and acquisitions continued during the period, and the cable sector benefited from strong demand and efficiencies of scale that come with consolidation. In addition, many cable companies have dependable, utility-like revenue streams from their core video products, an attribute we find attractive especially in light of the industry's high growth potential. During the period, we maintained our emphasis on competitive companies with lower cost structures, and in general, we looked for companies that were leaders in their respective markets. Fund position NTL Inc. announced a merger with Cable & Wireless PLC (U.K.) that will create the U.K.'s largest cable operator. Moreover, France Telecom is expected to invest additional equity into NTL as part of the transaction, which should further strengthen NTL's credit profile. Fund holding United Pan-Europe Communications NV (UPC), one of Europe's largest television operators, benefited from the issuance of additional equity and a favorable outlook for new services such as the Internet and telephony. On the broadcasting side, consolidation and deregulation benefited many of the fund's holdings. Chancellor Media Corp. merged with Clear Channel Communications Inc., one of the largest radio and outdoor advertising companies in the U.S., forming a much larger, more diversified company (AMFM Inc.) that should produce better credit profiles going forward. Deregulation continued in the television subsector with favorable rulings by the Federal Communications Commission, which increased the promise of further consolidation in the future. DIVIDEND DISTRIBUTIONS 6/1/99 - 11/30/99
DIVIDEND PER SHARE ---------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR - ---------------------------------------------------------------- June 2.2 cents 2.09 cents 2.09 cents 2.23 cents July 2.2 cents 2.09 cents 2.09 cents 2.23 cents August 2.2 cents 2.09 cents 2.09 cents 2.23 cents September 2.2 cents 2.08 cents 2.09 cents 2.23 cents October 2.2 cents 2.08 cents 2.09 cents 2.23 cents November 2.2 cents 2.08 cents 2.09 cents 2.23 cents - ---------------------------------------------------------------- TOTAL 13.2 CENTS 12.51 CENTS 12.54 CENTS 13.38 CENTS
ENERGY Energy sector companies delivered quite mixed performances over the reporting period. In general, refiners suffered the impact of lower refining margins due to the sharp rise in crude oil and natural gas prices, whereas service companies and exploration and production companies benefited from oil and gas strength. Many were able to adapt their business plans and rebound, such as fund holdings Chesapeake Energy Corp. and Bellwether Exploration Co. Overall, we favored companies possessing high-quality assets with the infrastructure necessary to leverage improving oil-sector fundamentals. The fund's investment in R&B Falcon Corp. exemplified this strategy. R&B Falcon has high quality assets, operates the world's largest fleet of offshore drill rigs and is heavily exposed to deep water drilling, a segment that is likely to be the industry's growth engine going forward. R&B Falcon bonds performed strongly during the period due to optimism surrounding the company's medium- to long-term prospects, and the most recent debt issue was priced attractively. MEDIA In general, companies within the media sector benefited from strong domestic growth and a flourishing service economy. The media sector is composed of a very diverse group of companies, ranging from printers to outdoor advertisers, and even theme parks, providing a variety of business models. Consequently, we maintained our bottom-up, company-specific approach to investing in the sector, concentrating principally on industry leaders with strong business plans, visionary management teams and favorable cost structures. One of the fund's holdings, Big Flower Press Holdings Inc., announced a recapitalization plan whereby the bonds will be repurchased at a significant premium. The deal is expected to close by the end of 1999, and the bonds performed well on the positive news. LOOKING FORWARD Recent economic data suggests that growth should continue to remain positive as underlying fundamentals remain supportive. Inflation, although slightly higher, is relatively benign and low by historical standards, and the three interest rate hikes on the part of the Federal Reserve Board have, in our opinion, provided increased interest rate clarity. An environment of continued, positive economic growth with historically low inflation should provide a favorable environment for high yield bonds over the near to intermediate term, provided interest rates remain stable. In general, we believe high yield valuations are attractive on a historical basis, and that improving fundamentals lend encouragement for sector performance going forward. Sincerely, /s/ CHRISTOPHER J. MOLUMPHY Christopher J. Molumphy Senior Portfolio Manager Franklin's AGE High Income Fund - -------------------------------------------------------------------------------- This discussion reflects our views, opinions and portfolio holdings as of November 30, 1999, the end of the reporting period. Our strategies and the fund's portfolio composition will change depending on market and economic conditions. Although historical performance is no guarantee of future results, these insights may help you understand our investment and management philosophy. - -------------------------------------------------------------------------------- CLASS A (formerly Class I): Subject to the current, maximum 4.25% initial sales charge. Prior to July 1, 1994, fund shares were offered at a lower initial sales charge; thus actual total returns may differ. Effective May 1, 1994, the fund eliminated the sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent performance. CLASS B: Subject to no initial sales charge, but subject to a contingent deferred sales charge (CDSC) declining from 4% to 0% over six years. These shares have higher annual fees and expenses than Class A shares. CLASS C (formerly Class II): Subject to 1% initial sales charge and 1% CDSC for shares redeemed within 18 months of investment. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a limited class of investors. SIX-MONTH PERFORMANCE SUMMARY AS OF 11/30/99 Six-month total return does not include sales charges. Distributions will vary based on earnings of the fund's portfolio and any profits realized from the sale of the portfolio's securities. Past distributions are not indicative of future trends. All total returns include reinvested distributions at net asset value. CLASS A Six-Month Total Return -1.03% Net Asset Value (NAV) (11/30/99) $2.53 (5/31/99) $2.69 Change in NAV -$0.16 Distributions (6/1/99-11/30/99) Dividend Income $0.132 CLASS B Six-Month Total Return -1.68% Net Asset Value (NAV) (11/30/99) $2.52 (5/31/99) $2.69 Change in NAV -$0.17 Distributions (6/1/99-11/30/99) Dividend Income $0.1251 CLASS C Six-Month Total Return -1.66% Net Asset Value (NAV) (11/30/99) $2.53 (5/31/99) $2.70 Change in NAV -$0.17 Distributions (6/1/99-11/30/99) Dividend Income $0.1254 ADVISOR CLASS Six-Month Total Return -0.96% Net Asset Value (NAV) (11/30/99) $2.53 (5/31/99) $2.69 Change in NAV -$0.16 Distributions (6/1/99-11/30/99) Dividend Income $0.1338
Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF QUARTER ENDED 12/31/99
INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (12/31/69) - -------------------------------------------------------------------------------------- Cumulative Total Return(1) +0.48% +54.96% +165.55% +1,041.96% Average Annual Total Return(2) -3.70% +8.17% +9.79% +8.30% Value of $10,000 Investment(3) $9,630 $14,812 $25,452 $109,252
INCEPTION CLASS B 1-YEAR (1/1/99) - ---------------------------------------------------------------------------------- Cumulative Total Return(1) +0.03% +0.03% Average Annual Total Return(2) -3.60% -3.60% Value of $10,000 Investment(3) $9,640
INCEPTION CLASS C 1-YEAR 3-YEAR (5/16/95) - ---------------------------------------------------------------------------------- Cumulative Total Return(1) -0.03% +12.86% +36.92% Average Annual Total Return(2) -2.00% +3.76% +6.78% Value of $10,000 Investment(3) $9,800 $11,171 $13,545
INCEPTION ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (12/31/69) - ------------------------------------------------------------------------------------------- Cumulative Total Return(1) +0.61% +56.07% +167.45% +1,050.15% Average Annual Total Return(2) +0.61% +9.31% +10.34% +8.48% Value of $10,000 Investment(3) $10,061 $15,607 $26,745 $115,015
AS OF 11/30/99
SHARE CLASS A B C ADVISOR - --------------------------------------------------------------- Distribution Rate(5) 10.00% 9.90% 9.80% 10.58% 30-Day Standardized Yield(6) 10.77% 10.77% 10.65% 11.42%
For updated performance figures, see "Prices and Performance" on the Internet at www.franklintempleton.com, or call Franklin Templeton at 1-800/342-5236. 1. Cumulative total return represents the change in value of an investment over the periods indicated and does not include sales charges. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated and includes the current, applicable, maximum sales charge(s) for that class. 3. These figures represent the value of a hypothetical $10,000 investment in the fund over the periods indicated and include the current, applicable, maximum sales charge(s) for that class. 4. On January 2, 1997, the fund began selling Advisor Class shares to certain eligible investors as described in the prospectus. This share class does not have sales charges or a Rule 12b-1 plan. Performance quotations have been calculated as follows: (a) For periods prior to January 2, 1997, figures reflect Class A performance, excluding the effect of the Class A sales charge, but including the effect of Rule 12b-1 fees and other Class A expenses; and (b) for periods after January 1, 1997, figures reflect actual Advisor Class performance, including the deduction of all fees and expenses applicable only to that class. Since January 2, 1997 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +15.16% and +4.82% respectively. 5. Distribution rate is based on an annualization of the respective class's November dividend and the maximum offering price (net asset value price for Class B and Advisor Class) per share on November 30, 1999. 6. Yield, calculated as required by the SEC, is based on the earnings of the fund's portfolio for the 30 days ended November 30, 1999. Bond prices, and thus the fund's share price, generally move in the opposite direction from interest rates. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, and you may have a gain or loss when you sell your shares. Past performance does not guarantee future results. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights
CLASS A ---------------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 1999 YEAR ENDED MAY 31, ----------------------------------------------------------------------- (UNAUDITED)*** 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .. $2.69 $2.98 $2.90 $2.79 $2.77 $2.70 ---------------------------------------------------------------------------------------- Income from investment operations: Net investment income ................ .13 .26 .26 .26 .25 .26 Net realized and unrealized gains (losses) ............................ (.16) (.29) .08 .11 .03 .07 ---------------------------------------------------------------------------------------- Total from investment operations ...... (.03) (.03) .34 .37 .28 .33 ---------------------------------------------------------------------------------------- Less distributions from net investment income .............................. (.13) (.26) (.26) (.26) (.26) (.26) ---------------------------------------------------------------------------------------- Net asset value, end of period ........ $2.53 $2.69 $2.98 $2.90 $2.79 $2.77 ======================================================================================== Total return** ........................ (1.03%) (.74%) 12.32% 14.09% 10.75% 13.34% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ..... $2,895,822 $3,108,809 $3,236,134 $2,638,914 $2,183,738 $1,908,853 Ratios to average net assets: Expenses ............................. .74%* .72% .70% .71% .70% .66% Net investment income ................ 10.02%* 9.40% 9.04% 9.31% 9.07% 9.71% Portfolio turnover rate ............... 14.59% 27.55% 29.69% 20.01% 19.87% 28.56%
*Annualized **Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. ***Based on average shares outstanding. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS B ------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 1999 YEAR ENDED (UNAUDITED)*** MAY 31, 1999(1) ------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ...................... $2.68 $2.76 ------------------------------------------------- Income from investment operations: Net investment income .................................... .12 .11 Net realized and unrealized gains (losses) ............... (.16) (.08) ------------------------------------------------- Total from investment operations .......................... (.04) .03 ------------------------------------------------- Less distributions from net investment income ............. (.12) (.11) ------------------------------------------------- Net asset value, end of period ............................ $2.52 $2.68 ================================================= Total return** ............................................ (1.68%) 1.29% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ......................... $58,554 $26,095 Ratios to average net assets: Expenses ................................................. 1.25%* 1.24%* Net investment income .................................... 9.46%* 8.41%* Portfolio turnover rate ................................... 14.59% 27.55%
*Annualized **Total return does not reflect contingent deferred sales charge, and is not annualized for periods less than one year. ***Based on average shares outstanding. (1) For the period January 1, 1999 (effective date) to May 31, 1999. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS C ---------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 1999 YEAR ENDED MAY 31, ---------------------------------------------------- (UNAUDITED)*** 1999 1998 1997 1996 1995(2) ---------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .... $2.69 $2.98 $2.90 $2.79 $2.77 $2.76 ---------------------------------------------------------------------- Income from investment operations: Net investment income .................. .12 .25 .25 .25 .25 -- Net realized and unrealized gains (losses) .............................. (.16) (.29) .08 .11 .02 .01 ---------------------------------------------------------------------- Total from investment operations ........ (.04) (.04) .33 .36 .27 .01 ---------------------------------------------------------------------- Less distributions from net investment income ................................ (.12) (.25) (.25) (.25) (.25) -- ---------------------------------------------------------------------- Net asset value, end of period .......... $2.53 $2.69 $2.98 $2.90 $2.79 $2.77 ====================================================================== Total return** .......................... (1.66%) (.93%) 11.69% 13.41% 10.06% .36% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ....... $448,084 $487,196 $394,612 $151,073 $46,064 $713 Ratios to average net assets: Expenses ............................... 1.25%* 1.24% 1.23% 1.25% 1.25% 1.14%* Net investment income .................. 9.50%* 8.89% 8.51% 8.75% 8.50% 6.91%* Portfolio turnover rate ................. 14.59% 27.55% 29.69% 20.01% 19.87% 28.56%
*Annualized **Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. ***Based on average shares outstanding. (2) For the period May 16, 1995 (effective date) to May 31, 1995. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
ADVISOR CLASS ------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 1999 ---------------------------------- (UNAUDITED)*** 1999 1998 1997(3) ------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ................... $2.69 $2.98 $2.90 $2.90 ------------------------------------------------------ Income from investment operations: Net investment income ................................. .13 .27 .27 .12 Net realized and unrealized gains (losses) ............ (.16) (.29) .08 (.01) ------------------------------------------------------ Total from investment operations ....................... (.03) (.02) .35 .11 ------------------------------------------------------ Less distributions from net investment income .......... (.13) (.27) (.27) (.11) ------------------------------------------------------ Net asset value, end of period ......................... $2.53 $2.69 $2.98 $2.90 ====================================================== Total return** (.96%) (.61%) 12.46% 3.94% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ...................... $46,951 $39,354 $28,026 $6,224 Ratios to average net assets: Expenses .............................................. .60%* .59% .58% .61%* Net investment income ................................. 10.16%* 9.52% 9.17% 9.25%* Portfolio turnover rate ................................ 14.59% 27.55% 29.69% 20.01%
*Annualized **Total return is not annualized. ***Based on average shares outstanding. (3)For the period January 2, 1997 (effective date) to May 31, 1997. See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED)
SHARES/ RIGHTS/ WARRANTS VALUE - ------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, WARRANTS AND RIGHTS 1.2% (a) Advantica Restaurant Group Inc., A 612,439 $ 1,071,768 (a) Darling International Inc. 504,447 1,103,478 (a) Gaylord Container Corp., wts., 11/01/02 232,762 1,396,572 (a) Gulf States Steel Inc., wts., 4/15/03 27,800 28 (a,e) Harvard Industries Inc. 793,966 6,847,957 (a) International Wire Holding Co., wts., 8/15/01 36,400 36 (a) Jack in the Box Inc. 24,090 507,396 (a) Key Energy Services Inc., wts., 1/15/09 30,000 603,750 (a) Loral Space & Communications Ltd., wts., 1/15/07 35,300 300,294 (a) McCaw International Ltd., wts., 4/15/07 28,500 228,000 (a) McMoran Exploration Co. 25,937 565,751 Nabisco Group Holdings Corp. 510,000 5,896,875 (a) Nextel Communications Inc., A 64,337 6,377,405 (a) Occidente Y Caribe Celular, 144A, wts., 3/15/04 (Columbia) 152,660 2,289,900 (a) Penn Traffic Co. 389,598 2,970,685 Phosphate Resource Partners LP 415,000 4,435,313 (a) Poland Telecom Finance, 144A, wts., 12/01/07 (Poland) 30,000 105,000 (a) R & B Falcon Corp., 144A, wts., 5/01/09 11,750 2,937,500 R.J. Reynolds Tobacco Holdings Inc. 170,000 3,623,125 (a) Specialty Foods Corp., 144A 97,500 -- (a) United Mexican States, rts., 6/30/03 (Mexico) 3,000 -- Walter Industries Inc. 189,505 2,013,491 ----------- TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $87,502,443) 43,274,324 ----------- PREFERRED STOCKS 2.3% Asia Pulp & Paper Co. Ltd., 12.00%, pfd. (Indonesia) 24,700 15,808,000 CMS Energy Trust I, 7.75%, cvt. pfd. 530,000 24,048,750 Fresenius Medical Care AG, 9.00%, pfd. 13,100 12,641,500 (a) R&B Falcon Corp., 13.875%, pfd., PIK 12,621 13,126,308 Sinclair Capital, 11.625%, pfd. 147,000 14,442,750 ----------- TOTAL PREFERRED STOCKS (COST $91,047,481) 80,067,308 -----------
PRINCIPAL AMOUNT* ----------- BONDS 92.7% COMMERCIAL SERVICES 4.5% American Commercial Lines LLC, senior note, 10.25%, 6/30/08 $ 22,700,000 21,792,000 AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 11,350,000 6,185,750 AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 19,010,000 5,798,050 Big Flower Press Holdings Inc., 8.625%, 12/01/08 17,300,000 17,732,500 Big Flower Press Holdings Inc., senior sub. note, 8.875%, 7/01/07 12,100,000 12,402,500 Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 15,000,000 13,987,500 Fleming Cos. Inc., senior sub. note, B, 10.625%, 7/31/07 14,000,000 12,775,000 Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 (United Kingdom) 9,400,000 8,894,750 Iron Mountain Inc., 8.25%, 7/01/11 7,500,000 6,881,250 Iron Mountain Inc., senior sub. note, 8.75%, 9/30/09 16,650,000 15,900,750
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMERCIAL SERVICES (CONT.) Lamar Advertising Co., senior sub. note, 9.625%, 12/01/06 ............ $ 20,000,000 $ 20,700,000 Tembec Finance Corp., senior note, 9.875%, 9/30/05 (Canada) .......... 11,000,000 11,495,000 ----------- 154,545,050 ----------- CONSUMER DURABLES .7% Dura Operating Corp., senior sub. note, B, 9.00%, 5/01/09 ............ 11,000,000 10,450,000 Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02, 10.875% thereafter, 12/15/07 ........................... 10,200,000 7,191,000 Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 ............ 6,800,000 6,800,000 ----------- 24,441,000 ----------- CONSUMER NON-DURABLES 3.7% Agrilink Foods Inc., 11.875%, 11/01/08 ............................... 17,000,000 16,490,000 Delta Beverage Group Inc., senior note, 9.75%, 12/15/03 .............. 2,800,000 2,786,000 Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ................... 15,000,000 14,962,500 International Home Foods Inc., senior sub. note, 10.375%, 11/01/06 ... 11,200,000 11,690,000 Premier International Foods, senior note, 144A, 12.00%, 9/01/09 ...... 16,000,000 16,240,000 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 .... 42,000,000 23,940,000 SFC New Holdings Inc., senior note, 11.25%, 8/15/01 .................. 19,000,000 17,480,000 SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00% thereafter, 12/15/09 .......................................................... 909,980 -- Specialty Retailers Inc., senior sub. note, 8.5%, 7/15/05 ............ 7,250,000 5,473,750 Specialty Retailers Inc., senior sub. note, B, 9.00%, 7/15/07 ........ 5,000,000 2,875,000 Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ......... 22,000,000 14,410,000 ----------- 126,347,250 ----------- CONSUMER SERVICES 16.1% Advantica Restaurant Group Inc., senior note, 11.25%, 1/15/08 ........ 13,896,030 10,977,864 AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01, 12.25% thereafter, 3/15/06 ............................... 9,951,000 4,428,195 AMFM Inc., 144A, 9.00%, 10/01/08 ..................................... 8,400,000 8,820,000 AMFM Inc., senior note, 8.00%, 11/01/08 .............................. 23,500,000 23,735,000 AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ....................... 15,000,000 15,225,000 Ascent Entertainment Group Inc., senior disc. note, zero cpn. to 12/15/02, 11.875% thereafter, 12/15/04 ......................... 19,500,000 14,625,000 Aztar Corp., senior sub. note, 8.875%, 5/15/07 ....................... 30,500,000 29,508,750 Benedek Communications Corp., senior disc. note, zero cpn. to 5/15/01, 13.25% thereafter, 5/15/06 ............................ 24,500,000 22,295,000 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................... 39,000,000 23,692,500 CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09 .............. 19,500,000 14,235,000 CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ................. 20,000,000 22,350,000 CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ................. 5,000,000 5,175,000 Diamond Cable Communication Co., senior disc. note, zero cpn. to 2/15/02, 10.75% thereafter, 2/15/07 (United Kingdom) .............. 7,850,000 6,280,000 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 (United Kingdom) .. 10,600,000 10,600,000 Family Restaurant Inc., senior note, 9.75%, 2/01/02 .................. 10,850,000 5,045,250 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 ............................. 22,650,000 18,233,250 Fox/Liberty Networks LLC, senior note, 8.875%, 8/15/07 ............... 15,000,000 15,337,500 Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 .... 7,100,000 7,277,500 Hammons (John Q) Hotels, first mortgage, 8.875%, 2/15/04 ............. 20,000,000 18,200,000 Hammons (John Q) Hotels, first mortgage, 9.75%, 10/01/05 ............. 4,500,000 4,162,500 Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 ...... 15,250,000 14,754,375
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Hollinger International Inc., senior sub. note, 9.25%, 2/01/06 ....... $ 6,400,000 $ 6,304,000 Hollinger International Publishing Inc., senior sub. note, 9.25%, 3/15/07 ................................................... 12,800,000 12,608,000 Horseshoe Gaming Holding, senior sub. note, 8.625%, 5/15/09 .......... 30,200,000 28,992,000 Jacor Communications Co., senior sub. note, 9.75%, 12/15/06 .......... 6,400,000 7,104,192 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 .............................. 17,300,000 11,764,000 LIN Television Corp., senior sub. note, 8.375%, 3/01/08 .............. 19,000,000 18,050,000 Players International Inc., senior note, 10.875%, 4/15/05 ............ 4,750,000 5,046,875 Premier Parks Inc., senior disc. note, zero cpn. to 4/01/03, 10.00% thereafter, 4/01/08 .............................. 8,000,000 5,425,000 Premier Parks Inc., senior note, 9.25%, 4/01/06 ...................... 8,000,000 7,800,000 Premier Parks Inc., senior note, 9.75%, 6/15/07 ...................... 22,500,000 22,443,750 Prime Hospitality Corp., senior sub. note, B, 9.75%, 4/01/07 ......... 23,200,000 22,388,000 Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%, 1/15/09 ............................................ 37,000,000 15,910,000 Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ................. 39,500,000 32,686,250 Rogers Cablesystems, senior secured deb., 10.125%, 9/01/12 (Canada) .. 5,000,000 5,387,500 Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ..... 14,400,000 14,364,000 Telewest Communications PLC, senior disc. note, 144A, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 (United Kingdom) ........... 14,750,000 9,292,500 Telewest Communications PLC, senior note, 11.25%, 11/01/08 (United Kingdom) ................................................. 4,000,000 4,360,000 United Pan-Europe Communications NV, senior disc. note,144A, zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 (Netherlands) ....... 52,500,000 30,187,500 ----------- 555,071,251 ----------- ELECTRONIC TECHNOLOGY 4.8% Amkor Technology Inc., senior note, 144A, 9.25%, 5/01/06 ............. 40,000,000 39,800,000 Amphenol Corp., senior sub. note, 9.875%, 5/15/07 .................... 5,000,000 5,075,000 Bresnan Communications Group LLC, senior note, 8.00%, 2/01/09 ........ 4,400,000 4,433,000 Bresnan Communications Group LLC, zero cpn. to 2/01/04, 9.25% thereafter, 2/01/09 ............................................... 10,000,000 6,875,000 Focal Communications Corp., senior disc. note, B, zero cpn. to 2/15/03, 12.125% thereafter, 2/15/08 ........................... 29,000,000 17,835,000 Hadco Corp., senior sub. note, 9.50%, 6/15/08 ........................ 25,000,000 24,312,500 L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 ........................................................... 5,400,000 5,589,000 (c) PSINet Inc., senior note, 10.50%, 12/01/06 ........................... 11,500,000 11,500,000 PSINet Inc., senior note, 144A, 11.00%, 8/01/09 ...................... 27,250,000 28,067,500 Telecommun Techniques Co., senior sub. note, 9.75%, 5/15/08 .......... 24,000,000 22,560,000 ----------- 166,047,000 ----------- ENERGY MINERALS 4.7% Abraxas Petroleum Corp., senior note, D, 11.50%, 11/01/04 ............ 37,100,000 25,784,500 AEI Resources Inc., senior sub. note, 144A, 11.50%, 12/15/06 ......... 20,000,000 14,100,000 Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ....... 5,000,000 4,550,000 Chesapeake Energy Corp., senior note, B, 9.625%, 5/01/05 ............. 7,000,000 6,755,000 Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 ................... 9,000,000 5,805,000 Clark USA Inc., senior note, 10.875%, 12/01/05 ....................... 22,000,000 11,110,000 Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 (Mexico) .................................................. 33,300,000 32,467,500 Mesa Operating Co., zero cpn. to 7/01/01,11.625% thereafter, 7/01/06 ........................................................... 4,300,000 3,805,500 Nuevo Energy Co., senior sub. note, 9.50%, 6/01/08 ................... 17,900,000 17,944,750
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------- BONDS (CONT.) ENERGY MINERALS (CONT.) P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ............. $ 7,000,000 $ 6,965,000 P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ........ 33,000,000 32,711,250 ----------- 161,998,500 ----------- FINANCE 1.4% Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ................ 23,000,000 23,230,000 Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 ............... 30,000,000 25,350,000 ----------- 48,580,000 ----------- GOVERNMENT BONDS .4% ESCOM, E168, 11.00%, 6/01/08 (South Africa) .......................... 108,800,000 ZAR 14,425,911 ----------- HEALTH SERVICES 3.0% Abbey Healthcare Group Inc., senior sub. note, 9.50%, 11/01/02 ....... 605,000 580,800 Everest Healthcare Services Corp., senior sub. note, 9.75%, 5/01/08 .. 18,000,000 16,650,000 Fresenius Medical Care Capital Trust, 7.875%, 2/01/08 ................ 24,000,000 21,840,000 Iasis Healthcare Corp., senior sub. note, 144A, 13.00%, 10/15/09 ..... 35,000,000 35,962,500 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ...... 20,000,000 16,200,000 Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 ................... 8,400,000 6,153,000 (d) Vencor Operating Inc., senior sub. note, 9.875%, 5/01/05 ............. 29,000,000 5,800,000 ----------- 103,186,300 ----------- HEALTH TECHNOLOGY .4% Conmed Corp., senior sub. note, 9.00%, 3/15/08 ....................... 15,000,000 13,725,000 ----------- INDUSTRIAL SERVICES 4.9% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ..... 34,000,000 30,430,000 Allied Waste North America Inc., senior sub. note, 144A, 10.00%, 8/01/09 ........................................................... 10,000,000 9,162,500 Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ... 4,750,000 4,910,313 Key Energy Services Inc., 14.00%, 1/15/09 ............................ 30,000,000 32,850,000 Pride Petroleum Services Inc., senior note, 9.375%, 5/01/07 .......... 6,600,000 6,600,000 R & B Falcon Corp., 9.50%, 12/15/08 .................................. 7,400,000 7,474,000 R & B Falcon Corp., senior note, 12.25%, 3/15/06 ..................... 10,850,000 11,826,500 RBF Finance Co., senior note, 11.375%, 3/15/09 ....................... 8,750,000 9,450,000 Safety Kleen Services, senior sub. note, 9.25%, 6/01/08 .............. 20,000,000 19,800,000 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 ............................ 31,800,000 19,596,750 URS Corp., senior sub. note, 12.25%, 5/01/09 ......................... 16,500,000 17,118,750 ----------- 169,218,813 ----------- NON-ENERGY MINERALS 1.4% Armco Inc., senior note, 9.00%, 9/15/07 .............................. 5,200,000 5,278,000 Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 .......... 11,700,000 11,290,500 Doman Industries Ltd., senior note, B, 9.25%, 11/15/07 (Canada) ...... 2,800,000 2,198,000 LTV Corp., senior note, 8.20%, 9/15/07 ............................... 27,500,000 24,750,000 Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 ........... 8,000,000 6,680,000 ----------- 50,196,500 -----------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------- BONDS (CONT.) PROCESS INDUSTRIES 8.1% Anchor Glass Container, senior note, 9.875%, 3/15/08 ................. $ 17,300,000 $ 15,224,000 Anchor Glass, first mortgage, 11.25%, 4/01/05 ........................ 23,700,000 22,159,500 Ball Corp., senior sub. note, 8.25%, 8/01/08 ......................... 5,500,000 5,348,750 Climachen Inc., senior sub. note, B, 10.75%, 12/01/07 ................ 7,500,000 4,162,500 Container Corp. of America, senior note, A, 9.75%, 4/01/03 ........... 12,000,000 12,480,000 Equistar Chemicals LP, senior note, 8.75%, 2/15/09 ................... 20,000,000 19,700,000 Four M Corp., senior note, B, 12.00%, 6/01/06 ........................ 23,700,000 21,981,750 Graham Packaging Co., senior disc. note, B, zero cpn., to 1/15/03, 10.75% thereafter, 1/15/09 ........................... 5,600,000 3,584,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ............ 6,600,000 6,270,000 Huntsman Corp., senior sub. note, 144A, 9.50%, 7/01/07 ............... 5,000,000 4,725,000 Huntsman ICI Chemicals LLC, senior disc. note, 144A, zero cpn., 12/31/09 .............................................. 76,130,000 22,648,675 Lyondell Chemical Co., 9.625%, 5/01/07 ............................... 2,400,000 2,472,000 Lyondell Chemical Co., 9.875%, 5/01/07 ............................... 11,600,000 11,948,000 Lyondell Chemical Co., 10.875%, 5/01/09 .............................. 2,400,000 2,472,000 Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17 (Indonesia) ............................................. 30,900,000 20,703,000 (d) Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 (Indonesia) .............................................. 27,750,000 6,382,500 (d) Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 .................. 40,000,000 9,000,000 Radnor Holdings Inc., senior note, 10.00%, 12/01/03 .................. 6,250,000 6,281,250 Repap New Brunswick, senior note, 9.00%, 6/01/04 (Canada) ............ 13,600,000 13,464,000 Terra Industries Inc., senior note, B, 10.50%, 6/15/05 ............... 15,000,000 9,525,000 Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 (Indonesia) ...................................................... 11,000,000 8,030,000 Westpoint Stevens Inc., senior note, 7.875%, 6/15/08 ................. 17,500,000 16,450,000 ZSC Specialty Chemicals PLC, 144A, 11.00%, 7/01/09 ................... 33,000,000 33,825,000 ----------- 278,836,925 ----------- PRODUCER MANUFACTURING 6.2% Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 ..... 8,000,000 7,220,000 Airxcel Inc., senior sub. note, B, 11.00%, 11/15/07 .................. 13,500,000 13,297,500 American Axle & Manufacturing Inc., 9.75%, 3/01/09 ................... 26,800,000 26,934,000 Cambridge Industries Inc., senior sub. note, B, 10.25%, 7/15/07 ...... 4,700,000 2,843,500 Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06 ......... 9,500,000 9,357,500 (d) Goss Graphic Systems Inc., senior sub. note, 12.00%, 10/15/06 ........ 15,150,000 2,651,250 Keystone Consolidated Industries Inc., senior note, 9.625%, 8/01/07 .. 7,000,000 6,440,000 Neenah Corp., F, 11.125%, 5/01/07 .................................... 6,100,000 5,673,000 Neenah Corp., senior sub. note, B, 11.125%, 5/01/07 .................. 6,100,000 5,657,750 Nortek Inc., 8.875%, 8/01/08 ......................................... 8,000,000 7,640,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 ......................... 19,200,000 18,816,000 Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ................ 13,200,000 12,870,000 Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 .... 20,850,000 13,031,250 Tenneco Automotive Inc., senior sub. note, 144A, 11.625%, 10/15/09 ... 30,000,000 30,300,000 Terex Corp., 8.875%, 4/01/08 ......................................... 9,500,000 9,025,000 Terex Corp., senior sub. note, 8.875%, 4/01/08 ....................... 24,750,000 23,512,500 Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 .............. 19,781,000 18,297,425 ----------- 213,566,675 -----------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) REAL ESTATE 2.3% HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ..................... $50,000,000 $45,250,000 Lodgian Finance Corp, 12.25%, 7/15/09 ............................................ 34,250,000 33,736,250 ----------- 78,986,250 ----------- RETAIL TRADE .4% (d) Bruno's Inc., senior sub. note, 10.50%, 8/01/05 .................................. 12,500,000 93,750 Penn Traffic Co., 11.00%, 6/29/09 ................................................ 2,048,250 1,761,495 Pueblo Xtra International, senior note, 9.50%, 8/01/03 ........................... 9,500,000 6,697,500 Pueblo Xtra International, senior note, C, 9.50%, 8/01/03 ........................ 5,000,000 3,525,000 ----------- 12,077,745 ----------- TECHNOLOGY SERVICES .8% Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 .............................. 28,200,000 28,200,000 ----------- TELECOMMUNICATIONS 23.5% Allegiance Telecom Inc., senior disc. note, B, zero cpn. to 2/15/03, 11.75%, thereafter, 2/15/08 ..................................................... 22,000,000 15,400,000 Allegiance Telecom Inc., senior note, 12.875%, 5/15/08 ........................... 20,500,000 22,755,000 Arch Escrow Corp., 13.75%, 4/15/08 ............................................... 14,500,000 11,817,500 Arch Communications Group Inc., senior disc. note, zero cpn. to 3/15/01, 10.875% thereafter, 3/15/08 ..................................................... 33,450,000 15,219,750 Call-Net Enterprises Inc., senior disc. note, zero cpn. to 5/15/04, 10.80% thereafter, 5/15/09 (Canada) ............................................. 29,500,000 14,750,000 Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04, 10.125% thereafter, 5/01/09 ..................................................... 48,250,000 29,673,750 Crown Castle International Corp., senior disc. note, 144A, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ............................................ 51,000,000 31,620,000 Dobson/Sygnet Communications, 12.25%, 12/15/08 ................................... 34,250,000 37,931,875 Global Crossing Holdings Ltd., senior sub. note, 144A, 9.50%, 11/15/09 (Bermuda) .............................................................. 40,000,000 39,500,000 (d) ICO Global Communications Holdings Ltd., 15.00%, 8/01/05 ......................... 35,000,000 17,500,000 IntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01, 12.50% thereafter, 5/01/06 ...................................................... 32,500,000 24,456,250 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 ............................................. 37,500,000 27,562,500 Intermedia Communications Inc., senior note, 9.50%, 3/01/09 ...................... 10,000,000 9,600,000 (d) International Wireless Holding Co., senior disc. note, 8/15/01 ................... 36,400,000 3,731,000 (d) Iridium LLC/CAP, senior note, Series D, 10.875%, 7/15/05 ......................... 17,000,000 1,190,000 IXC Communications Inc., senior sub. note, 9.00%, 4/15/08 ........................ 15,900,000 16,138,500 Level 3 Communications Inc., zero cpn. to 12/01/03,10.50% thereafter, 12/01/08 ........................................................................ 63,000,000 38,430,000 Loral Space & Communications Ltd., senior disc. note, zero cpn ................... to 1/15/02, 12.50% thereafter, 1/15/07 .......................................... 35,300,000 16,414,500 McCaw International Ltd., senior disc. note, zero cpn. to 4/15/02, 13.00% thereafter, 4/15/07 ...................................................... 28,500,000 19,539,600 McLeodUSA Inc., senior disc. note, zero cpn. to 3/01/02, 10.50% thereafter, 3/01/07 ...................................................... 10,000,000 8,000,000 McLeodUSA Inc., senior note, 9.50%, 11/01/08 ..................................... 16,000,000 16,240,000 Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ................................ 31,000,000 18,290,000 Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ................................ 10,000,000 6,125,000 Microcell Telecommunications Inc., senior disc. note, B, zero cpn ................ to 12/01/01, 14.00% thereafter, 6/01/06 (Canada) ................................ 17,550,000 15,005,250 Millicom International Cellular SA, senior disc. note, zero cpn .................. to 6/01/01, 13.50% thereafter, 6/01/06 (Luxembourg) ............................. 22,300,000 17,617,000 Netia Holdings BV, senior disc. note, B, zero cpn. to 11/01/01, 11.25% thereafter, 11/01/07 (Poland) ............................................ 15,000,000 9,525,000 Netia Holdings BV, senior note, B, 10.25%, 11/01/07 (Poland) ..................... 9,000,000 7,650,000 Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02, 9.75% thereafter, 10/31/07 ...................................................... 35,500,000 25,915,000 Nextel International Inc., senior disc. note, zero cpn. to 4/15/03, 12.125% thereafter, 4/15/08 ..................................................... 20,000,000 11,300,000 Nextel Partners Inc., zero cpn. to 2/01/04, 14.00% thereafter, 2/01/09 ........... 24,000,000 15,510,000
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) TELECOMMUNICATIONS (CONT.) NEXTLINK Communications Inc., senior disc. note, zero cpn. to 4/15/03, 9.45% thereafter, 4/15/08 .............................................. $20,250,000 $12,453,750 NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ...................... 17,350,000 16,916,250 NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ........................ 18,150,000 17,151,750 NTL Inc., senior note, zero cpn. to 4/01/03, 9.75% thereafter, 4/01/08 ........... 50,000,000 34,750,000 Occidente Y Caribe Celular SA, senior disc. note, B, zero cpn .................... to 3/15/01, 14.00% thereafter, 3/15/04 (Colombia) ............................... 38,165,000 19,273,325 Paging Network Inc., senior sub. note, 10.125%, 8/01/07 .......................... 7,000,000 2,345,000 Paging Network Inc., senior sub. note, 10.00%, 10/15/08 .......................... 12,800,000 4,288,000 Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 (Poland) ................ 30,000,000 22,650,000 RSL Communications PLC, senior disc. note, zero cpn. to 3/01/03, 10.125% thereafter, 3/01/08 (United Kingdom) .................................... 44,500,000 26,477,500 RSL Communications PLC, senior note, 12.00%, 11/01/08 (United Kingdom) ........... 6,250,000 6,343,750 Rogers Cantel Mobile Inc., senior secured deb., 9.75%, 6/01/16 (Canada) .......... 21,500,000 24,429,375 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04, 11.25% thereafter, 4/15/09 ...................................................... 20,500,000 10,762,500 Triton PCS Inc., sub. disc. note, zero cpn. to 5/01/03, 11.00% thereafter, 5/01/08 ...................................................... 25,000,000 17,875,000 VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 .......................................... 29,750,000 17,924,375 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ............... 32,500,000 34,043,750 ------------- 812,091,800 ------------- TRANSPORTATION 3.4% Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 (Bermuda) ................... 19,000,000 19,570,000 GS Superhighway (Holdings) Ltd., senior note, 10.25%, 8/15/07 (China) ............ 35,000,000 19,035,800 Sea Containers Ltd., senior note, 10.50%, 7/01/03 ................................ 10,000,000 10,150,000 Sea Containers Ltd., senior note, 144A, 10.75%, 10/15/06 ......................... 19,700,000 19,897,000 Ultrapetrol Ltd., first mortgage, 10.50%, 4/01/08 (Bahamas) ...................... 34,000,000 26,010,000 United Air Lines Inc., S.F., pass-through equipment trust, B-2, 9.06%, 9/26/14 ... 20,422,000 21,823,210 ------------- 116,486,010 ------------- UTILITIES 2.0% AES China Generating Co., 10.125%, 12/15/06 (China) .............................. 4,400,000 2,970,000 AES Corp., senior note, 9.50%, 6/01/09 ........................................... 7,500,000 7,575,000 ESI Tractebel Acq. Corp., 7.99%, 12/30/11 ........................................ 8,000,000 7,200,000 Midland Cogeneration Venture, S.F., senior lease obligation, A, 11.75%, 7/23/05 ................................................................. 4,500,000 4,972,500 Midland Cogeneration Venture, S.F., senior lease obligation, B, 13.25%, 7/23/06 ................................................................. 11,500,000 13,588,745 SCG Holding Corp., senior sub. note, 144A, 12.00%, 8/01/09 ....................... 30,000,000 31,800,000 ------------- 68,106,245 ------------- TOTAL BONDS (COST $3,685,865,807) ................................................ 3,196,134,225 ------------- TOTAL LONG TERM INVESTMENTS (COST $3,864,415,731) ................................ 3,319,475,857 -------------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1999 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------------------ (b)REPURCHASE AGREEMENT 2.0% Joint Repurchase Agreement, 5.601%, 12/01/99, (Maturity Value $68,971,413) (COST $68,960,684) ................................................................ $68,960,684 $68,960,684 Banc of America Securities LLC Barclays Capital Inc. Bear Stearns & Co. Inc. Chase Securities Inc. Donaldson, Lufkin & Jenrette Securities Corp. Dresdner Kleinwort Benson, North America LLC Goldman, Sachs & Co. Paine Webber Inc. Paribas Corp. Warburg Dillon Read LLC Collateralized by U.S. Treasury Bills & Notes -------------- TOTAL INVESTMENTS (COST $3,933,376,415) 98.2% ...................................... 3,388,436,541 OTHER ASSETS, LESS LIABILITIES 1.8% ................................................ 60,974,501 -------------- NET ASSETS 100.0% .................................................................. $3,449,411,042 --------------
CURRENCY ABBREVIATIONS ZAR - South African Rand *Securities traded in U.S. dollars unless otherwise indicated. (a)Non-income producing. (b)Investment is through participation in a joint account with other funds managed by the investment advisor. At November 30, 1999, all repurchase agreements had been entered into on that date. (c)Sufficient collateral has been segregated for securities traded on a when-issued or delayed delivery basis. (d)See Note 6 regarding defaulted securities. (e)The Investment Company Act of 1940 defines "affiliated companies" as investments in portfolio companies in which the Fund owns 5% or more of the outstanding voting securities. Investments in non-controlled "affiliated companies" at November 30, 1999 were $6,847,957. See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1999 (UNAUDITED) Assets: Investments in securities, at value (Cost $3,933,376,415) .......................................... $3,388,436,541 Receivables: Investment securities sold ........................................................................ 1,589,250 Capital shares sold ............................................................................... 10,156,902 Dividends and interest ............................................................................ 73,397,100 Other ............................................................................................. 91,000 -------------- Total assets .................................................................................. 3,473,670,793 -------------- Liabilities: Payables: Investment securities purchased ................................................................... 11,500,000 Capital shares redeemed ........................................................................... 9,377,511 Affiliates ........................................................................................ 2,685,669 Shareholders ...................................................................................... 623,701 Other liabilities .................................................................................. 72,870 -------------- Total liabilities ............................................................................. 24,259,751 -------------- Net assets, at value ......................................................................... $3,449,411,042 -------------- Net assets consist of: Undistributed net investment income ................................................................ $13,892,936 Net unrealized depreciation ........................................................................ (544,881,438) Accumulated net realized loss ...................................................................... (115,307,140) Capital shares ..................................................................................... 4,095,706,684 -------------- Net assets, at value ......................................................................... $3,449,411,042 -------------- CLASS A: Net asset value per share* ($2,895,821,916 / 1,146,531,575 shares outstanding) ..................... $2.53 -------------- Maximum offering price per share ($2.53 / 95.75%) .................................................. $2.64 -------------- CLASS B: Net asset value and maximum offering price per share* ($58,553,944 / 23,218,787 shares outstanding) ...................................................... $2.52 -------------- CLASS C: Net asset value per share* ($448,084,405 / 176,959,735 shares outstanding) ......................... $2.53 -------------- Maximum offering price per share ($2.53 / 99.00%) .................................................. $2.56 -------------- ADVISOR CLASS: Net asset value and maximum offering price per share ($46,950,777 / 18,574,118 shares outstanding) ...................................................... $2.53 --------------
*Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 (UNAUDITED) Investment income: Dividends ............................................................................................ $3,632,871 Interest ............................................................................................. 186,240,958 ------------ Total investment income ......................................................................... 189,873,829 ------------ Expenses: Management fees (Note 3) ............................................................................. 8,042,224 Distribution fees (Note 3) Class A ............................................................................................. 2,031,739 Class B ............................................................................................. 137,685 Class C ............................................................................................. 1,519,487 Transfer agent fees (Note 3) ......................................................................... 1,810,152 Custodian fees ....................................................................................... 24,867 Reports to shareholders .............................................................................. 394,792 Registration and filing fees ......................................................................... 194,754 Professional fees .................................................................................... 40,759 Trustees' fees and expenses .......................................................................... 33,456 Other ................................................................................................ 45,732 ------------ Total expenses .................................................................................. 14,275,647 ------------ Net investment income .......................................................................... 175,598,182 ------------ Realized and unrealized losses: Net realized loss from: Investments ......................................................................................... (20,372,088) Foreign currency transactions ....................................................................... (27,573) -------------- Net realized loss .............................................................................. (20,399,661) Net unrealized appreciation (depreciation) on: Investments ......................................................................................... (198,581,520) Translation of assets and liabilities denominated in foreign currencies ............................. 83,325 ------------ Net unrealized depreciation .................................................................... (198,498,195) ------------ Net realized and unrealized loss ...................................................................... (218,897,856) ------------ Net decrease in net assets resulting from operations .................................................. $(43,299,674) =============
See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) Statements of Changes in Net Assets for the six months ended November 30, 1999 (unaudited) and the year ended May 31, 1999
Six Months Ended Year Ended November 30, 1999 May 31, 1999 --------------------------------------------- Increase (decrease) in net assets: Operations: Net investment income .................................................... $175,598,182 $339,921,053 Net realized gain (loss) from investments and foreign currency transactions (20,399,661) 73,264,684 Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies ............. (198,498,195) (437,470,931) --------------------------------------------- Net decrease in net assets resulting from operations ................. (43,299,674) (24,285,194) Distributions to shareholders from: Net investment income: Class A ................................................................. (151,983,457) (299,008,521) Class B ................................................................. (1,934,084) (367,466) Class C ................................................................. (22,612,726) (40,073,283) Advisor Class ........................................................... (2,269,397) (2,875,463) --------------------------------------------- Total distributions to shareholders ....................................... (178,799,664) (342,324,733) Capital share transactions: (Note 2) Class A .................................................................. (25,565,221) 191,216,722 Class B .................................................................. 34,775,947 26,621,191 Class C .................................................................. (9,597,799) 136,698,940 Advisor Class ............................................................ 10,443,147 14,754,823 --------------------------------------------- Total capital share transactions .......................................... 10,056,074 369,291,676 Net increase (decrease) in net assets ................................ (212,043,264) 2,681,749 Net assets Beginning of period ....................................................... 3,661,454,306 3,658,772,557 --------------------------------------------- End of period ............................................................. $3,449,411,042 $3,661,454,306 ============================================= Undistributed net investment income included in net assets: End of period ............................................................. $13,892,936 $17,094,418 =============================================
See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin High Income Trust (the Trust) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company, consisting of one Fund, the Franklin AGE High Income Fund (the Fund). The Fund seeks to provide a high level of current income while seeking capital appreciation. The following summarizes the Fund's significant accounting policies. a. SECURITY VALUATION: Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Trustees. b. FOREIGN CURRENCY TRANSLATION: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. c. INCOME TAXES: No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute substantially all of its taxable income. d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Bond discount is amortized on an income tax basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized and unrealized gains and losses and net investment income, other than class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) E. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 2. SHARES OF BENEFICIAL INTEREST The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor Class. Effective January 1, 1999, Class I and Class II were renamed Class A and Class B, respectively, and the Fund began offering a new class of shares, Class B. Each class of shares differs by its initial sales load, distribution fees, voting rights on matters affecting a single class and its exchange privilege. At November 30, 1999, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 1999 MAY 31, 1999* ------------------------------------------------------------------------------------ SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------------ CLASS A Shares sold ........................ 159,693,783 $412,484,050 414,087,089 $1,147,083,301 Shares issued in reinvestment of distributions ..................... 25,832,451 66,575,358 48,411,868 134,052,298 Shares redeemed .................... (195,441,779) (504,624,629) (393,225,617) (1,089,918,877) ------------------------------------------------------------------------------------ Net increase (decrease) ............ (9,915,545) $(25,565,221) 69,273,340 $191,216,722 ==================================================================================== CLASS B Shares sold ........................ 14,071,647 $36,253,261 10,082,048 $27,600,679 Shares issued in reinvestment of distributions ..................... 346,395 887,031 67,548 184,499 Shares redeemed .................... (921,073) (2,364,345) (427,778) (1,163,987) ------------------------------------------------------------------------------------ Net increase ....................... 13,496,969 $34,775,947 9,721,818 $26,621,191 ==================================================================================== CLASS C Shares sold ........................ 25,115,898 $65,154,604 92,143,685 $257,265,284 Shares issued in reinvestment of distributions ..................... 4,750,676 12,284,598 8,220,312 22,770,924 Shares redeemed .................... (33,700,095) (87,037,001) (51,874,088) (143,337,268) ------------------------------------------------------------------------------------ Net increase (decrease) ............ (3,833,521) $(9,597,799) 48,489,909 $136,698,940 ==================================================================================== ADVISOR CLASS Shares sold ........................ 13,267,938 $34,673,168 17,315,590 $47,913,887 Shares issued in reinvestment of distributions .................... 837,319 2,160,502 985,497 2,728,550 Shares redeemed .................... (10,155,668) (26,390,523) (13,089,579) (35,887,614) ------------------------------------------------------------------------------------ Net increase ....................... 3,949,589 $10,443,147 5,211,508 $14,754,823 ====================================================================================
*For the period January 1, 1999 (effective date) to May 31, 1999 for Class B shares. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 3. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Trust are also officers and/or directors of Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc. (Distributors), Franklin Templeton Services, Inc. (FT Services), and Franklin/Templeton Investor Services, Inc. (Investor Services) the Fund's investment manager, principal underwriter, administrative manager, and transfer agent, respectively. The Fund pays an investment management fee to Advisers based on the average net assets of the Fund as follows:
Annualized Fee Rate Month-End Net Assets --------------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million
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. The Fund reimburses Distributors up to .15%, .65%, and .65% per year of its average daily net assets of Class A, Class B, and Class C, respectively, for costs incurred in marketing the Fund's shares. Distributors paid net commissions on sales of the Fund shares, and received contingent deferred sales charges for the period of $1,150,423 and $279,014, respectively. The Fund paid transfer agent fees of $1,810,152, of which $1,561,936 was paid to Investor Services. 4. INCOME TAXES At May 31, 1999, 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: 2000 $63,753,106 2001 14,304,993 2002 12,243,104 2003 4,606,276 ----------- $94,907,479 ===========
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 4. INCOME TAXES (cont.) At November 30, 1999, the net unrealized depreciation based on the cost of investments for income tax purposes of $3,933,376,415 was as follows: Unrealized appreciation $ 62,177,997 Unrealized depreciation (607,117,871) ------------- Net unrealized depreciation $(544,939,874) =============
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities and foreign currency transactions. Net realized capital gains differ for financial statement and tax purposes primarily due to differing treatment of foreign currency transactions. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended November 30, 1999 aggregated $501,605,515 and $579,051,095, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 94.6% of its portfolio invested in lower rated and comparable quality unrated high yield securities, which tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At November 30, 1999, the Fund held defaulted securities with a value aggregating $46,348,500 representing 1.34% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. The Fund has investments in excess of 10% of its total net assets in the Consumer Services and Telecommunications industries. Such concentration may subject the Fund more significantly to economic changes occurring within that industry. 7. OTHER CONSIDERATIONS Advisers, as the Fund's Manager, may serve as a member of various bondholder's steering committees, representing bondholder's interests in certain corporate restructuring negotiations, or on creditors committees. Currently the Manager serves on the Official Committee of Unsecured Creditors of International Wireless Communication Holdings, Inc. As a result of this involvement, Advisers may be in possession of certain material non-public information. The Fund's Manager has not nor does it intend to sell any of its holdings in these securities while in possession of such information. This page intentionally left blank. This page intentionally left blank. -----END PRIVACY-ENHANCED MESSAGE-----