N-30D 1 0001.txt 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 annual report for Franklin's AGE High Income Fund covers the fiscal year ended May 31, 2000. The period under review presented a difficult environment for fixed income investments, including the type of high yield bonds in which the fund invests. Fears of rising inflation prompted the Federal Reserve Board to raise short-term interest rates six times during the 12 months under review, pushing the federal funds target rate up from 4.75% at the beginning of the period to 6.50% at the end. The yield on the benchmark 10-year Treasury note also rose, from 5.76% to 6.27% during the period, exhibiting significant volatility as it reached a high of 6.79% in the first quarter of 2000. Because bond prices and yields are inversely related, the overall rise in bond yields led to a decline in bond prices. Fluctuating interest rates and uncertainty about future inflation and corporate earnings created an usually volatile environment for domestic equity markets during the period. All portfolio holdings mentioned in the report are listed by their complete legal titles in the fund's Statement of Investments (SOI), which is a complete listing of the fund's portfolio holdings, including dollar value and number of shares or principal amount. The SOI begins on page 16. CONTENTS Shareholder Letter ........ 1 Performance Summary ....... 8 Financial Highlights & Statement of Investments .. 12 Financial Statements ...... 25 Notes to Financial Statements ...... 29 Independent Auditors' Report .......... 34 Tax Designation ........... 35 [PYRAMID GRAPHIC] PORTFOLIO BREAKDOWN Based on Total Net Assets 5/31/00 [PORTFOLIO PIE CHART] Bonds ................ 91.6% Equities ............. 4.2% Short-Term Investments and Other Assets .... 4.2% Unfortunately, rising interest rates and equity market volatility, two important influences on the high yield bond market, tempered demand for such securities. As a result, the high yield bond market posted relatively weak performance for the period. The interest rate spread, or risk premium, over the 10-year Treasury note on the Credit Suisse First Boston Global High Yield Index rose from 5.59% at the beginning of the period to 7.29% at the period's close.(1) During the year under review, we generally maintained our strategy of focusing on growth-oriented sectors that stand to benefit from broad-based economic strength and favorable industry-specific dynamics. We also took a contrarian view on the energy sector, seeking to take advantage of that sector's depressed valuations and cyclical nature. At the close of the period, the fund's largest sector weightings were in wireless (13.6% of total net assets), telecommunications (13.5%), energy (6.0%), transportation (5.5%) and cable television (5.1%). SECTOR DISCUSSIONS WIRELESS The wireless sector continued to grow during the period, as the number of wireless communications users, or penetration rates, climbed and industry revenues expanded. In the U.S., penetration rates reached 31% at the end of 1999, a solid increase but still far below penetration rates in many developed European countries, some of which exceeded 50%. Industry average revenue per unit (ARPU) was relatively steady over the reporting period, indicating that price erosion slowed. Adding to the sector's growth was the advent of new data application technologies, specifically the prospect of data applications (e.g., Internet browsers) that can be accessed via cellular handsets. VoiceStream Wireless, a nationwide cellular operator, performed well during the period, as it had above-average ARPU and growth rates and has strong support from Sonera and Hutchison Whampoa, two of the company's equity sponsors. VoiceStream operates in 23 of the top 25 national markets and is led by a capable management team. Another fund holding, Rogers Cantel, also benefited from strong equity sponsorship, as AT&T bought a 33% stake in the company. Rogers Cantel used the proceeds to lower its debt, and the company's credit rating was upgraded to investment grade in April of this year. We expect U.S. penetration rates to reach European levels over the medium term, and our outlook for continued industry growth is positive. (1) Source: Standard and Poor's Micropal (Credit Suisse First Boston). The unmanaged index is constructed to mirror the high yield debt market and includes reinvested interest. One cannot invest directly in an index, nor is an index representative of the fund's portfolio. TELECOMMUNICATIONS Telecommunications companies with strong management teams and ready access to capital performed well in the volatile market environment. The growth in data services drove industry revenue growth, as the need for data transmission infrastructure has increased dramatically in recent years with widespread access to the Internet. Competitive local exchange carriers (CLECs) gained greater market share from the regional bell operating companies (RBOCs) and became increasingly more competitive, making this group one of the fund's most favored subsectors. In particular, CLECs increased their exposure to the data services segment of the business, a trend that was evidenced by the commitment of such companies as NEXTLINK and McLeod to acquiring and growing data businesses. During the period, McLeod acquired Splitrock Services Inc., a wholesale provider of data communications services to Internet service providers and businesses. NEXTLINK announced plans to purchase Concentric Network Corp., a data network company that provides intranet/extranet and application hosting solutions for businesses and consumers. The announcement of both acquisitions positively impacted the fund's NEXTLINK and McLeod bond holdings because the increased exposure to data services could improve the companies' revenue growth. Another noteworthy trend during the reporting period was that companies in need of cash, on the whole, were able to access capital through the private equity markets to a greater degree than in the past. Such capital infusions lowered several companies' funding risk, allowing them to pursue their business plans more aggressively, which tended to support the price of their debt securities. "WE EXPECT U.S. PENETRATION RATES TO REACH EUROPEAN LEVELS OVER THE MEDIUM TERM..." ENERGY We took a contrarian approach to the cyclical energy sector during the reporting period, investing in oil and gas services companies near the bottom of the oil price cycle when market sentiment was particularly depressed. We focused on oil and gas services companies, rather than refiners, to capitalize on the volatile but recovering commodity price environment. The fund's position in Key Energy, the largest onshore well-service company in the U.S., benefited from the oil price rally more fully than most, and the company has been using recent gains to reduce its debt. Our equity warrants in Key Energy, which we received with the debt issue, appreciated significantly, and we exercised the warrants, realizing a significant gain. Another fund holding, R&B Falcon, also participated in the energy price rebound, and the bonds performed well. R&B Falcon operates the world's largest, most technologically advanced fleet of deep-water drilling rigs, and is a major market player in the shallow water and onshore markets, as well. Because exploration and production capital spending tends to lag oil price movements, R&B Falcon may benefit from this cycle, garnering attractive cash generation and debt-reduction prospects as a result. CABLE During the reporting period, the domestic cable industry's rapid pace of consolidation slowed. Many cable companies began turning to marketing and distributing new services as the main contributor of revenue growth. Therefore, high speed Internet access and voice applications became larger contributors to overall industry cash flow. Seeking to take advantage of these trends, we focused on companies that demonstrated strong management teams, adept handling of service and execution issues, and a wide variety of service offerings. During the period, Charter Communications acquired one of the fund's positions, Bresnan Communications, and the fund exercised a change-of-control option on the Bresnan bonds that resulted in a significant gain. TRANSPORTATION In this sector, we focused on companies that may benefit from stable, broad-based infrastructure growth, as well as solid shipping companies benefiting from the strong economy. In general, the fund avoided more cyclical subsectors during the year under review. On the infrastructure side, we concentrated on companies we believed were well-positioned to take advantage of increased, planned public spending on infrastructure development. Measures, such as the Transportation and Equity Act for the 21st Century (TEA 21), which reaffirmed the current administration's commitment to spending on infrastructure development, have positively impacted companies that are sensitive to public funding. During the period, we added bonds from URS, a high-quality, globally diversified engineering firm with interests in transportation, utilities, waste management and civil design. The company has benefited significantly since its merger with Dames & Moore, another global design firm, and boasts valuable intellectual capital. On the shipping side, we focused on niche operators with valuable assets, strong customer relationships and visionary management teams. We remain optimistic about prospects for our position in Gearbulk Holding, a quality shipping company that operates in several international markets. Gearbulk is an industry leader with solid financials and will likely enjoy low replacement costs going forward due to its relatively new fleet of ships. Overall, the fund's transportation sector weighting increased during the period. TOP 10 HOLDINGS 5/31/00 COMPANY % OF TOTAL SECTOR NET ASSETS ------------------------------------------- AMFM Inc. 1.6% Consumer Services NEXTLINK Communications Inc. 1.5% Telecommunications R&B Falcon Corp. 1.4% Industrial Services Global Crossing Holdings Ltd. 1.3% Telecommunications Allegiance Telecom Inc. 1.3% Telecommunications Intermedia Communications Inc. 1.3% Telecommunications Level 3 Communications Inc. 1.3% Telecommunications Dobson/Sygnet Communications Co. 1.3% Telecommunications Allied Waste North America Inc. 1.2% Industrial Services P&L Coal Holdings Corp. 1.2% Energy Minerals DIVIDEND DISTRIBUTIONS 6/1/99 - 5/31/00 DIVIDEND PER SHARE -------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR CLASS -------------------------------------------------------------------------------- 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 December 2.2 cents 2.10 cents 2.10 cents 2.23 cents January 2.2 cents 2.10 cents 2.10 cents 2.23 cents February 2.2 cents 2.10 cents 2.10 cents 2.23 cents March 2.2 cents 2.09 cents 2.09 cents 2.23 cents April 2.2 cents 2.09 cents 2.09 cents 2.23 cents May 2.2 cents 2.09 cents 2.09 cents 2.22 cents -------------------------------------------------------------------------------- TOTAL 26.4 CENTS 25.08 CENTS 25.11 CENTS 26.75 CENTS LOOKING FORWARD Despite recent market volatility, the domestic economy's outlook remains positive. Data suggest the economy's remarkable expansion could continue, although possibly at a more moderate pace, and that corporate fundamentals remain strong. Inflation, as measured by the Consumer Price Index, rose from a 2.0% annualized pace at the beginning of the period to an annualized 3.1% at the period's close, but is still relatively low, and we do not expect it to exert undue pressure on the economy in the near term. At recent interest rate spread levels of 7.29%, high yield valuations are quite attractive on a historical basis -- considerably wider than the 10-year average of 4.95% and the 5-year average of 4.69%. In our opinion, domestic economic strength and solid corporate fundamentals should underpin the performance of high yield companies. This, coupled with historically attractive valuations, provides a favorable outlook for high yield bonds 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 May 31, 2000, the end of the reporting period. The information provided is not a complete analysis of every aspect of any country, industry, security or the fund. 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: 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: 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. ONE-YEAR PERFORMANCE SUMMARY AS OF 5/31/00 One-year 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, as well as the level of operating expenses for each class. Past distributions are not indicative of future trends. All total returns include reinvested distributions at net asset value. CLASS A One-Year Total Return -5.01% Net Asset Value (NAV) $2.30 (5/31/00) $2.69 (5/31/99) Change in NAV -$0.39 Distributions (6/1/99 - 5/31/00) Dividend Income $0.2640 CLASS B One-Year Total Return -5.49% Net Asset Value (NAV) $2.30 (5/31/00) $2.69 (5/31/99) Change in NAV -$0.39 Distributions (6/1/99 - 5/31/00) Dividend Income $0.2508 CLASS C One-Year Total Return -5.46% Net Asset Value (NAV) $2.31 (5/31/00) $2.70 (5/31/99) Change in NAV -$0.39 Distributions (6/1/99 - 5/31/00) Dividend Income $0.2511 ADVISOR CLASS One-Year Total Return -4.88% Net Asset Value (NAV) $2.30 (5/31/00) $2.69 (5/31/99) Change in NAV -$0.39 Distributions (6/1/99 - 5/31/00) Dividend Income $0.2675 Past performance does not guarantee future results. ADDITIONAL PERFORMANCE AS OF 6/30/00 INCEPTION CLASS A 1-YEAR 5-YEAR 10-YEAR (12/31/69) -------------------------------------------------------------------------------- Cumulative Total Return(1) -2.50% +36.36% +161.39% +1,024.92% Average Annual Total Return(2) -6.69% +5.50% +9.62% +8.10% Value of $10,000 Investment(3) $9,331 $13,070 $25,062 $107,621 INCEPTION CLASS B 1-YEAR (1/1/99) -------------------------------------------------------------------------------- Cumulative Total Return(1) -3.00% -1.71% Average Annual Total Return(2) -6.50% -3.44% Value of $10,000 Investment(3) $9,350 $9,490 INCEPTION CLASS C 1-YEAR 5-YEAR (5/16/95) -------------------------------------------------------------------------------- Cumulative Total Return(1) -2.98% +33.04% +34.54% Average Annual Total Return(2) -4.92% +5.65% +5.74% Value of $10,000 Investment(3) $9,508 $13,161 $13,310 INCEPTION ADVISOR CLASS(4) 1-YEAR 5-YEAR 10-YEAR (12/31/69) -------------------------------------------------------------------------------- Cumulative Total Return(1) -2.37% +37.42% +163.43% +1,033.70% Average Annual Total Return(2) -2.37% +6.56% +10.17% +8.29% Value of $10,000 Investment(3) $9,763 $13,742 $26,343 $113,370 AS OF 5/31/00 SHARE CLASS A B C ADVISOR -------------------------------------------------------------------------------- Distribution Rate(5) 11.00% 10.90% 10.76% 11.58% 30-Day Standardized Yield(6) 11.73% 11.69% 11.58% 12.43% For updated performance figures, see "Prices and Performance" at 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. Figures represent the value of a hypothetical $10,000 investment in the fund for the periods shown and include the current, applicable, maximum sales charge(s) for that class. 4. Effective January 1, 1997, the fund began offering Advisor Class shares, which do not have sales charges nor Rule 12b-1 plans. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to January 1, 1997, a restated figure is used based upon the fund's Class A performance, excluding the effect of Class A's maximum initial sales charge and including the effect of the Class A Rule 12b-1 fees; and (b) for periods after January 1, 1997, an actual Advisor Class figure is used reflecting a deduction of all charges and fees applicable to that class. Since January 2, 1997 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +3.69% and +13.51%, respectively. 5. Distribution rate is based on an annualization of the respective class's May dividend and the maximum offering price (net asset value for Class B and Advisor Class) per share on May 31, 2000. 6. Yield, calculated as required by the SEC, is based on the earnings of the fund's portfolio for the 30 days ended May 31, 2000. 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. AVERAGE ANNUAL TOTAL RETURN 5/31/00 CLASS A ------------------------------------ 1-Year -9.06% 5-Year +5.10% 10-Year +9.59% Since Inception (12/31/69) +8.03% AVERAGE ANNUAL TOTAL RETURN 5/31/00 CLASS B ------------------------------------ 1-Year -8.91% Since Inception (1/1/99) -5.44% TOTAL RETURN INDEX COMPARISON FOR HYPOTHETICAL $10,000 INVESTMENT Total return represents the change in value of an investment over the periods shown. It includes the current, applicable, maximum sales charge(s), fund expenses, account fees and reinvested distributions. The unmanaged index differs from the fund in composition, does not pay management fees or expenses and includes reinvested interest. One cannot invest directly in an index. CLASS A (6/1/90-5/31/00) FRANKLIN'S AGE HIGH INCOME FUND - CS FIRST CLASS A BOSTON GLOBAL HIGH YIELD INDEX* ------------------------------------------------------------------------------ 06/01/1990 $9,583 $10,000 06/30/1990 $9,821 3.15% $10,315 07/31/1990 $10,062 3.23% $10,648 08/31/1990 $9,441 -4.62% $10,156 09/30/1990 $8,771 -7.63% $9,381 10/31/1990 $8,131 -2.51% $9,146 11/30/1990 $8,305 2.01% $9,330 12/31/1990 $8,396 0.48% $9,374 01/31/1991 $8,575 2.74% $9,631 02/28/1991 $9,530 8.63% $10,462 03/31/1991 $10,106 6.20% $11,111 04/30/1991 $10,558 4.15% $11,572 05/31/1991 $10,630 0.50% $11,630 06/30/1991 $10,973 2.62% $11,935 07/31/1991 $11,321 3.38% $12,338 08/31/1991 $11,627 1.82% $12,563 09/30/1991 $11,841 2.27% $12,848 10/31/1991 $12,247 3.31% $13,273 11/30/1991 $12,323 0.80% $13,379 12/31/1991 $12,449 0.73% $13,477 01/31/1992 $12,867 4.07% $14,026 02/29/1992 $13,142 2.43% $14,366 03/31/1992 $13,400 1.49% $14,581 04/30/1992 $13,510 0.08% $14,592 05/31/1992 $13,722 1.36% $14,791 06/30/1992 $13,783 0.99% $14,937 07/31/1992 $14,049 1.54% $15,167 08/31/1992 $14,266 1.38% $15,376 09/30/1992 $14,432 0.65% $15,476 10/31/1992 $14,180 -1.04% $15,315 11/30/1992 $14,349 1.50% $15,545 12/31/1992 $14,520 1.13% $15,721 01/31/1993 $14,853 2.73% $16,150 02/28/1993 $15,081 1.98% $16,470 03/31/1993 $15,310 2.11% $16,817 04/30/1993 $15,432 0.57% $16,913 05/31/1993 $15,610 1.46% $17,160 06/30/1993 $15,956 1.81% $17,471 07/31/1993 $16,137 1.04% $17,652 08/31/1993 $16,205 0.85% $17,802 09/30/1993 $16,273 0.57% $17,904 10/31/1993 $16,746 1.83% $18,231 11/30/1993 $16,816 1.26% $18,461 12/31/1993 $17,080 1.26% $18,694 01/31/1994 $17,446 1.78% $19,027 02/28/1994 $17,279 0.15% $19,055 03/31/1994 $16,512 -2.94% $18,495 04/30/1994 $16,404 -1.34% $18,247 05/31/1994 $16,477 0.57% $18,351 06/30/1994 $16,489 -0.67% $18,228 07/31/1994 $16,564 0.47% $18,314 08/31/1994 $16,702 0.72% $18,446 09/30/1994 $16,777 0.40% $18,519 10/31/1994 $16,853 0.07% $18,532 11/30/1994 $16,674 -1.16% $18,317 12/31/1994 $16,817 1.06% $18,512 01/31/1995 $16,960 1.05% $18,706 02/28/1995 $17,630 2.46% $19,166 03/31/1995 $17,776 1.13% $19,383 04/30/1995 $18,257 2.22% $19,813 05/31/1995 $18,675 2.82% $20,372 06/30/1995 $18,825 0.66% $20,506 07/31/1995 $19,181 1.55% $20,824 08/31/1995 $19,265 0.28% $20,882 09/30/1995 $19,418 1.15% $21,122 10/31/1995 $19,572 1.11% $21,357 11/30/1995 $19,657 0.47% $21,457 12/31/1995 $19,956 1.27% $21,730 01/31/1996 $20,329 1.90% $22,143 02/29/1996 $20,489 0.53% $22,260 03/31/1996 $20,358 -0.27% $22,200 04/30/1996 $20,446 0.54% $22,320 05/31/1996 $20,683 0.81% $22,501 06/30/1996 $20,698 0.22% $22,550 07/31/1996 $20,864 0.90% $22,753 08/31/1996 $21,258 1.09% $23,001 09/30/1996 $21,732 1.72% $23,397 10/31/1996 $21,902 0.84% $23,593 11/30/1996 $22,384 1.56% $23,961 12/31/1996 $22,791 1.95% $24,428 01/31/1997 $22,965 0.73% $24,607 02/28/1997 $23,378 1.88% $25,069 03/31/1997 $22,833 -1.12% $24,789 04/30/1997 $23,092 0.89% $25,009 05/31/1997 $23,596 2.01% $25,512 06/30/1997 $24,023 1.36% $25,859 07/31/1997 $24,700 2.12% $26,407 08/31/1997 $24,717 0.54% $26,550 09/30/1997 $25,153 1.98% $27,075 10/31/1997 $25,001 -0.01% $27,073 11/30/1997 $25,357 0.71% $27,265 12/31/1997 $25,546 0.91% $27,513 01/31/1998 $25,821 1.70% $27,981 02/28/1998 $26,100 0.78% $28,199 03/31/1998 $26,381 0.50% $28,340 04/30/1998 $26,487 0.75% $28,553 05/31/1998 $26,504 0.30% $28,638 06/30/1998 $26,523 0.21% $28,698 07/31/1998 $26,721 0.70% $28,899 08/31/1998 $24,738 -6.79% $26,937 09/30/1998 $24,850 -0.01% $26,934 10/31/1998 $24,407 -1.99% $26,398 11/30/1998 $26,009 5.07% $27,737 12/31/1998 $25,934 -0.23% $27,673 01/31/1999 $26,331 0.94% $27,933 02/28/1999 $26,062 -0.21% $27,874 03/31/1999 $26,370 0.91% $28,128 04/30/1999 $26,875 2.21% $28,750 05/31/1999 $26,307 -1.08% $28,439 06/30/1999 $26,328 0.05% $28,453 07/31/1999 $26,347 0.05% $28,468 08/31/1999 $25,867 -0.89% $28,214 09/30/1999 $25,583 -0.77% $27,997 10/31/1999 $25,502 -0.49% $27,860 11/30/1999 $26,037 1.36% $28,239 12/31/1999 $26,059 1.21% $28,580 01/31/2000 $25,767 -0.40% $28,466 02/29/2000 $25,895 0.62% $28,643 03/31/2000 $25,382 -1.48% $28,219 04/30/2000 $25,403 -0.15% $28,176 05/31/2000 -1.63% $24,990 -1.60% $27,725 CLASS B (1/1/99-5/31/00)
FRANKLIN'S AGE HIGH INCOME FUND - CS FIRST CLASS B BOSTON GLOBAL HIGH YIELD INDEX* ------------------------------------------------------------------------------ 01/01/1999 $10,000 $10,000 01/31/1999 $10,153 0.94% $10,094 02/28/1999 $10,046 -0.21% $10,073 03/31/1999 $10,123 0.91% $10,164 04/30/1999 $10,351 2.21% $10,389 05/31/1999 $10,129 -1.08% $10,277 06/30/1999 $10,133 0.05% $10,282 07/31/1999 $10,098 0.05% $10,287 08/31/1999 $9,947 -0.89% $10,196 09/30/1999 $9,834 -0.77% $10,117 10/31/1999 $9,759 -0.49% $10,068 11/30/1999 $9,959 1.36% $10,204 12/31/1999 $10,003 1.21% $10,328 01/31/2000 $9,887 -0.40% $10,287 02/29/2000 $9,932 0.62% $10,350 03/31/2000 $9,691 -1.48% $10,197 04/30/2000 $9,736 -0.15% $10,182 05/31/2000 $9,239 -1.60% $10,019
Past performance does not guarantee future results. CLASS C (5/16/95-5/31/00)
FRANKLIN'S AGE HIGH INCOME FUND CS FIRST - CLASS C BOSTON GLOBAL HIGH YIELD INDEX* ------------------------------------------------------------------------------ 05/16/1995 $9,892 $10,000 05/31/1995 $9,928 1.36% $10,136 06/30/1995 $10,004 0.66% $10,203 07/31/1995 $10,186 1.55% $10,362 08/31/1995 $10,223 0.28% $10,391 09/30/1995 $10,297 1.15% $10,510 10/31/1995 $10,373 1.11% $10,627 11/30/1995 $10,412 0.47% $10,677 12/31/1995 $10,565 1.27% $10,812 01/31/1996 $10,756 1.90% $11,018 02/29/1996 $10,835 0.53% $11,076 03/31/1996 $10,760 -0.27% $11,046 04/30/1996 $10,840 0.54% $11,106 05/31/1996 $10,927 0.81% $11,196 06/30/1996 $10,930 0.22% $11,220 07/31/1996 $11,052 0.90% $11,321 08/31/1996 $11,215 1.09% $11,445 09/30/1996 $11,500 1.72% $11,642 10/31/1996 $11,584 0.84% $11,739 11/30/1996 $11,792 1.56% $11,923 12/31/1996 $12,001 1.95% $12,155 01/31/1997 $12,087 0.73% $12,244 02/28/1997 $12,340 1.88% $12,474 03/31/1997 $12,006 -1.12% $12,334 04/30/1997 $12,136 0.89% $12,444 05/31/1997 $12,393 2.01% $12,694 06/30/1997 $12,611 1.36% $12,867 07/31/1997 $12,960 2.12% $13,140 08/31/1997 $13,007 0.54% $13,210 09/30/1997 $13,230 1.98% $13,472 10/31/1997 $13,144 -0.01% $13,471 11/30/1997 $13,281 0.71% $13,566 12/31/1997 $13,419 0.91% $13,690 01/31/1998 $13,511 1.70% $13,923 02/28/1998 $13,650 0.78% $14,031 03/31/1998 $13,836 0.50% $14,101 04/30/1998 $13,839 0.75% $14,207 05/31/1998 $13,842 0.30% $14,250 06/30/1998 $13,844 0.21% $14,280 07/31/1998 $13,989 0.70% $14,380 08/31/1998 $12,902 -6.79% $13,403 09/30/1998 $13,001 -0.01% $13,402 10/31/1998 $12,765 -1.99% $13,135 11/30/1998 $13,594 5.07% $13,801 12/31/1998 $13,549 -0.23% $13,769 01/31/1999 $13,750 0.94% $13,899 02/28/1999 $13,605 -0.21% $13,870 03/31/1999 $13,708 0.91% $13,996 04/30/1999 $14,014 2.21% $14,305 05/31/1999 $13,713 -1.08% $14,151 06/30/1999 $13,718 0.05% $14,158 07/31/1999 $13,671 0.05% $14,165 08/31/1999 $13,467 -0.89% $14,039 09/30/1999 $13,315 -0.77% $13,931 10/31/1999 $13,215 -0.49% $13,862 11/30/1999 $13,486 1.36% $14,051 12/31/1999 $13,545 1.21% $14,221 01/31/2000 $13,388 -0.40% $14,164 02/29/2000 $13,449 0.62% $14,252 03/31/2000 $13,123 -1.48% $14,041 04/30/2000 $13,184 -0.15% $14,020 05/31/2000 -1.66% $12,964 -1.60% $13,796
ADVISOR CLASS (6/1/90-5/31/00)
FRANKLIN'S AGE HIGH INCOME FUND CS FIRST - ADVISOR CLASS BOSTON GLOBAL HIGH YIELD INDEX* ------------------------------------------------------------------------------ 06/01/1990 $10,000 $10,000 06/30/1990 $10,248 3.15% $10,315 07/31/1990 $10,499 3.23% $10,648 08/31/1990 $9,852 -4.62% $10,156 09/30/1990 $9,153 -7.63% $9,381 10/31/1990 $8,485 -2.51% $9,146 11/30/1990 $8,666 2.01% $9,330 12/31/1990 $8,761 0.48% $9,374 01/31/1991 $8,947 2.74% $9,631 02/28/1991 $9,944 8.63% $10,462 03/31/1991 $10,546 6.20% $11,111 04/30/1991 $11,017 4.15% $11,572 05/31/1991 $11,092 0.50% $11,630 06/30/1991 $11,451 2.62% $11,935 07/31/1991 $11,813 3.38% $12,338 08/31/1991 $12,132 1.82% $12,563 09/30/1991 $12,356 2.27% $12,848 10/31/1991 $12,780 3.31% $13,273 11/30/1991 $12,859 0.80% $13,379 12/31/1991 $12,990 0.73% $13,477 01/31/1992 $13,426 4.07% $14,026 02/29/1992 $13,713 2.43% $14,366 03/31/1992 $13,982 1.49% $14,581 04/30/1992 $14,097 0.08% $14,592 05/31/1992 $14,318 1.36% $14,791 06/30/1992 $14,382 0.99% $14,937 07/31/1992 $14,660 1.54% $15,167 08/31/1992 $14,886 1.38% $15,376 09/30/1992 $15,059 0.65% $15,476 10/31/1992 $14,797 -1.04% $15,315 11/30/1992 $14,973 1.50% $15,545 12/31/1992 $15,151 1.13% $15,721 01/31/1993 $15,499 2.73% $16,150 02/28/1993 $15,737 1.98% $16,470 03/31/1993 $15,976 2.11% $16,817 04/30/1993 $16,103 0.57% $16,913 05/31/1993 $16,288 1.46% $17,160 06/30/1993 $16,650 1.81% $17,471 07/31/1993 $16,838 1.04% $17,652 08/31/1993 $16,909 0.85% $17,802 09/30/1993 $16,981 0.57% $17,904 10/31/1993 $17,475 1.83% $18,231 11/30/1993 $17,547 1.26% $18,461 12/31/1993 $17,823 1.26% $18,694 01/31/1994 $18,205 1.78% $19,027 02/28/1994 $18,030 0.15% $19,055 03/31/1994 $17,230 -2.94% $18,495 04/30/1994 $17,117 -1.34% $18,247 05/31/1994 $17,193 0.57% $18,351 06/30/1994 $17,206 -0.67% $18,228 07/31/1994 $17,284 0.47% $18,314 08/31/1994 $17,428 0.72% $18,446 09/30/1994 $17,507 0.40% $18,519 10/31/1994 $17,586 0.07% $18,532 11/30/1994 $17,399 -1.16% $18,317 12/31/1994 $17,548 1.06% $18,512 01/31/1995 $17,697 1.05% $18,706 02/28/1995 $18,397 2.46% $19,166 03/31/1995 $18,549 1.13% $19,383 04/30/1995 $19,051 2.22% $19,813 05/31/1995 $19,487 2.82% $20,372 06/30/1995 $19,644 0.66% $20,506 07/31/1995 $20,015 1.55% $20,824 08/31/1995 $20,102 0.28% $20,882 09/30/1995 $20,262 1.15% $21,122 10/31/1995 $20,423 1.11% $21,357 11/30/1995 $20,511 0.47% $21,457 12/31/1995 $20,824 1.27% $21,730 01/31/1996 $21,213 1.90% $22,143 02/29/1996 $21,379 0.53% $22,260 03/31/1996 $21,243 -0.27% $22,200 04/30/1996 $21,335 0.54% $22,320 05/31/1996 $21,582 0.81% $22,501 06/30/1996 $21,598 0.22% $22,550 07/31/1996 $21,771 0.90% $22,753 08/31/1996 $22,182 1.09% $23,001 09/30/1996 $22,677 1.72% $23,397 10/31/1996 $22,854 0.84% $23,593 11/30/1996 $23,357 1.56% $23,961 12/31/1996 $23,782 1.95% $24,428 01/31/1997 1.11% $24,046 0.73% $24,607 02/28/1997 1.81% $24,481 1.88% $25,069 03/31/1997 -2.32% $23,913 -1.12% $24,789 04/30/1997 1.14% $24,186 0.89% $25,009 05/31/1997 2.19% $24,716 2.01% $25,512 06/30/1997 1.82% $25,165 1.36% $25,859 07/31/1997 2.83% $25,878 2.12% $26,407 08/31/1997 0.08% $25,898 0.54% $26,550 09/30/1997 1.77% $26,357 1.98% $27,075 10/31/1997 -0.26% $26,288 -0.01% $27,073 11/30/1997 1.10% $26,577 0.71% $27,265 12/31/1997 0.75% $26,777 0.91% $27,513 01/31/1998 1.09% $27,068 1.70% $27,981 02/28/1998 1.09% $27,364 0.78% $28,199 03/31/1998 1.09% $27,662 0.50% $28,340 04/30/1998 0.41% $27,775 0.75% $28,553 05/31/1998 0.08% $27,797 0.30% $28,638 06/30/1998 0.08% $27,820 0.21% $28,698 07/31/1998 0.76% $28,031 0.70% $28,899 08/31/1998 -7.41% $25,954 -6.79% $26,937 09/30/1998 0.46% $26,073 -0.01% $26,934 10/31/1998 -1.77% $25,612 -1.99% $26,398 11/30/1998 6.58% $27,297 5.07% $27,737 12/31/1998 -0.28% $27,221 -0.23% $27,673 01/31/1999 1.54% $27,640 0.94% $27,933 02/28/1999 -0.65% $27,460 -0.21% $27,874 03/31/1999 0.82% $27,685 0.91% $28,128 04/30/1999 1.92% $28,217 2.21% $28,750 05/31/1999 -2.10% $27,624 -1.08% $28,439 06/30/1999 0.09% $27,649 0.05% $28,453 07/31/1999 0.08% $27,671 0.05% $28,468 08/31/1999 -1.81% $27,171 -0.89% $28,214 09/30/1999 -1.08% $26,877 -0.77% $27,997 10/31/1999 -0.30% $26,796 -0.49% $27,860 11/30/1999 2.11% $27,362 1.36% $28,239 12/31/1999 0.09% $27,386 1.21% $28,580 01/31/2000 -1.11% $27,083 -0.40% $28,466 02/29/2000 0.91% $27,329 0.62% $28,643 03/31/2000 -2.37% $26,681 -1.48% $28,219 04/30/2000 0.10% $26,708 -0.15% $28,176 05/31/2000 -1.62% $26,277 -1.60% $27,725
* Source: Standard and Poor's Micropal. AVERAGE ANNUAL TOTAL RETURN 5/31/00 CLASS C ------------------------------------ 1-Year -7.35% 5-Year +5.25% Since Inception (5/16/95) +5.28% AVERAGE ANNUAL TOTAL RETURN 5/31/00 ADVISOR CLASS** ------------------------------------ 1-Year -4.88% 5-Year +6.16% 10-Year +10.14% Since Inception (12/31/69) +8.21% *Source: Standard and Poor's Micropal. **Effective January 1, 1997, the fund began offering Advisor Class shares, which do not have sales charges nor Rule 12b-1 plans. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to January 1, 1997, a restated figure is used based upon the fund's Class A performance, excluding the effect of Class A's maximum initial sales charge and including the effect of the Class A Rule 12b-1 fees; and (b) for periods after January 1, 1997, an actual Advisor Class figure is used reflecting a deduction of all charges and fees applicable to that class. Past performance does not guarantee future results. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights
CLASS A ---------------------------------------------------------------------- YEAR ENDED MAY 31, ---------------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .......... $ 2.69 $ 2.98 $ 2.90 $ 2.79 $ 2.77 ---------------------------------------------------------------------- Income from investment operations: Net investment income(a) ................... .26 .26 .26 .26 .25 Net realized and unrealized gains (losses) . (.39) (.29) .08 .11 .03 ---------------------------------------------------------------------- Total from investment operations ............ (.13) (.03) .34 .37 .28 ---------------------------------------------------------------------- Less distributions from net investment income (.26) (.26) (.26) (.26) (.26) ---------------------------------------------------------------------- Net asset value, end of year ................ $ 2.30 $ 2.69 $ 2.98 $ 2.90 $ 2.79 ====================================================================== Total return(b) ............................. (5.01%) (.74%) 12.32% 14.09% 10.75% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ............. $2,442,432 $3,108,809 $3,236,134 $2,638,914 $2,183,738 Ratios to average net assets: Expenses ................................... .74% .72% .70% .71% .70% Net investment income ...................... 10.28% 9.40% 9.04% 9.31% 9.07% Portfolio turnover rate ..................... 18.79% 27.55% 29.69% 20.01% 19.87%
(a) Based on average shares outstanding effective year ended May 31, 2000. (b) Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued) CLASS B -------------------- YEAR ENDED MAY 31, -------------------- 2000 1999(c) -------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .......... $ 2.68 $ 2.76 -------------------- Income from investment operations: Net investment income(a) ................... .24 .11 Net realized and unrealized losses ......... (.37) (.08) -------------------- Total from investment operations ............ (.13) .03 -------------------- Less distributions from net investment income (.25) (.11) -------------------- Net asset value, end of year ................ $ 2.30 $ 2.68 ==================== Total return(b) ............................. (5.49%) 1.29% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ............. $69,565 $26,095 Ratios to average net assets: Expenses ................................... 1.25% 1.24%(d) Net investment income ...................... 9.85% 8.41%(d) Portfolio turnover rate ..................... 18.79% 27.55% (a)Based on average shares outstanding effective year ended May 31, 2000. (b)Total return does not reflect contingent deferred sales charge, and is not annualized for periods less than one year. (c)For the period January 1, 1999 (effective date) to May 31, 1999. (d)Annualized FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS C --------------------------------------------------------------------- YEAR ENDED MAY 31, --------------------------------------------------------------------- 2000 1999 1998 1997 1996 --------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .......... $ 2.69 $ 2.98 $ 2.90 $ 2.79 $ 2.77 --------------------------------------------------------------------- Income from investment operations: Net investment income(a) ................... .25 .25 .25 .25 .25 Net realized and unrealized gains (losses) . (.38) (.29) .08 .11 .02 --------------------------------------------------------------------- Total from investment operations ............ (.13) (.04) .33 .36 .27 --------------------------------------------------------------------- Less distributions from net investment income (.25) (.25) (.25) (.25) (.25) --------------------------------------------------------------------- Net asset value, end of year ................ $ 2.31 $ 2.69 $ 2.98 $ 2.90 $ 2.79 ===================================================================== Total return(b) ............................. (5.46%) (.93%) 11.69% 13.41% 10.06% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ............. $367,151 $487,196 $394,612 $151,073 $ 46,064 Ratios to average net assets: Expenses ................................... 1.25% 1.24% 1.23% 1.25% 1.25% Net investment income ...................... 9.76% 8.89% 8.51% 8.75% 8.50% Portfolio turnover rate ..................... 18.79% 27.55% 29.69% 20.01% 19.87%
(a)Based on average shares outstanding effective year ended May 31, 2000. (b)Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
ADVISOR CLASS ---------------------------------------------------- YEAR ENDED MAY 31, ---------------------------------------------------- 2000 1999 1998 1997(c) ---------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .......... $ 2.69 $ 2.98 $ 2.90 $ 2.90 ------- ------- ------- ------ Income from investment operations: Net investment income(a) ................... .26 .27 .27 .12 Net realized and unrealized gains (losses) . (.38) (.29) .08 (.01) ------- ------- ------- ------ Total from investment operations ............ (.12) (.02) .35 .11 ------- ------- ------- ------ Less distributions from net investment income (.27) (.27) (.27) (.11) ------- ------- ------- ------ Net asset value, end of year ................ $ 2.30 $ 2.69 $ 2.98 $ 2.90 ======= ======= ======= ====== Total return(b) ............................. (4.88%) (.61%) 12.46% 3.94% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ............. $17,234 $39,354 $28,026 $6,224 Ratios to average net assets: Expenses ................................... .60% .59% .58% .61%(d) Net investment income ...................... 10.29% 9.52% 9.17% 9.25%(d) Portfolio turnover rate ..................... 18.79% 27.55% 29.69% 20.01%
(a)Based on average shares outstanding effective year ended May 31, 2000. (b)Total return is not annualized. (c)For the period January 2, 1997 (effective date) to May 31, 1997. (d)Annualized See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE --------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, WARRANTS AND RIGHTS 1.7% CONSUMER NON-DURABLES .6% Nabisco Group Holdings Corp. ........................................ United States 510,000 $ 11,124,375 R.J. Reynolds Tobacco Holdings Inc. ................................. United States 170,000 4,717,500 (a) Specialty Foods Corp., 144A ......................................... United States 97,500 -- ------------ 15,841,875 ------------ (a) CONSUMER SERVICES Advantica Restaurant Group Inc., A .................................. United States 612,439 459,329 Jack in the Box Inc. ................................................ United States 24,090 597,733 ------------ 1,057,062 ------------ ENERGY MINERALS .2% (a) Abraxas Petroleum Corp. ............................................. United States 2,211,842 3,317,763 Abraxas Petroleum Corp., rts., 11/01/04 ............................. United States 2,211,842 1,105,921 (a) McMoran Exploration Co. ............................................. United States 25,937 403,645 ------------ 4,827,329 ------------ GOVERNMENT BONDS United Mexican States, rts., 6/30/03 ................................ Mexico 3,000 -- ------------ INDUSTRIAL SERVICES .2% (a) Key Energy Services Inc. ............................................ United States 59,488 646,932 R&B Falcon Corp., 144A, wts., 5/01/09 ............................... United States 11,750 5,757,500 ------------ 6,404,432 ------------ NON-ENERGY MINERALS Gulf States Steel Inc., wts., 4/15/03 ............................... United States 27,800 28 ------------ PROCESS INDUSTRIES .1% (a) Darling International Inc. .......................................... United States 504,447 599,031 (a) Gaylord Container Corp., wts., 11/01/02 ............................. United States 232,762 931,048 Walter Industries Inc. .............................................. United States 189,505 2,049,023 ------------ 3,579,102 ------------ (a) PRODUCER MANUFACTURING .1% Goss Holdings Inc., B ............................................... United States 211,174 422,348 (e) Harvard Industries Inc. ............................................. United States 793,966 3,572,847 ------------ 3,995,195 ------------ (a) RETAIL TRADE .1% Penn Traffic Co. .................................................... United States 389,598 2,142,789 ------------ TELECOMMUNICATIONS .4% International Wireless Communications Holdings Inc. ................. United States 1,759,743 1,055,846 International Wireless Communications Holdings Inc., wts, 8/15/01 ... United States 36,400 36 Loral Space & Communications Ltd., wts., 1/15/07 .................... United States 35,300 126,604 McCaw International Ltd., wts., 4/15/07 ............................. United States 28,500 855,000 (a) Nextel Communications Inc., A ....................................... United States 64,337 5,959,215
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE --------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, WARRANTS AND RIGHTS (CONT.) TELECOMMUNICATIONS (CONT.) Occidente Y Caribe Celular, 144A, wts., 3/15/04 ..................... Colombia 152,660 $ 2,289,900 (d) Poland Telecom Finance, wts., 12/01/07 .............................. Poland 30,000 375 ------------ 10,286,976 ------------ TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $91,317,666) ......... 48,134,788 ------------ PREFERRED STOCKS 1.8% Asia Pulp & Paper Co. Ltd., 12.00% .................................. Indonesia 24,700 11,238,500 Fresenius Medical Care Capital Trust, 9.00% ......................... United States 13,100 12,314,000 R&B Falcon Corp., 13.875%, pfd., PIK ................................ United States 13,511 14,997,143 Sinclair Capital, 11.625%, pfd. ...................................... United States 147,000 13,303,500 ------------ TOTAL PREFERRED STOCKS (COST $65,470,854) ........................... 51,853,143 ------------ CONVERTIBLE PREFERRED STOCKS .6% UTILITIES .6% CMS Energy Trust I, 7.75%, cvt. pfd. (COST $26,500,000) ............. United States 530,000 18,748,750 ------------ PARTNERSHIP UNITS .1% PROCESS INDUSTRIES .1% Phosphate Resource Partners LP (COST $3,639,277) .................... United States 415,000 2,619,688 ------------
PRINCIPAL AMOUNT* ------- BONDS 91.1% COMMERCIAL SERVICES 2.5% (c) AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 .... United States $16,150,000 565,250 (c) AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 United States 14,210,000 213,150 Fleming Cos. Inc., senior sub. note, B, 10.50%, 12/01/04 ............ United States 13,200,000 11,880,000 Fleming Cos. Inc., senior sub. note, B, 10.625%, 7/31/07 ............ United States 14,000,000 11,760,000 Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 ......... United Kingdom 9,400,000 7,849,000 Iron Mountain Inc., senior sub. note, 8.75%, 9/30/09 ................ United States 16,650,000 14,901,750 Iron Mountain Inc., senior sub. note, 8.25%, 7/01/11 ................ United States 7,500,000 6,412,500 Lamar Advertising Co., senior sub. note, 9.625%, 12/01/06 ........... United States 20,000,000 19,800,000 ------------ 73,381,650 ------------ CONSUMER DURABLES .8% Dura Operating Corp., senior sub. note, Series B, 9.00%, 5/01/09 .... United States 11,000,000 9,625,000 Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02, 10.875% thereafter, 12/15/07 ....................................... United States 10,200,000 7,140,000 Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 ........... United States 6,800,000 6,494,000 ------------ 23,259,000 ------------ CONSUMER NON-DURABLES 2.5% Agrilink Foods Inc., senior sub. note, 11.875%, 11/01/08 ............ United States 17,000,000 14,280,000 Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 .................. United States 12,400,000 12,214,000 Premier International Foods, senior note, 144A, 12.00%, 9/01/09 ..... United States 8,000,000 7,720,000 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ... United States 42,000,000 21,210,000
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER NON-DURABLES (CONT.) SFC New Holdings Inc., senior note, 11.25%, 8/15/01 ................. United States $14,405,000 $ 13,900,825 SFC New Holdings Inc., zero cpn. to 6/15/05, 11.00% thereafter, 12/15/09 ........................................................... United States 909,980 -- Specialty Retailers Inc., senior note, B, 8.50%, 7/15/05 ............ United States 7,250,000 761,250 Specialty Retailers Inc., senior sub. note, B, 9.00%, 7/15/07 ....... United States 5,000,000 75,000 Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ........ United States 22,000,000 3,190,000 ------------ 73,351,075 ------------ CONSUMER SERVICES 18.6% Advantica Restaurant Group Inc., senior note, 11.25%, 1/15/08 ....... United States 13,896,030 9,240,860 AMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01, 12.25% thereafter, 3/15/06 ................................ United States 9,951,000 2,338,485 AMFM Inc., senior note, 8.00%, 11/01/08 ............................. United States 23,500,000 23,529,375 AMFM Inc., senior sub. note, 9.00%, 10/01/08 ........................ United States 8,400,000 8,547,000 AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ...................... United States 15,000,000 15,075,000 Ascent Entertainment Group Inc., senior disc. note, zero cpn. to 12/15/02, 11.875% thereafter, 12/15/04 ............................. United States 19,500,000 15,892,500 Aztar Corp., senior sub. note, 8.875%, 5/15/07 ...................... United States 30,500,000 28,288,750 Benedek Communications Corp., senior disc. note, zero cpn. to 5/15/01, 13.25% thereafter, 5/15/06 ................................ United States 24,500,000 21,560,000 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................................. United States 44,000,000 22,990,000 CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09 ............. United States 19,500,000 11,310,000 CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ................ United States 20,000,000 21,000,000 CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ................ United States 5,000,000 5,025,000 Diamond Cable Communication Co., senior disc. note, zero cpn. to 2/15/02, 10.75% thereafter, 2/15/07 ................................ United Kingdom 7,850,000 6,005,250 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 .................. United Kingdom 10,600,000 9,805,000 Family Restaurant Inc., senior note, 9.75%, 2/01/02 ................. United States 10,850,000 4,828,250 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 .......................................... United States 22,650,000 17,553,750 Fox/Liberty Networks LLC, senior note, 8.875%, 8/15/07 .............. United States 15,000,000 14,737,500 Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 ... United States 7,100,000 6,780,500 Hammons (John Q) Hotels, first mortgage, 8.875%, 2/15/04 ............ United States 20,000,000 17,650,000 Hammons (John Q) Hotels, first mortgage, 9.75%, 10/01/05 ............ United States 4,500,000 3,960,000 Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 ..... United States 15,250,000 13,991,875 Hollinger International Inc., senior sub. note, 9.25%, 2/01/06 ...... United States 6,400,000 6,304,000 Hollinger International Publishing Inc., senior sub. note, 9.25%, 3/15/07 ............................................................ United States 12,800,000 12,480,000 Horseshoe Gaming Holding, senior sub. note, 8.625%, 5/15/09 ......... United States 30,200,000 27,708,500 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 ................................................ United States 17,300,000 10,380,000 LIN Television Corp., senior sub. note, 8.375%, 3/01/08 ............. United States 19,000,000 16,340,000 NTL Inc., senior note, zero cpn. to 4/01/03, 9.75% thereafter, 4/01/08 United States 50,000,000 31,375,000 Premier Parks Inc., senior disc. note, zero cpn. to 4/01/03, 10.00% thereafter, 4/01/08 ................................................ United States 8,000,000 5,260,000 Premier Parks Inc., senior note, 9.25%, 4/01/06 ..................... United States 8,000,000 7,430,000 Premier Parks Inc., senior note, 9.75%, 6/15/07 ..................... United States 22,500,000 21,290,625 Prime Hospitality Corp., senior sub. note,B,9.75%, 4/01/07........... United States 23,200,000 22,504,000 Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%, 1/15/09............................................................. United States 37,000,000 22,200,000
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Regal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ................ United States $29,650,000 $ 12,156,500 Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 .... United States 14,400,000 13,392,000 Telewest Communications PLC, 144A, zero cpn. to 2/01/05, 11.375% thereafter, 2/01/10 ................................................ United Kingdom 28,000,000 14,840,000 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 .......................................... United Kingdom 14,750,000 8,186,250 Telewest Communications PLC, senior note, 11.25%, 11/01/08 .......... United Kingdom 4,000,000 4,000,000 United Pan-Europe Communications NV, zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 ................................................ Netherlands 52,500,000 23,625,000 ------------- 539,580,970 ------------- ELECTRONIC TECHNOLOGY 3.1% Amkor Technology Inc., senior notes, 9.25%, 5/01/06 ................. United States 30,000,000 29,250,000 L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 United States 5,400,000 5,440,500 SCG Holding and Semiconductor Co., senior sub. note, 12.00%, 8/01/09 United States 30,000,000 31,950,000 Telecommun Techniques Co., senior sub. note, 9.75%, 5/15/08 ......... United States 24,000,000 21,960,000 ------------- 88,600,500 ------------- ENERGY MINERALS 3.6% Abraxas Petroleum Corp., senior note, 11.50%, 11/01/04 .............. United States 25,970,000 21,944,650 AEI Resources Inc., senior sub. note, 144A, 11.50%, 12/15/06 ........ United States 20,000,000 1,075,000 Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ...... United States 5,000,000 4,525,000 Clark R&M Inc., senior sub. note, 8.875%, 11/15/07 .................. United States 9,000,000 4,815,000 Clark USA Inc., senior note, 10.875%, 12/01/05 ...................... United States 17,000,000 8,415,000 Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ....... Mexico 23,300,000 23,008,750 Mesa Operating Co., zero cpn. to 7/01/01, 11.625% thereafter, 7/01/06 United States 4,300,000 3,622,750 P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ............ United States 7,000,000 6,405,000 P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ....... United States 33,000,000 29,535,000 ------------- 103,346,150 ------------- FINANCE 2.6% Lodgian Finance Corp, 12.25%, 7/15/09 ............................... United States 34,250,000 27,571,250 Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ............... United States 23,000,000 22,540,000 Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 .............. United States 30,000,000 24,150,000 ------------- 74,261,250 ------------- GOVERNMENT BONDS .5% ESCOM, E168, utility deb., 11.00%, 6/01/08 .......................... South Africa 108,800,000 ZAR 12,906,820 ------------- HEALTH SERVICES 3.0% Everest Healthcare Services Corp., senior sub. note, 9.75%, 5/01/08 . United States 18,000,000 15,210,000 Fresenius Medical Care Capital Trust, 7.875%, 2/01/08 ............... United States 24,000,000 21,120,000 Iasis Healthcare Corp., senior sub. note, 144A, 13.00%, 10/15/09 .... United States 35,000,000 35,087,500 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ..... United States 20,000,000 7,100,000 Pharmerica Inc., senior sub. note, 8.375%, 4/01/08 .................. United States 8,400,000 4,662,000 (c)Vencor Operating Inc., senior sub. note, 9.875%, 5/01/05 ............ United States 29,000,000 3,045,000 ------------- 86,224,500 -------------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (Cont.) HEALTH TECHNOLOGY .5% Conmed Corp., senior sub. note, 9.00%, 3/15/08 ...................... United States $15,000,000 $ 13,875,000 ------------- INDUSTRIAL SERVICES 4.8% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 .... United States 34,000,000 28,220,000 Allied Waste North America Inc., senior sub. note, 10.00%, 8/01/09 .. United States 10,000,000 7,900,000 Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 .. United States 4,750,000 4,750,000 Key Energy Services Inc., senior sub. note, 14.00%, 1/15/09 ......... United States 30,000,000 32,550,000 R&B Falcon Corp., senior note, 12.25%, 3/15/06 ...................... United States 10,850,000 11,772,250 R&B Falcon Corp., senior note, 9.50%, 12/15/08 ...................... United States 7,400,000 7,363,000 RBF Finance Co., senior note, 11.375%, 3/15/09 ...................... United States 8,750,000 9,318,750 Safety Kleen Services, senior sub. note, 9.25%, 6/01/08 ............. United States 10,000,000 1,137,500 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 ......................................... United States 31,800,000 20,829,000 URS Corp., senior sub. note, 12.25%, 5/01/09 ........................ United States 16,500,000 16,252,500 ------------- 140,093,000 ------------- NON-ENERGY MINERALS 1.0% Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 ......... United States 11,700,000 10,588,500 LTV Corp., senior note, 8.20%, 9/15/07 .............................. United States 15,000,000 11,325,000 Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 .......... United States 8,000,000 5,640,000 ------------- 27,553,500 ------------- PROCESS INDUSTRIES 7.8% Anchor Glass, first mortgage, 11.25%, 4/01/05 ....................... United States 23,700,000 16,708,500 Anchor Glass Container, senior note, 9.875%, 3/15/08 ................ United States 17,300,000 10,726,000 Avecia Group PLC, senior note, 11.00%, 7/01/09 ...................... United Kingdom 33,000,000 32,752,500 Climachen Inc., senior sub. note, B, 10.75%, 12/01/07 ............... United States 7,500,000 1,387,500 Container Corp. of America, senior note, A, 9.75%, 4/01/03 .......... United States 12,000,000 12,120,000 Equistar Chemicals LP, senior note, 8.75%, 2/15/09 .................. United States 20,000,000 19,200,000 Four M Corp., senior note, B, 12.00%, 6/01/06 ....................... United States 7,400,000 7,252,000 Graham Packaging Co., senior disc. note, B, zero cpn., to 1/15/03, 10.75% thereafter, 1/15/09 ......................................... United States 5,600,000 3,052,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ........... United States 6,600,000 5,511,000 Huntsman ICI Chemicals LLC, zero cpn., senior disc. note, 12/31/09 .. United States 76,130,000 23,980,950 Lyondell Chemical Co., senior secured note, 9.875%, 5/01/07 ......... United States 9,000,000 8,685,000 Lyondell Chemical Co., senior sub. note, 10.875%, 5/01/09 ........... United States 2,400,000 2,316,000 Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17 ......... Indonesia 30,900,000 15,913,500 (c)Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 Indonesia 27,750,000 5,550,000 (c)Purina Mills Inc., senior sub. note, 9.00%, 3/15/10 ................. United States 40,000,000 11,800,000 Radnor Holdings Inc., senior note, 10.00%, 12/01/03 ................. United States 6,250,000 5,453,125 Repap New Brunswick, senior note, 9.00%, 6/01/04 .................... Canada 13,600,000 12,920,000 Terra Industries Inc., senior note, B, 10.50%, 6/15/05 .............. United States 15,000,000 11,475,000 Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 ......... Indonesia 11,000,000 6,215,000 Westpoint Stevens Inc., senior note, 7.875%, 6/15/08 ................ United States 17,500,000 14,000,000 ------------- 227,018,075 -------------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) PRODUCER MANUFACTURING 6.7% Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 .... United States $ 8,000,000 $ 6,840,000 Airxcel Inc., senior sub. note, B, 11.00%, 11/15/07 ................. United States 13,500,000 11,070,000 American Axle & Manufacturing Inc., 9.75%, 3/01/09 .................. United States 26,800,000 25,326,000 c Cambridge Industries Inc., senior sub. note, B, 10.25%, 7/15/07 ..... United States 4,700,000 963,500 Collins & Aikman Products, senior sub. note, 11.50%, 4/15/06 ........ United States 9,500,000 9,072,500 Goss Graphic Systems Inc., senior sub. note, PIK, 12.25%, 11/19/05 .. United States 7,575,000 2,575,500 Keystone Consolidated Industries Inc., senior note, 9.625%, 8/01/07 . United States 7,000,000 5,985,000 Neenah Corp., F, 11.125%, 5/01/07 ................................... United States 6,100,000 4,666,500 Neenah Corp., senior sub. note, B, 11.125%, 5/01/07 ................. United States 6,100,000 4,666,500 Nortek Inc., senior note, 8.875%, 8/01/08 ........................... United States 8,000,000 7,200,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 ........................ United States 19,200,000 17,712,000 Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ............... United States 13,200,000 12,309,000 Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ... United States 20,850,000 8,444,250 Tenneco Automotive Inc., senior sub. note, 11.625%, 10/15/09 ........ United States 30,000,000 28,125,000 Terex Corp., senior sub. note, 8.875%, 4/01/08 ...................... United States 9,500,000 8,597,500 Terex Corp., senior sub. note, 8.875%, 4/01/08 ...................... United States 24,750,000 22,398,750 Thermadyne Industries Inc., sub. note, 10.75%, 11/01/03 ............. United States 19,781,000 18,371,604 ------------- 194,323,604 ------------- REAL ESTATE 1.2% HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ........ United States 40,000,000 34,300,000 ------------- RETAIL TRADE .2% c Bruno's Inc., senior sub. note, 10.50%, 8/01/05 ..................... United States 12,500,000 62,500 Pueblo Xtra International, senior note, 9.50%, 8/01/03 .............. United States 9,500,000 4,512,500 Pueblo Xtra International, senior note, C, 9.50%, 8/01/03 ........... United States 5,000,000 2,375,000 ------------- 6,950,000 ------------- TECHNOLOGY SERVICES 1.8% Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 ................. United States 28,200,000 17,061,000 PSINet Inc., senior note, 10.50%, 12/01/06 .......................... United States 11,500,000 10,292,500 PSINet Inc., senior note, 11.00%, 8/01/09 ........................... United States 27,250,000 24,661,250 ------------- 52,014,750 ------------- TELECOMMUNICATIONS 24.2% Allegiance Telecom Inc., senior disc. note, B, zero cpn. to 2/15/03, 11.75%, thereafter, 2/15/08 ........................................ United States 22,000,000 15,510,000 Allegiance Telecom Inc., senior note, 12.875%, 5/15/08 .............. United States 20,500,000 21,832,500 Arch Escrow Corp., senior note, 13.75%, 4/15/08 ..................... United States 14,500,000 11,962,500 Call-Net Enterprises Inc., senior disc. note, zero cpn. to 5/15/04, 10.80% thereafter, 5/15/09 ......................................... Canada 29,500,000 10,620,000 Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04, 10.125% thereafter, 5/01/09 ............................... Canada 48,250,000 27,623,125 Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ................................ United States 51,000,000 30,090,000 Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ..... United States 34,250,000 36,561,875 Global Crossing Holdings Ltd., senior note, 144A, 9.50%, 11/15/09 ... Bermuda 40,000,000 37,817,320
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) TELECOMMUNICATIONS (CONT.) c ICO Global Communications Holdings Ltd., senior note, 15.00%, 8/01/05 Bermuda $35,000,000 $ 19,250,000 IntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01, 12.50% thereafter, 5/01/06 ......................................... United States 32,500,000 26,325,000 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 ................................ United States 37,500,000 27,843,750 Intermedia Communications Inc., senior note, 9.50%, 3/01/09 ......... United States 10,000,000 9,225,000 c Iridium LLC/CAP, senior note, D, 10.875%, 7/15/05 ................... Bermuda 17,000,000 488,750 Level 3 Communications Inc., senior disc. note, zero cpn. to 12/01/03, 10.50% thereafter, 12/01/08 ........................................ United States 38,000,000 21,850,000 Loral Space and Communications Ltd., senior disc. note, zero cpn. to 1/15/02, 12.50% thereafter, 1/15/07 ................................ United States 35,300,000 14,296,500 McCaw International Ltd., senior disc. note, zero cpn. to 4/15/02, 13.00% thereafter, 4/15/07 ......................................... United States 28,500,000 20,377,500 McLeod USA Inc., senior disc. note, zero cpn. to 3/01/02, 10.50% thereafter, 3/01/07 ................................................ United States 10,000,000 7,900,000 McLeod USA Inc., senior note, 9.50%, 11/01/08 ....................... United States 16,000,000 15,400,000 Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ................... United States 31,000,000 21,390,000 Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ................... United States 10,000,000 7,300,000 Microcell Telecommunications Inc., senior disc. note, B, zero cpn to 12/01/01, 14.00% thereafter, 6/01/06 ............................ Canada 17,550,000 16,146,000 Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01, 13.50% thereafter, 6/01/06 ................................ Luxembourg 22,300,000 18,620,500 Netia Holdings BV, senior disc. note, B, zero cpn. to 11/01/01, 11.25% thereafter, 11/01/07 ........................................ Poland 15,000,000 10,350,000 Netia Holdings BV, senior note, B, 10.25%, 11/01/07 ................. Poland 9,000,000 7,605,000 Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02, 9.75% thereafter, 10/31/07 ......................................... United States 35,500,000 25,471,250 Nextel International Inc., senior disc. note, zero cpn. to 4/15/03, 12.125% thereafter, 4/15/08 ........................................ United States 20,000,000 12,250,000 Nextel Partners Inc., senior disc. note, zero cpn. to 2/01/04, 14.00% thereafter, 2/01/09 ......................................... United States 15,600,000 10,062,000 Nextel Partners Inc., senior sub. note, 144A, 11.00%, 3/15/10 ....... United States 7,300,000 7,026,250 NEXTLINK Communications Inc., senior disc. note, zero cpn. to 4/15/03, 9.45% thereafter, 4/15/08 ................................. United States 20,250,000 12,048,750 NEXTLINK Communications Inc., senior note, 9.625%, 10/01/07 ......... United States 17,350,000 15,918,625 NEXTLINK Communications Inc., senior note, 9.00%, 3/15/08 ........... United States 18,150,000 16,244,250 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 21,944,875 c,d Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 ........... Poland 30,000,000 7,650,000 Rogers Cantel Mobile Inc., senior secured deb., 9.75%, 6/01/16 ...... Canada 13,250,000 13,962,188 RSL Communications PLC, senior disc. note, zero cpn. to 3/01/03, 10.125% thereafter, 3/01/08 ........................................ United Kingdom 44,500,000 18,022,500 RSL Communications PLC, senior note, 12.00%, 11/01/08 United Kingdom 6,250,000 4,656,250 Spectrasite Holdings Inc., senior disc. note, 144A, zero cpn. to 3/15/05, 12.875% thereafter, 3/15/10 ............................... United States 35,000,000 18,200,000 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04, 11.25% thereafter, 4/15/09 ......................................... United States 20,500,000 11,172,500
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) TELECOMMUNICATIONS (CONT.) Triton PCS Inc., sub. disc. note, zero cpn. to 5/01/03, 11.00% thereafter, 5/01/08 ................................................... United States $25,000,000 $ 18,125,000 VoiceStream Wireless Corp., senior disc. note, 144A, zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 ................................ United States 29,750,000 19,151,563 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ..... United States 32,500,000 32,743,750 ------------- 701,035,071 ------------- TRANSPORTATION 4.5% American Commercial Lines LLC, senior note, 10.25%, 6/30/08 ............ United States 22,700,000 18,273,500 Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 ................... Bermuda 19,000,000 19,047,500 GS Superhighway (Holdings) Ltd., senior note, 10.25%, 8/15/07 .......... China 35,000,000 23,800,000 Sea Containers Ltd., senior note, 10.50%, 7/01/03 ...................... United States 10,000,000 7,650,000 Sea Containers Ltd., senior note, 10.75%, 10/15/06 ..................... United States 19,700,000 13,100,500 Ultrapetrol Ltd., first mortgage, 10.50%, 4/01/08 ...................... United States 34,000,000 28,050,000 United Air Lines Inc., S.F., pass-through equipment trust, B-2, 9.06%, 9/26/14 ........................................................ United States 20,422,000 21,443,508 ------------- 131,365,008 ------------- UTILITIES 1.2% AES China Generating Co., 10.125%, 12/15/06 ............................ China 4,400,000 2,728,000 AES Corp., senior note, 9.50%, 6/01/09 ................................. United States 7,500,000 7,125,000 ESI Tractebel Acq. Corp., secured note, 7.99%, 12/30/11 ................ United States 8,000,000 6,880,000 Midland Cogeneration Venture, S.F., senior lease obligation, A, 11.75%, 7/23/05 ....................................................... United States 4,500,000 4,781,259 Midland Cogeneration Venture, S.F., senior lease obligation, B, 13.25%, 7/23/06 ....................................................... United States 11,500,000 13,543,987 ------------- 35,058,246 ------------- TOTAL BONDS (COST $3,340,599,487) ...................................... 2,638,498,169 ------------- CONVERTIBLE BONDS .5% TELECOMMUNICATIONS .5% Level 3 Communications Inc., cvt., 6.00%, 3/15/10 (COST $13,894,102) ... United States 17,500,000 14,916,125 -------------
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2000 (CONT.)
PRINCIPAL AMOUNT* VALUE ---------------------------------------------------------------------------------------------------------------------------------- (b) REPURCHASE AGREEMENT 2.0% Joint Repurchase Agreement, 6.396%, 6/01/00, (Maturity Value $58,737,135) (COST $58,726,701) ..................................................... $58,726,701 $ 58,726,701 Barclays Capital Inc. Bear Stearns & Co. Inc. Chase Securities Inc. Donaldson, Lufkin & Jenrette Securities Corp. Dresdner Kleinwort Benson, North America LLC Nesbitt Burns Securities Inc. Paine Webber Inc. Paribas Corp. Societe Generale Warburg Dillion Read LLC Collateralized by U.S. Treasury Bills and Notes -------------- TOTAL INVESTMENTS (COST $3,600,148,087) 97.8% ........................... 2,833,497,364 OTHER ASSETS, LESS LIABILITIES 2.2% ..................................... 62,884,331 -------------- NET ASSETS 100.0% ....................................................... $2,896,381,695 --------------
CURRENCY ABBREVIATIONS ZAR - South African Rand * The principal amount is stated 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 May 31, 2000, all repurchase agreements held by the Fund had been entered into on that date. (c) See Note 6 regarding defaulted securities. (d) See Note 7 regarding restricted 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 affiliated companies at May 31, 2000, were $3,572,847. See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 Assets: Investments in securities: Cost .................................................... $ 3,600,148,087 =============== Value ................................................... 2,833,497,364 Receivables: Capital shares sold ..................................... 10,812,813 Dividends and interest .................................. 64,095,680 --------------- Total assets ........................................ 2,908,405,857 --------------- Liabilities: Payables: Capital shares redeemed ................................. 6,193,263 Affiliates .............................................. 2,224,181 Shareholders ............................................ 3,482,574 Other liabilities ........................................ 124,144 --------------- Total liabilities ................................... 12,024,162 --------------- Net assets, at value ................................ $ 2,896,381,695 =============== Net assets consist of: Undistributed net investment income ...................... $ 8,211,460 Net unrealized depreciation .............................. (766,650,903) Accumulated net realized loss ............................ (125,461,984) Capital shares ........................................... 3,780,283,122 --------------- Net assets, at value ...................................... $ 2,896,381,695 =============== See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF ASSETS AND LIABILITIES (CONT.) MAY 31, 2000 CLASS A: Net assets, at value ................................................ $2,442,432,361 ============== Shares outstanding .................................................. 1,061,216,647 ============== Net asset value per share* .......................................... $ 2.30 ============== Maximum offering price per share (net asset value per share / 95.75%) $ 2.40 ============== CLASS B: Net assets, at value ................................................ $ 69,564,593 ============== Shares outstanding .................................................. 30,275,213 ============== Net asset value and maximum offering price per share* ............... $ 2.30 ============== CLASS C: Net assets, at value ................................................ $ 367,150,637 ============== Shares outstanding .................................................. 159,085,789 ============== Net asset value per share* .......................................... $ 2.31 ============== Maximum offering price per share (net asset value per share / 99.00%) $ 2.33 ============== ADVISOR CLASS: Net assets, at value ................................................ $ 17,234,104 ============== Shares outstanding .................................................. 7,477,574 ============== Net asset value and maximum offering price per share ................ $ 2.30 ==============
* 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 YEAR ENDED MAY 31, 2000 Investment income: Dividends .............................................................. $ 9,634,285 Interest ............................................................... 359,823,380 ------------- Total investment income ........................................... 369,457,665 ------------- Expenses: Management fees (Note 3) ............................................... 15,209,681 Distribution fees (Note 3) Class A ............................................................... 3,849,821 Class B ............................................................... 348,336 Class C ............................................................... 2,834,501 Transfer agent fees (Note 3) ........................................... 3,826,266 Custodian fees ......................................................... 43,383 Reports to shareholders ................................................ 581,200 Registration and filing fees ........................................... 256,199 Professional fees ...................................................... 114,520 Trustees' fees and expenses ............................................ 69,694 Other .................................................................. 96,101 ------------- Total expenses .................................................... 27,229,702 ------------- Net investment income ............................................. 342,227,963 ------------- Realized and unrealized gains (losses): Net realized loss from: Investments ........................................................... (84,981,160) Foreign currency transactions ......................................... (27,186) ------------- Net realized loss ................................................. (85,008,346) Net unrealized appreciation (depreciation) on: Investments ........................................................... (420,292,368) Translation of assets and liabilities denominated in foreign currencies 24,708 ------------- Net unrealized depreciation ....................................... (420,267,660) ------------- Net realized and unrealized loss ........................................ (505,276,006) ------------- Net decrease in net assets resulting from operations .................... $(163,048,043) =============
See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MAY 31, 2000 AND 1999
2000 1999 -------------------------------------- Increase (decrease) in net assets: Operations: Net investment income .............................................................. $ 342,227,963 $ 339,921,053 Net realized gain (loss) from investments and foreign currency transactions ........ (85,008,346) 73,264,684 Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies ................................................. (420,267,660) (437,470,931) -------------------------------------- Net decrease in net assets resulting from operations ........................... (163,048,043) (24,285,194) Distributions to shareholders from: Net investment income: Class A ........................................................................... (297,771,870) (299,008,521) Class B ........................................................................... (5,227,817) (367,466) Class C ........................................................................... (43,745,502) (40,073,283) Advisor Class ..................................................................... (4,338,546) (2,875,463) -------------------------------------- Total distributions to shareholders ................................................. (351,083,735) (342,324,733) Capital share transactions: (Note 2) Class A ............................................................................ (233,459,046) 191,216,722 Class B ............................................................................ 51,873,634 26,621,191 Class C ............................................................................ (53,256,052) 136,698,940 Advisor Class ...................................................................... (16,099,369) 14,754,823 -------------------------------------- Total capital share transactions .................................................... (250,940,833) 369,291,676 Net increase (decrease) in net assets .......................................... (765,072,611) 2,681,749 Net assets Beginning of year ................................................................... 3,661,454,306 3,658,772,557 -------------------------------------- End of year ......................................................................... $ 2,896,381,695 $ 3,661,454,306 -------------------------------------- Undistributed net investment income included in net assets: End of year ......................................................................... $ 8,211,460 $ 17,094,418 ======================================
See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements 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. Restricted securities and securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Trustees. b. FOREIGN CURRENCY TRANSLATION: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. 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 (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 C, 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 May 31, 2000, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
YEAR ENDED MAY 31, 2000 YEAR ENDED MAY 31, 1999* SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------------- CLASS A Shares sold .................................. 331,634,709 $ 828,749,061 414,087,089 $ 1,147,083,301 Shares issued in reinvestment of distributions 51,595,884 129,033,053 48,411,868 134,052,298 Shares redeemed .............................. (478,461,066) (1,191,241,160) (393,225,617) (1,089,918,877) --------------------------------------------------------------------------- Net increase (decrease) ...................... (95,230,473) $ (233,459,046) 69,273,340 $ 191,216,722 =========================================================================== CLASS B Shares sold .................................. 24,687,653 $ 61,971,524 10,082,048 $ 27,600,679 Shares issued in reinvestment of distributions 934,613 2,307,752 67,548 184,499 Shares redeemed .............................. (5,068,871) (12,405,642) (427,778) (1,163,987) --------------------------------------------------------------------------- Net increase ................................. 20,553,395 $ 51,873,634 9,721,818 $ 26,621,191 =========================================================================== CLASS C Shares sold .................................. 45,033,235 $ 113,693,172 92,143,685 $ 257,265,284 Shares issued in reinvestment of distributions 9,310,496 23,372,653 8,220,312 22,770,924 Shares redeemed .............................. (76,051,198) (190,321,877) (51,874,088) (143,337,268) --------------------------------------------------------------------------- Net increase (decrease) ...................... (21,707,467) $ (53,256,052) 48,489,909 $ 136,698,940 =========================================================================== ADVISOR CLASS Shares sold .................................. 18,904,229 $ 48,575,190 17,315,590 $ 47,913,887 Shares issued in reinvestment of distributions 1,517,475 3,824,741 985,497 2,728,550 Shares redeemed (27,568,659) (68,499,300) (13,089,579) (35,887,614) --------------------------------------------------------------------------- Net increase (decrease) (7,146,955) $ (16,099,369) 5,211,508 $ 14,754,823 ===========================================================================
* Class B shares for the period January 1, 1999 (effective date) to May 31, 1999. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (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 year of $2,349,062 and $519,135 respectively. The Fund paid transfer agent fees of $3,826,266 of which $3,162,474 was paid to Investor Services. Included in professional fees are legal fees of $19,092 that were paid to a law firm in which a partner of the law firm is an officer of the Fund. 4. INCOME TAXES At May 31, 2000, 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: 2001 ....................................... $14,304,993 2002 ....................................... 12,243,104 2003 ....................................... 4,606,276 ----------- $31,154,373 =========== At May 31, 2000, the Fund has deferred capital losses occurring subsequent to October 31, 2000 of $94,317,351. For tax purposes, such losses will be reflected in the year ending 2001. On May 31, 2000, the Fund had expired capital loss carryovers of $54,426,655 which were reclassified to paid-in-capital. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 4. INCOME TAXES (CONT.) At May 31, 2000, the net unrealized depreciation based on the cost of investments for income tax purposes of $3,600,148,087 was as follows: Unrealized appreciation .................. $ 39,155,386 Unrealized depreciation .................. (805,806,109) ------------- Net unrealized depreciation .............. $(766,650,723) ============= 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 May 31, 2000 aggregated $609,757,883 and $987,434,624, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 91.7% 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 May 31, 2000, the Fund held defaulted securities with a value aggregating $49,588,150 representing 1.7% 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. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 7. RESTRICTED SECURITIES The Fund may purchase securities through a private offering that generally cannot be resold to the public without prior registration under the Securities Act of 1933. The costs of registering such securities are paid by the issuer. Restricted securities held at May 31, 2000 are as follows:
SHARES ISSUER ACQUISITION DATE COST VALUE ---------------------------------------------------------------------------------------------------------------------------- FRANKLIN AGE HIGH INCOME FUND 30,000 Poland Telecom Finance, wts., 12/01/07 11/24/1997 $ 180,000 $ 375 30,000,000 Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 11/24/1997 29,820,000 7,650,000 ---------- TOTAL RESTRICTED SECURITIES (.26% of Net Assets) $7,650,375 ==========
FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Independent Auditors' Report TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF FRANKLIN HIGH INCOME TRUST In our opinion, the accompanying statement of assets and liabilities, including the statements of investments, and the related statement of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Franklin High Income Trust (the "Fund") at May 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Francisco, California July 10, 2000 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Tax Designation Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 2.78% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended May 31, 2000. This page intentionally left blank.