N-30D 1 fhitn30da.txt FHIT ANNUAL RPT 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 period ended May 31, 2001. The 12 months under review were difficult for high yield bonds, as extreme volatility in major equity markets and concerns about economic weakness negatively impacted the asset class. The Federal Reserve Board (the Fed) lowered short-term interest rates aggressively, reducing the federal funds target rate from 6.5% to 4.0% during the first five months of 2001 as data pointed to significant economic deceleration. The benchmark 10-year U.S. Treasury note's yield fell from 6.2% at the beginning of the period to 5.4% on May 31, 2001. Despite falling interest rates, risk aversion remained high throughout the period as investor concerns regarding corporate earnings lingered. Consequently, the risk premium investors pay for high yield bonds, as measured by the interest rate spread for the CSFB High Yield Index over U.S. Treasuries, widened The dollar value, number of shares or principal value, and complete legal titles of all portfolio holdings are listed in the Fund's Statement of Investments (SOI). The SOI begins on page 18. CONTENTS Shareholder Letter ............ 1 Performance Summary ........... 10 Financial Highlights & Statement of Investments ...... 14 Financial Statements .......... 27 Notes to Financial Statements .......... 31 Independent Auditors' Report .............. 36 Tax Designation ............... 37 [FUND CATEGORY LOGO] Portfolio Breakdown Based on Total Net Assets 5/31/01 [PIE CHART] Bonds 90.1% Equities 4.5% Short-Term Investments & Other Net Assets 5.4%
from 7.3% at the beginning of the period, peaked at a high of 9.6% in December, and closed the Fund's fiscal year at 7.9%.(1) Within this environment, Franklin's AGE High Income Fund - Class A delivered a +1.73% cumulative total return for the 12 months ended May 31, 2001, as shown in the Performance Summary beginning on page 10. Although market events during the Fund's fiscal year dampened performance, it significantly outperformed the -1.00% return of its peer group in the Lipper High Yield Average, composed of 371 high yield bond funds on May 31, 2001.(2) We think it bears noting that the Fund's return also outperformed the Standard & Poor's 500(R) Composite and Nasdaq Composite Indexes, which posted -10.55% and -37.53% returns during the same time.(3) During the period under review, we maintained a more conservative, relatively defensive investment strategy while focusing on what we believed were less cyclical sectors demonstrating strong growth potential. Starting in 2000, we significantly reduced our telecommunications industry exposure and also lowered portfolio weightings in the energy, automotive and industrials sectors. Conversely, we increased our exposure to industries such as pay television, wireless communications and health services. At the close of the period, our top five industry 1. Source: Credit Suisse First Boston. The CSFB High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the high yield debt market. Treasuries, if held to maturity, offer a fixed rate of return and fixed principal value; their interest payments and principal are guaranteed. 2. Source: Lipper, Inc. Lipper calculations do not include sales charges. Fund performance relative to the average may have been different if such charges had been considered. 3. Source: Standard & Poor's Micropal. The S&P 500 Composite Index consists of 500 domestic stocks, comprising four broad sectors: industrials, utilities, financials and transportation. The S&P 500 serves as the standard for measuring large-cap U.S. stock market performance. Since some industries are characterized by companies of relatively small stock capitalizations, the index is not composed of the 500 largest, publicly traded U.S. companies. The Nasdaq Composite Index measures all Nasdaq domestic and non-U.S.-based common stocks listed on The Nasdaq Stock Market(R). The index is market value-weighted and includes over 4,000 companies. 2 weightings were wireless communications (14.8%), telecommunications (8.9%), cable television (8.3%), transportation (5.3%) and health services (4.8%). SECTOR DISCUSSIONS WIRELESS - COMMUNICATIONS The wireless communications industry continued to grow during the period, as strong demand drove industry revenues higher. The industry continued to benefit from increasing U.S. cellular penetration rates, which rose to more than 40% by the end of calendar year 2000 from 31% at the end of 1999. The increased popularity of communication via cellular handsets and the introduction of more flexible service offerings were key drivers of the industry's strength. Additionally, industry consolidation continued to positively impact several high yield wireless issues during the period as their financial profiles improved materially as a result of the new business combinations. For example, Telus's acquisition of Clearnet, one of the Fund's holdings, resulted in a tender offer for the Fund's Clearnet bonds at a significant premium during the reporting period. Deutsche Telekom's purchase of VoiceStream Wireless, another Fund holding, also benefited VoiceStream's bonds. Within the industry, we took a more defensive strategy, concentrating on cellular providers and tower operators instead of paging. On the cellular side, we looked for companies with national presence, sound managements, and above-par average revenues per subscriber unit (ARPU). We also remained invested in tower operators, which sell leased space on wireless transmission towers to service providers. Tower operators generally enjoy stable revenue streams due to longer contract periods and the relatively inflexible nature of most cellular TOP 10 HOLDINGS 5/31/01
COMPANY % OF TOTAL INDUSTRY NET ASSETS ------------------------------------------- Intermedia Communications Inc. 1.6% Communications P&L Coal Holdings Corp. 1.6% Energy Minerals Clearnet Communications 1.6% Communications Charter Communications Holdings LLC 1.5% Consumer Services AMFM Inc. 1.5% Consumer Services Calpine Corp. 1.4% Utilities Premier Parks Inc. 1.4% Consumer Services Fresenius Medical Care Capital Trust 1.4% Health Services Crown Castle International Corp. 1.4% Communications Dobson/Sygnet Communications Corp. 1.3% Communications
3 network architecture. Within the tower industry, we invested in Crown Castle, which is tied with American Tower as the nation's largest tower operator. In our opinion, Crown Castle acquires top-notch properties and has developed a solid customer base. Furthermore, the company uses a clustering strategy to dominate the markets in which it operates. We believe there are significant opportunities among tower operators, although they are more defensive, because they provide the infrastructure needed for continued industry expansion, and because demand trends for wireless services remain robust. TELECOMMUNICATIONS - COMMUNICATIONS During the year under review, telecommunications industry securities suffered violent declines that caused investors' risk appetite to dry up across the high yield asset class. Fortunately, we chose to underweight telecommunications last year, mitigating some of the impact on the Fund's returns, but the preponderance of telecommunications issuance in the high yield market and the large weighting the industry represented in the average high yield mutual fund took its toll, regardless. During the period, the industry faced many challenges, foremost a lack of available capital. Many emerging telecommunications companies were founded in the 1990s, at a time when funding could be raised easily, and their business plans were predicated on the continued support of the capital markets. Although the capital-intensive nature of these companies was no surprise, the economic downturn and corresponding drop in risk tolerance was unforeseen, creating a vicious cycle from which several emerging telecommunications companies will not escape. While few have avoided the "guilt by association" effect on their high yield bonds, 4 not all telecommunications companies are destined for bankruptcy, thus creating opportunities. In many cases, some operators have shown concrete signs of value, many of which have been overlooked in this environment of negative market sentiment. Going forward, we continue to believe that profitable investments in this industry are possible based on selecting companies that offer flexible service, effective management and reasonable funding to see their business plans to fruition. PAY TELEVISION - CONSUMER SERVICES We significantly increased our weighting in the pay television industry during the year, as we believe it enjoyed especially healthy fundamentals. Demand for cable services, in particular, continued to grow, driven largely by the introduction of new services such as high-speed Internet access, telephony, and digital television. The success of these services continued to meet or exceed expectations and the outlook continues to be positive. In addition to its favorable growth prospects, we like cable television's utility-like revenue streams -- an attribute that we believe makes the industry more defensive and tends to insulate it from economic fluctuations. During the period, we added Charter Communications to the portfolio. Charter is the fourth-largest U.S. cable operator, an industry leader that has successfully and aggressively deployed new services in its markets. TRANSPORTATION Within the rather diverse transportation sector, we maintained our bottom-up approach and preference for selected companies in the shipping, infrastructure, and U.S. aerospace and defense subsectors. In general, we focused on the higher-quality, "The success of [cable] services continued to meet or exceed expectations...." 5 less cyclical companies, many of which enjoy a high degree of market power, longer and more stable contracts, and favorable demographic trends. On the shipping side, supply and demand conditions improved markedly and pricing conditions grew more favorable industry-wide. Within this subsector, we like industry leaders that control key niche sectors and enjoy a high degree of market power. Ultrapetrol, Latin America's largest barge operator, is an example of our investment strategy in this subsector. Its management's strategic decision to diversify into barge operations has allowed the company to dominate this niche regionally. With regard to infrastructure, we focus on companies that we consider best positioned to capitalize on the growth of general highway, airport and shipping infrastructures worldwide. On the U.S. aerospace and defense front, we found a positive outlook for the subsector in light of recent defense initiatives in the new Bush Administration budget. Accordingly, we added Alliant Techsystems to the Fund during the period. Alliant is a manufacturer and supplier for aerospace and defense industries that provides well-conceived and designed propulsion systems and other defense-related products, primarily to the U.S. government. HEALTH SERVICES We increased the Fund's weighting in health services, based on the sector's defensive nature and generally stable revenue streams, both of which we consider attractive attributes for leveraged investing. During the 12 months under review, the health care sector continued to benefit from favorable legislation passed in 1999 and 2000 that scaled back previous Medicare cuts. In addition, reimbursement trends became more favorable as service 6 providers were able to get significant reimbursement rate increases from managed care and insurance companies. Such companies, in turn, were able to pass through higher premiums to consumers, as economic strength in recent years resulted in employees' higher demand for health care services and employers' greater willingness and ability to pay. We expect that the reimbursement cycle will continue to be supportive in the near to intermediate term, as few signs of pricing deterioration are evident. One example of our health services investments is Fresenius Medical Care, the world's largest integrated provider of dialysis products and treatment. In general, we like the dialysis business due to its stable revenue streams, relative insulation from managed care pressures, and its nature as a more consolidated industry. Fresenius, in particular, enjoys a dominant market position and better margins largely due to its high degree of involvement in multiple stages of its business line, serving both as a provider of products used in dialysis treatments as well as operating treatment centers. Fresenius has a strong market position, international diversification and leadership by what we believe is a highly capable management team -- qualities we seek in all of our holdings within the health care sector. LOOKING FORWARD We believe there is reason for optimism regarding the high yield asset class. Attractive valuations, more favorable new bond issuance trends and proactive monetary policy on the Fed's behalf could combine to support high yield bonds into 2002. Since the beginning of 2001, the Fed has cut interest rates by 250 basis points altogether, while inflation has remained low. Barring a prolonged economic downturn or recession, we believe stable "We believe there is reason for optimism regarding the high yield asset class." 7 DIVIDEND DISTRIBUTIONS 6/1/00 - 5/31/01
DIVIDEND PER SHARE ----------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR CLASS -------------------------------------------------------------------------------- June 2.2 cents 2.10 cents 2.10 cents 2.23 cents July 2.2 cents 2.10 cents 2.10 cents 2.23 cents August 2.2 cents 2.10 cents 2.10 cents 2.23 cents September 2.2 cents 2.11 cents 2.12 cents 2.23 cents October 2.0 cents 1.91 cents 1.92 cents 2.03 cents November 2.0 cents 1.91 cents 1.92 cents 2.03 cents December 2.0 cents 1.91 cents 1.91 cents 2.02 cents January 2.0 cents 1.91 cents 1.91 cents 2.02 cents February 2.0 cents 1.91 cents 1.91 cents 2.02 cents March 2.0 cents 1.91 cents 1.91 cents 2.02 cents April 2.0 cents 1.91 cents 1.91 cents 2.03 cents May 2.0 cents 1.91 cents 1.91 cents 2.02 cents -------------------------------------------------------------------------------- TOTAL 24.80 CENTS 23.69 CENTS 23.72 CENTS 25.11 CENTS
prices coupled with modest, positive economic growth should create a favorable environment for high yield bonds over the near to intermediate term. In addition, we believe that high yield valuations are very attractive, especially given the shift in issuance trends taking place in the asset class. We believe the recent rise in high yield interest rate spreads is largely a function of the current default cycle, resulting in part from a large spike in new issuance brought to market in 1997 and 1998. Since then, new issuance trends have been more favorable as less supply has been brought to market and the quality of new issues has improved. Because default rates, on average, tend to peak roughly three years after issuance, 8 we believe we are most of the way through the current cycle. Additionally, the higher quality of new issuance bodes well for the asset class going forward. The closing market spread of 7.9% remains far wide of 5- and 10-year historical average spreads of 5.6% and 5.3%, and we believe this represents compelling value. Consequently, we believe the asset class will offer attractive investment opportunities for the Fund in the coming months. 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, 2001, 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. 9 PERFORMANCE SUMMARY AS OF 5/31/01 Distributions and returns 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. All total returns include reinvested distributions at net asset value. CLASS A: Subject to the current, maximum 4.25% initial sales charge. Prior to 7/1/94, Fund shares were offered at a lower initial sales charge; thus actual total returns may differ. Effective 5/1/94, the Fund 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. PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 5/31/01 5/31/00 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.21 $2.09 $2.30 DISTRIBUTIONS (6/1/00 - 5/31/01) Dividend Income $0.2480
CLASS B CHANGE 5/31/01 5/31/00 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.22 $2.08 $2.30 DISTRIBUTIONS (6/1/00 - 5/31/01) Dividend Income $0.2369
CLASS C CHANGE 5/31/01 5/31/00 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.22 $2.09 $2.31 DISTRIBUTIONS (6/1/00 - 5/31/01) Dividend Income $0.2372
ADVISOR CLASS CHANGE 5/31/01 5/31/00 -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.21 $2.09 $2.30 DISTRIBUTIONS (6/1/00 - 5/31/01) Dividend Income $0.2511
10 PERFORMANCE
CLASS A 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return(1) +1.73% +22.92% +139.15% Average Annual Total Return(2) -2.51% +3.34% +8.62% Value of $10,000 Investment(3) $9,749 $11,785 $22,855 Avg. Ann. Total Return (6/30/01)(4) -7.78% +2.71% +7.96% Distribution Rate(5) 11.01% 30-Day Standardized Yield(6) 10.36%
INCEPTION CLASS B 1-YEAR (1/1/99) ------------------------------------------------------------------------------------------------------------------------------------ Cumulative Total Return(1) +0.73% -3.57% Average Annual Total Return(2) -2.88% -2.46% Value of $10,000 Investment(3) $9,712 $9,417 Avg. Ann. Total Return (6/30/01)(4) -7.74% -3.34% Distribution Rate(5) 11.02% 30-Day Standardized Yield(6) 10.36%
INCEPTION CLASS C 1-YEAR 5-YEAR (5/16/95) ------------------------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +0.75% +19.53% +32.03% Average Annual Total Return(2) -1.01% +3.41% +4.52% Value of $10,000 Investment(3) $9,899 $11,826 $13,061 Avg. Ann. Total Return (6/30/01)(4) -5.94% +2.89% +4.03% Distribution Rate(5) 10.86% 30-Day Standardized Yield(6) 10.25%
ADVISOR CLASS(7) 1-YEAR 5-YEAR 10-YEAR -------------------------------------------------------------------------------- Cumulative Total Return(1) +1.86% +24.02% +141.31% Average Annual Total Return(2) +1.86% +4.40% +9.21% Value of $10,000 Investment(3) $10,186 $12,402 $24,131 Avg. Ann. Total Return (6/30/01)(4) -3.71% +3.77% +8.54% Distribution Rate(5) 11.60% 30-Day Standardized Yield(6) 11.00%
For updated performance figures, see "Prices and Performance" at franklintempleton.com, or call Franklin Templeton Investments at 1-800/342-5236. Past performance does not guarantee future results. 1. Cumulative total return represents the change in value of an investment over the periods indicated and does not include sales charges. 2. Average annual total return represents the average annual change in value of an investment over the periods indicated and includes the current, applicable, maximum sales charge(s) for that class. 3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated and include the current, applicable, maximum sales charge(s) for that class. 4. In accordance with SEC rules, we provide standardized average annual total return information through the latest calendar quarter. 5. Distribution rate is based on an annualization of the respective class's May dividend and the maximum offering price (NAV for Class B and Advisor Class) per share on 5/31/01. 6. Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 5/31/01. 7. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not have sales charges or Rule 12b-1 plans. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 1/2/97, 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 1/1/97, an actual Advisor Class figure is used reflecting a deduction of all charges and fees applicable to that class. Since 1/2/97 (commencement of sales), the cumulative and average annual total returns of Advisor Class shares were +12.55% and +2.72%. -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 11 AVERAGE ANNUAL TOTAL RETURN
CLASS A 5/31/01 -------------------------------------------------------------------------------- 1-Year -2.51% 5-Year +3.34% 10-Year +8.62%
AVERAGE ANNUAL TOTAL RETURN
CLASS B 5/31/01 -------------------------------------------------------------------------------- 1-Year -2.88% Since Inception (1/1/99) -2.46%
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 includes reinvested dividends. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index. This graph compares the performance of Franklin's AGE High Income Fund - Class A as tracked by the growth in value of a $10,000 investment, to that of the CS First Boston High Yield Index(8) from 6/1/91-5/31/01. [CLASS A PERFORMANCE GRAPH]
Franklin's AGE High Income Fund - CS First Boston High Yield Class A Index ------- ----- 06/01/1991 $ 9,556 $10,000 06/30/1991 $ 9,865 2.62% $10,262 07/31/1991 $10,178 3.38% $10,609 08/31/1991 $10,453 1.82% $10,802 09/30/1991 $10,645 2.27% $11,047 10/31/1991 $11,010 3.31% $11,413 11/30/1991 $11,078 0.80% $11,504 12/31/1991 $11,191 0.73% $11,588 01/31/1992 $11,567 4.07% $12,060 02/29/1992 $11,815 2.43% $12,353 03/31/1992 $12,046 1.49% $12,537 04/30/1992 $12,145 0.09% $12,548 05/31/1992 $12,336 1.36% $12,719 06/30/1992 $12,391 0.99% $12,845 07/31/1992 $12,630 1.54% $13,042 08/31/1992 $12,825 1.38% $13,222 09/30/1992 $12,974 0.65% $13,308 10/31/1992 $12,748 -1.04% $13,170 11/30/1992 $12,900 1.50% $13,368 12/31/1992 $13,053 1.13% $13,519 01/31/1993 $13,353 2.73% $13,888 02/28/1993 $13,558 1.98% $14,163 03/31/1993 $13,764 2.11% $14,461 04/30/1993 $13,873 0.57% $14,544 05/31/1993 $14,033 1.46% $14,756 06/30/1993 $14,345 1.81% $15,023 07/31/1993 $14,507 1.04% $15,180 08/31/1993 $14,568 0.85% $15,309 09/30/1993 $14,630 0.57% $15,396 10/31/1993 $15,055 1.83% $15,678 11/30/1993 $15,118 1.26% $15,875 12/31/1993 $15,355 1.26% $16,075 01/31/1994 $15,684 1.78% $16,361 02/28/1994 $15,534 0.15% $16,386 03/31/1994 $14,844 -2.94% $15,904 04/30/1994 $14,747 -1.34% $15,691 05/31/1994 $14,813 0.57% $15,780 06/30/1994 $14,824 -0.67% $15,675 07/31/1994 $14,891 0.47% $15,748 08/31/1994 $15,015 0.72% $15,862 09/30/1994 $15,083 0.40% $15,925 10/31/1994 $15,151 0.07% $15,936 11/30/1994 $14,990 -1.16% $15,752 12/31/1994 $15,118 1.06% $15,918 01/31/1995 $15,247 1.05% $16,086 02/28/1995 $15,850 2.46% $16,481 03/31/1995 $15,981 1.13% $16,668 04/30/1995 $16,413 2.22% $17,038 05/31/1995 $16,789 2.82% $17,518 06/30/1995 $16,924 0.66% $17,634 07/31/1995 $17,244 1.55% $17,907 08/31/1995 $17,319 0.28% $17,957 09/30/1995 $17,457 1.15% $18,164 10/31/1995 $17,595 1.11% $18,365 11/30/1995 $17,671 0.47% $18,452 12/31/1995 $17,940 1.27% $18,686 01/31/1996 $18,276 1.90% $19,041 02/29/1996 $18,419 0.53% $19,142 03/31/1996 $18,301 -0.27% $19,090 04/30/1996 $18,381 0.54% $19,193 05/31/1996 $18,594 0.81% $19,349 06/30/1996 $18,608 0.22% $19,391 07/31/1996 $18,757 0.90% $19,566 08/31/1996 $19,111 1.09% $19,779 09/30/1996 $19,537 1.72% $20,119 10/31/1996 $19,690 0.84% $20,288 11/30/1996 $20,123 1.56% $20,605 12/31/1996 $20,489 1.95% $21,007 01/31/1997 $20,645 0.73% $21,160 02/28/1997 $21,017 1.88% $21,558 03/31/1997 $20,527 -1.12% $21,316 04/30/1997 $20,760 0.89% $21,506 05/31/1997 $21,213 2.01% $21,938 06/30/1997 $21,596 1.36% $22,237 07/31/1997 $22,205 2.12% $22,708 08/31/1997 $22,221 0.54% $22,831 09/30/1997 $22,612 1.98% $23,283 10/31/1997 $22,476 -0.01% $23,280 11/30/1997 $22,796 0.71% $23,446 12/31/1997 $22,966 0.91% $23,659 01/31/1998 $23,213 1.70% $24,061 02/28/1998 $23,464 0.78% $24,249 03/31/1998 $23,716 0.50% $24,370 04/30/1998 $23,811 0.75% $24,553 05/31/1998 $23,827 0.30% $24,627 06/30/1998 $23,844 0.21% $24,678 07/31/1998 $24,022 0.70% $24,851 08/31/1998 $22,240 -6.79% $23,164 09/30/1998 $22,340 -0.01% $23,161 10/31/1998 $21,941 -1.99% $22,700 11/30/1998 $23,382 5.07% $23,851 12/31/1998 $23,314 -0.23% $23,796 01/31/1999 $23,671 0.94% $24,020 02/28/1999 $23,430 -0.21% $23,970 03/31/1999 $23,707 0.91% $24,188 04/30/1999 $24,160 2.21% $24,722 05/31/1999 $23,650 -1.08% $24,455 06/30/1999 $23,668 0.05% $24,468 07/31/1999 $23,686 0.05% $24,480 08/31/1999 $23,254 -0.89% $24,262 09/30/1999 $22,999 -0.77% $24,075 10/31/1999 $22,927 -0.49% $23,957 11/30/1999 $23,408 1.36% $24,283 12/31/1999 $23,427 1.21% $24,577 01/31/2000 $23,165 -0.40% $24,479 02/29/2000 $23,280 0.62% $24,630 03/31/2000 $22,818 -1.50% $24,261 04/30/2000 $22,837 -0.15% $24,224 05/31/2000 -1.63% $22,466 -1.60% $23,837 06/30/2000 $23,077 2.24% $24,371 07/31/2000 $23,197 0.94% $24,600 08/31/2000 $23,418 0.67% $24,765 09/30/2000 $23,032 -0.92% $24,537 10/31/2000 $22,315 -3.11% $23,774 11/30/2000 $21,282 -3.94% $22,837 12/31/2000 $21,700 2.01% $23,296 01/31/2001 $23,174 5.99% $24,692 02/28/2001 $23,386 1.01% $24,942 03/31/2001 $22,742 -1.99% $24,446 04/30/2001 $22,418 -1.04% $24,193 05/31/2001 $22,855 2.00% $24,677 Total Return 128.55% 146.77%
This graph compares the performance of Franklin's AGE High Income Fund - Class B as tracked by the growth in value of a $10,000 investment, to that of the CS First Boston High Yield Index(8) from 1/1/99-5/31/01. [CLASS B PERFORMANCE GRAPH]
Franklin's AGE High Income Fund - CS First Boston High Class B 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 -1.50% $10,195 04/30/2000 $9,736 -0.15% $10,180 05/31/2000 $9,573 -1.60% $10,017 06/30/2000 $9,829 2.24% $10,241 07/31/2000 $9,876 0.94% $10,338 08/31/2000 $9,965 0.67% $10,407 09/30/2000 $9,797 -0.92% $10,311 10/31/2000 $9,445 -3.11% $9,990 11/30/2000 $9,002 -3.94% $9,597 12/31/2000 $9,175 2.01% $9,790 01/31/2001 $9,841 5.99% $10,376 02/28/2001 $9,927 1.01% $10,481 03/31/2001 $9,650 -1.99% $10,273 04/30/2001 $9,463 -1.04% $10,167 05/31/2001 $9,417 2.00% $10,370 Total Return -5.83% 3.70%
This graph compares the performance of Franklin's AGE High Income Fund - Class C as tracked by the growth in value of a $10,000 investment, to that of the CS First Boston High Yield Index(8) from 5/16/95-5/31/01. 12 [PERFORMANCE GRAPH FOR CLASS C]
Franklin's AGE High Income Fund - CS First Boston High Yield Class C 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 -1.50% $14,038 04/30/2000 $13,184 -0.15% $14,017 05/31/2000 $12,964 -1.60% $13,793 06/30/2000 $13,310 2.24% $14,102 07/31/2000 $13,372 0.94% $14,234 08/31/2000 $13,493 0.67% $14,330 09/30/2000 $13,268 -0.92% $14,198 10/31/2000 $12,793 -3.11% $13,756 11/30/2000 $12,196 -3.94% $13,214 12/31/2000 $12,430 2.01% $13,480 01/31/2001 $13,328 5.99% $14,288 02/28/2001 $13,444 1.01% $14,432 03/31/2001 $13,070 -1.99% $14,145 04/30/2001 $12,817 -1.04% $13,999 05/31/2001 $13,061 2.00% $14,279 Total Return 30.61% 42.79%
This graph compares the performance of Franklin's AGE High Income Fund - Advisor Class as tracked by the growth in value of a $10,000 investment, to that of the CS First Boston High Yield Index(8) from 6/1/91-5/31/01. [PERFORMANCE GRAPH FOR ADVISOR CLASS]
Franklin's AGE High Income Fund - Advisor CS First Boston High Class Yield Index ----- ----------- 06/01/1991 $10,000 $10,000 06/30/1991 $10,323 2.62% $10,262 07/31/1991 $10,650 3.38% $10,609 08/31/1991 $10,938 1.82% $10,802 09/30/1991 $11,140 2.27% $11,047 10/31/1991 $11,521 3.31% $11,413 11/30/1991 $11,593 0.80% $11,504 12/31/1991 $11,711 0.73% $11,588 01/31/1992 $12,104 4.07% $12,060 02/29/1992 $12,363 2.43% $12,353 03/31/1992 $12,606 1.49% $12,537 04/30/1992 $12,709 0.09% $12,548 05/31/1992 $12,908 1.36% $12,719 06/30/1992 $12,966 0.99% $12,845 07/31/1992 $13,216 1.54% $13,042 08/31/1992 $13,420 1.38% $13,222 09/30/1992 $13,577 0.65% $13,308 10/31/1992 $13,340 -1.04% $13,170 11/30/1992 $13,499 1.50% $13,368 12/31/1992 $13,659 1.13% $13,519 01/31/1993 $13,973 2.73% $13,888 02/28/1993 $14,187 1.98% $14,163 03/31/1993 $14,403 2.11% $14,461 04/30/1993 $14,517 0.57% $14,544 05/31/1993 $14,684 1.46% $14,756 06/30/1993 $15,010 1.81% $15,023 07/31/1993 $15,180 1.04% $15,180 08/31/1993 $15,244 0.85% $15,309 09/30/1993 $15,309 0.57% $15,396 10/31/1993 $15,754 1.83% $15,678 11/30/1993 $15,819 1.26% $15,875 12/31/1993 $16,068 1.26% $16,075 01/31/1994 $16,412 1.78% $16,361 02/28/1994 $16,255 0.15% $16,386 03/31/1994 $15,533 -2.94% $15,904 04/30/1994 $15,432 -1.34% $15,691 05/31/1994 $15,500 0.57% $15,780 06/30/1994 $15,512 -0.67% $15,675 07/31/1994 $15,582 0.47% $15,748 08/31/1994 $15,712 0.72% $15,862 09/30/1994 $15,783 0.40% $15,925 10/31/1994 $15,854 0.07% $15,936 11/30/1994 $15,685 -1.16% $15,752 12/31/1994 $15,820 1.06% $15,918 01/31/1995 $15,955 1.05% $16,086 02/28/1995 $16,585 2.46% $16,481 03/31/1995 $16,722 1.13% $16,668 04/30/1995 $17,175 2.22% $17,038 05/31/1995 $17,568 2.82% $17,518 06/30/1995 $17,709 0.66% $17,634 07/31/1995 $18,044 1.55% $17,907 08/31/1995 $18,123 0.28% $17,957 09/30/1995 $18,267 1.15% $18,164 10/31/1995 $18,412 1.11% $18,365 11/30/1995 $18,492 0.47% $18,452 12/31/1995 $18,773 1.27% $18,686 01/31/1996 $19,124 1.90% $19,041 02/29/1996 $19,274 0.53% $19,142 03/31/1996 $19,151 -0.27% $19,090 04/30/1996 $19,234 0.54% $19,193 05/31/1996 $19,457 0.81% $19,349 06/30/1996 $19,471 0.22% $19,391 07/31/1996 $19,627 0.90% $19,566 08/31/1996 $19,998 1.09% $19,779 09/30/1996 $20,444 1.72% $20,119 10/31/1996 $20,604 0.84% $20,288 11/30/1996 $21,057 1.56% $20,605 12/31/1996 $21,440 1.95% $21,007 01/31/1997 1.11% $21,678 0.73% $21,160 02/28/1997 1.81% $22,070 1.88% $21,558 03/31/1997 -2.32% $21,558 -1.12% $21,316 04/30/1997 1.14% $21,804 0.89% $21,506 05/31/1997 2.19% $22,282 2.01% $21,938 06/30/1997 1.82% $22,687 1.36% $22,237 07/31/1997 2.83% $23,329 2.12% $22,708 08/31/1997 0.08% $23,348 0.54% $22,831 09/30/1997 1.77% $23,761 1.98% $23,283 10/31/1997 -0.26% $23,699 -0.01% $23,280 11/30/1997 1.10% $23,960 0.71% $23,446 12/31/1997 0.75% $24,140 0.91% $23,659 01/31/1998 1.09% $24,403 1.70% $24,061 02/28/1998 1.09% $24,669 0.78% $24,249 03/31/1998 1.09% $24,938 0.50% $24,370 04/30/1998 0.41% $25,040 0.75% $24,553 05/31/1998 0.08% $25,060 0.30% $24,627 06/30/1998 0.08% $25,080 0.21% $24,678 07/31/1998 0.76% $25,271 0.70% $24,851 08/31/1998 -7.41% $23,398 -6.79% $23,164 09/30/1998 0.46% $23,506 -0.01% $23,161 10/31/1998 -1.77% $23,090 -1.99% $22,700 11/30/1998 6.58% $24,609 5.07% $23,851 12/31/1998 -0.28% $24,540 -0.23% $23,796 01/31/1999 1.54% $24,918 0.94% $24,020 02/28/1999 -0.65% $24,756 -0.21% $23,970 03/31/1999 0.82% $24,959 0.91% $24,188 04/30/1999 1.92% $25,438 2.21% $24,722 05/31/1999 -2.10% $24,904 -1.08% $24,455 06/30/1999 0.09% $24,926 0.05% $24,468 07/31/1999 0.08% $24,946 0.05% $24,480 08/31/1999 -1.81% $24,495 -0.89% $24,262 09/30/1999 -1.08% $24,230 -0.77% $24,075 10/31/1999 -0.30% $24,158 -0.49% $23,957 11/30/1999 2.11% $24,667 1.36% $24,283 12/31/1999 0.09% $24,690 1.21% $24,577 01/31/2000 -1.11% $24,415 -0.40% $24,479 02/29/2000 0.91% $24,638 0.62% $24,630 03/31/2000 -2.37% $24,054 -1.50% $24,261 04/30/2000 0.10% $24,078 -0.15% $24,224 05/31/2000 -1.62% $23,688 -1.60% $23,837 06/30/2000 2.73% $24,334 2.24% $24,371 07/31/2000 0.53% $24,463 0.94% $24,600 08/31/2000 0.97% $24,701 0.67% $24,765 09/30/2000 -1.63% $24,298 -0.92% $24,537 10/31/2000 -3.10% $23,545 -3.11% $23,774 11/30/2000 -4.62% $22,457 -3.94% $22,837 12/31/2000 1.98% $22,902 2.01% $23,296 01/31/2001 6.80% $24,459 5.99% $24,692 02/28/2001 1.38% $24,797 1.01% $24,942 03/31/2001 -3.19% $24,006 -1.99% $24,446 04/30/2001 -1.41% $23,667 -1.04% $24,193 05/31/2001 1.96% $24,131 2.00% $24,677 Total Return 141.31% 146.77%
8. Source: Credit Suisse First Boston. The CSFB High Yield Index is an unmanaged, trader-priced portfolio constructed to mirror the high yield debt market. 9. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not have sales charges or Rule 12b-1 plans. Performance quotations for this class reflect the following methods of calculation: (a) For periods prior to 1/2/97, 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 1/1/97, 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.
AVERAGE ANNUAL TOTAL RETURN CLASS C 5/31/01 -------------------------------------------------------------------------------- 1-Year -1.01% 5-Year +3.41% Since Inception (5/16/95) +4.52%
AVERAGE ANNUAL TOTAL RETURN ADVISOR CLASS(9) 5/31/01 -------------------------------------------------------------------------------- 1-Year +1.86% 5-Year +4.40% 10-Year +9.21%
13 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights
CLASS A -------------------------------------------------------------------------- YEAR ENDED MAY 31, -------------------------------------------------------------------------- 2001 2000 1999 1998 1997 -------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year $ 2.30 $ 2.69 $ 2.98 $ 2.90 $ 2.79 -------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .23 .26 .26 .26 .26 Net realized and unrealized gains (losses) (.19) (.39) (.29) .08 .11 -------------------------------------------------------------------------- Total from investment operations .04 (.13) (.03) .34 .37 -------------------------------------------------------------------------- Less distributions from net investment income (.25) (.26) (.26) (.26) (.26) -------------------------------------------------------------------------- Net asset value, end of year $ 2.09 $ 2.30 $ 2.69 $ 2.98 $ 2.90 ========================================================================== Total return(b) 1.73% (5.01%) (.74%) 12.32% 14.09% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) $ 2,222,713 $ 2,442,432 $ 3,108,809 $ 3,236,134 $ 2,638,914 Ratios to average net assets: Expenses .76% .74% .72% .70% .71% Net investment income 10.30% 10.28% 9.40% 9.04% 9.31% Portfolio turnover rate 21.37% 18.79% 27.55% 29.69% 20.01%
(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. 14 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS B ----------------------------------------------- YEAR ENDED MAY 31, ----------------------------------------------- 2001 2000 1999(c) ----------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year $ 2.30 $ 2.68 $ 2.76 ----------------------------------------------- Income from investment operations: Net investment income(a) .21 .24 .11 Net realized and unrealized losses (.19) (.37) (.08) ----------------------------------------------- Total from investment operations .02 (.13) .03 ----------------------------------------------- Less distributions from net investment income (.24) (.25) (.11) ----------------------------------------------- Net asset value, end of year $ 2.08 $ 2.30 $ 2.68 =============================================== Total return(b) .73% (5.49%) 1.29% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) $ 119,496 $ 69,565 $ 26,095 Ratios to average net assets: Expenses 1.27% 1.25% 1.24%(d) Net investment income 9.79% 9.85% 8.41%(d) Portfolio turnover rate 21.37% 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 15 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS C ------------------------------------------------------------ YEAR ENDED MAY 31, ------------------------------------------------------------ 2001 2000 1999 1998 1997 ------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year $ 2.31 $ 2.69 $ 2.98 $ 2.90 $ 2.79 ------------------------------------------------------------ Income from investment operations: Net investment income(a) .22 .25 .25 .25 .25 Net realized and unrealized gains (losses) (.20) (.38) (.29) .08 .11 ------------------------------------------------------------ Total from investment operations .02 (.13) (.04) .33 .36 ------------------------------------------------------------ Less distributions from net investment income (.24) (.25) (.25) (.25) (.25) ------------------------------------------------------------ Net asset value, end of year $ 2.09 $ 2.31 $ 2.69 $ 2.98 $ 2.90 ============================================================ Total return(b) .75% (5.46%) (.93%) 11.69% 13.41% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) $172,959 $367,151 $487,196 $394,612 $151,073 Ratios to average net assets: Expenses 1.27% 1.25% 1.24% 1.23% 1.25% Net investment income 9.79% 9.76% 8.89% 8.51% 8.75% Portfolio turnover rate 21.37% 18.79% 27.55% 29.69% 20.01%
(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. 16 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
ADVISOR CLASS ------------------------------------------------------------ YEAR ENDED MAY 31, ------------------------------------------------------------ 2001 2000 1999 1998 1997(c) ------------------------------------------------------------ PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year.............. $ 2.30 $ 2.69 $ 2.98 $ 2.90 $ 2.90 ------------------------------------------------------------ Income from investment operations: Net investment income(a)....................... .23 .26 .27 .27 .12 Net realized and unrealized gains (losses)..... (.19) (.38) (.29) .08 (.01) ------------------------------------------------------------ Total from investment operations................ .04 (.12) (.02) .35 .11 ------------------------------------------------------------ Less distributions from net investment income... (.25) (.27) (.27) (.27) (.11) ------------------------------------------------------------ Net asset value, end of year.................... $ 2.09 $ 2.30 $ 2.69 $ 2.98 $ 2.90 ============================================================ Total return(b)................................. 1.86% (4.88%) (.61%) 12.46% 3.94% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's)................. $ 22,041 $ 17,234 $ 39,354 $ 28,026 $ 6,224 Ratios to average net assets: Expenses....................................... .62% .60% .59% .58% .61%(d) Net investment income.......................... 10.43% 10.29% 9.52% 9.17% 9.25%(d) Portfolio turnover rate......................... 21.37% 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 for periods less than one year. (c) For the period January 2, 1997 (effective date) to May 31, 1997. (d) Annualized See notes to financial statements. 17 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE ------------------------------------------------------------------------------------------------------------------------------------ COMMON STOCKS, WARRANTS AND RIGHTS 2.7% (a) COMMUNICATIONS .4% ICO Global Communications Holdings Ltd. ................................... United States 2,105,368 $ 6,652,963 ICO Global Communications Holdings Ltd., wts., 5/16/06 .................... United States 787 846 ICO Global Communications Holdings Ltd., wts., 5/16/06 .................... United States 528,038 46,203 International Wireless Communications Holdings Inc. ....................... United States 1,759,743 1,055,846 Loral Orion Network Sys., wts., 1/15/07 ................................... United States 35,300 79,425 McCaw International Ltd., wts., 4/15/07 ................................... United States 28,500 577,125 Nextel Communications Inc., A ............................................. United States 128,674 2,048,490 Occidente Y Caribe Celular SA, 144A, wts., 3/15/04 ........................ Colombia 152,660 1,526,600 Poland Telecom Finance, 144A, wts., 12/01/07 .............................. Poland 30,000 30 ----------- 11,987,528 ----------- CONSUMER NON-DURABLES .4% R.J. Reynolds Tobacco Holdings Inc. ....................................... United States 170,000 10,111,600 ----------- (a) CONSUMER SERVICES Jack in the Box Inc. ...................................................... United States 24,090 617,909 ----------- (a) ENERGY MINERALS .2% Abraxas Petroleum Corp. ................................................... United States 2,211,842 3,659,923 McMoRan Exploration Co. ................................................... United States 25,937 343,665 ----------- 4,003,588 ----------- GOVERNMENT BONDS United Mexican States, rts., 6/30/03 ...................................... Mexico 3,000,000 40,500 ----------- (a) HEALTH SERVICES .6% Kindred Healthcare Inc. ................................................... United States 246,736 10,116,176 Kindred Healthcare Inc., wts., 4/20/06 .................................... United States 335,658 5,034,870 Kindred Healthcare Inc., wts., 4/20/06 .................................... United States 134,263 2,148,208 ----------- 17,299,254 ----------- INDUSTRIAL SERVICES .3% Transocean Sedco Forex Inc., 144A, wts., 5/01/09 .......................... United States 11,750 7,122,850 ----------- (a) NON-ENERGY MINERALS Gulf States Steel Inc., wts., 4/15/03 ..................................... United States 27,800 28 ----------- PROCESS INDUSTRIES .7% (a) Darling International Inc. ................................................ United States 504,447 277,446 (a) Gaylord Container Corp., wts., 11/01/02 ................................... United States 232,762 290,953 (a,d)Purina Mills Inc. ......................................................... United States 837,578 16,374,650 Walter Industries Inc. .................................................... United States 189,505 2,160,357 ----------- 19,103,406 ----------- (a) PRODUCER MANUFACTURING Goss Holdings Inc., B ..................................................... United States 211,174 2,112 (d) Harvard Industries Inc. ................................................... United States 793,966 635,173 ----------- 637,285 -----------
18 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE COMMON STOCKS, WARRANTS AND RIGHTS (CONT.) ----------------------------------------------------------------------------------------------------------------------------------- (a) RETAIL TRADE .1% Penn Traffic Co. .......................................................... United States 389,598 $ 2,283,044 ----------- TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $158,056,928) 73,206,992 ----------- PREFERRED STOCKS 1.9% (c) Asia Pulp & Paper Co. Ltd., 12.00%, pfd. .................................. Indonesia 24,700 370,500 Fresenius Medical Care Capital Trust, 7.875%, pfd. ........................ United States 24,000 23,730,000 Fresenius Medical Care Capital Trust, 9.00%, pfd. ......................... United States 13,100 13,476,625 Sinclair Capital, 11.625%, pfd. ........................................... United States 147,000 13,726,125 ----------- TOTAL PREFERRED STOCKS (COST $76,500,000) 51,303,250 ----------- CONVERTIBLE PREFERRED STOCKS .8% UTILITIES .8% CMS Energy Trust I, 7.75%, cvt. pfd. (COST $26,500,000) ..................... United States 530,000 22,150,290 ----------- PARTNERSHIP UNITS (a) PROCESS INDUSTRIES Phosphate Resource Partners LP (COST $1,834,970) ............................ United States 415,000 1,265,750 ----------- PRINCIPAL AMOUNT* BONDS 89.0% ---------- COMMERCIAL SERVICES 2.0% (c) AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ............ United States $ 16,150,000 222,063 (c) AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 ....... United States 14,210,000 195,388 Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 ................. United Kingdom 9,400,000 7,308,500 Iron Mountain Inc., senior sub. note, 8.75%, 9/30/09 ........................ United States 16,650,000 17,066,250 Iron Mountain Inc., senior sub. note, 8.25%, 7/01/11 ........................ United States 7,500,000 7,518,750 Lamar Advertising Co., senior sub. note, 9.625%, 12/01/06 ................... United States 20,000,000 20,950,000 ----------- 53,260,951 ----------- COMMUNICATIONS 22.1% Allegiance Telecom Inc., senior disc. note, B, zero cpn. to 2/15/03, 11.75% thereafter, 2/15/08 ........................................................ United States 22,000,000 13,750,000 Allegiance Telecom Inc., senior note, 12.875%, 5/15/08 ...................... United States 20,500,000 19,065,000 American Cellular Corp., senior note, 144A, 9.50%, 10/15/09 ................. United States 9,700,000 9,530,250 American Cellular Corp., senior sub. note, 144A, 9.50%, 10/15/09 ............ United States 18,700,000 18,466,250 American Tower Corp., senior note, 144A, 9.375%, 2/01/09 .................... United States 20,000,000 19,750,000 Arch Escrow Corp., senior note, 13.75%, 4/15/08 ............................. United States 14,500,000 3,117,500 Asia Global Crossing Ltd., 13.375%, 10/15/10 ................................ Bermuda 21,000,000 20,580,000 AT&T Wireless Group, senior note, 144A, 7.875%, 3/01/11 ..................... United States 27,000,000 27,292,356 Call-Net Enterprises Inc., senior disc. note, zero cpn. to 5/15/04, 10.80% thereafter, 5/15/09 ........................................................ Canada 29,500,000 5,457,500 Clearnet Communications Inc., senior disc. note, zero cpn. to 5/01/04, 10.125% thereafter, 5/01/09 ................................................ Canada 48,250,000 42,460,000 Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ................................................. United States 51,000,000 36,975,000
19 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ---------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMUNICATIONS (CONT.) Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 ............. United States $34,250,000 $ 35,620,000 Global Crossing Holdings Ltd., senior note, 9.50%, 11/15/09 ................. Bermuda 20,000,000 18,200,000 cIntelCom Group Inc., senior secured disc. note, zero cpn. to 5/01/01, 12.50% thereafter, 5/01/06 ........................................................ United States 32,500,000 3,575,000 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 ........................................................ United States 37,500,000 33,375,000 Intermedia Communications Inc., senior note, 9.50%, 3/01/09 ................. United States 10,000,000 9,975,000 cIridium LLC/CAP, senior note, D, 10.875%, 7/15/05 ........................... Bermuda 17,000,000 765,000 Level 3 Communications Inc., senior disc. note, zero cpn. to 12/01/03, 10.50% thereafter 2/01/08 ......................................................... United States 38,000,000 15,390,000 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 12,178,500 McLeodUSA Inc., senior disc. note, zero cpn. to 3/01/02, 10.50% thereafter, 3/01/07 United States 10,000,000 6,500,000 McLeodUSA Inc., senior note, 9.50%, 11/01/08 ................................ United States 16,000,000 10,960,000 McLeodUSA Inc., senior note, 11.375%, 1/01/09 ............................... United States 6,000,000 4,530,000 cMetrocall Inc., senior sub. note, 9.75%, 11/01/07 ........................... United States 31,000,000 1,705,000 cMetrocall Inc., senior sub. note, 11.00%, 9/15/08 ........................... United States 10,000,000 550,000 Millicom International Cellular SA, senior disc. note, zero cpn. to 6/01/01, 13.50% thereafter, 6/01/06 ........................................................ Luxembourg 32,300,000 29,877,500 Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02, 9.75% thereafter, 10/31/07 ....................................................... United States 35,500,000 24,228,750 Nextel Communications, senior note, 144A, 9.50%, 2/01/11 .................... United States 5,000,000 4,050,000 Nextel International Inc., senior disc. note, zero cpn. to 4/15/03, 12.125% thereafter, 4/15/08 ........................................................ United States 20,000,000 7,300,000 Nextel International Inc., senior note, 12.75%, 8/01/10 ..................... United States 25,200,000 12,726,000 Nextel Partners Inc., senior disc. note, zero cpn. to 2/01/04, 14.00% thereafter, 2/01/09 ........................................................ United States 15,600,000 9,711,000 Nextel Partners Inc., senior note, 11.00%, 3/15/10 .......................... United States 7,300,000 6,296,250 Nextel Partners Inc., senior note, 11.00%, 3/15/10 .......................... United States 5,300,000 4,571,250 cPoland Telecom Finance, B, 14.00%, 12/01/07 ................................. Poland 30,000,000 450,000 cRSL Communications PLC, senior disc. note, zero cpn. to 3/01/03, 10.125% thereafter, 3/01/08 ........................................................ United Kingdom 44,500,000 723,125 cRSL Communications PLC, senior note, 12.00%, 11/01/08 ....................... United Kingdom 6,250,000 148,438 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04, 11.25% thereafter, 4/15/09 ........................................................ United States 20,500,000 10,147,500 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 3/15/05, 12.875% thereafter, 3/15/10 ........................................................ United States 35,000,000 16,275,000 Time Warner Telecom Inc., senior note, 10.125%, 2/01/11 ..................... United States 6,000,000 5,895,000 Triton PCS Inc., senior sub note, 144A, 9.375%, 2/01/11 ..................... United States 11,900,000 11,870,250 Triton PCS Inc., sub. disc. note, zero cpn. to 5/01/03, 11.00% thereafter, 5/01/08 United States 25,000,000 20,593,750 VoiceStream Wireless Corp., senior disc. note, zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 ....................................................... United States 29,750,000 24,134,688 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 .......... United States 32,500,000 18,037,500 Williams Communications Group Inc., senior note, 144A, 11.875%, 8/01/10 ..... United States 10,300,000 5,742,250
20 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ---------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMUNICATIONS (CONT.) XO Communications Inc., senior disc. note, zero cpn. to 4/15/03, 9.45% thereafter, 4/15/08 ......................................................... United States $ 20,250,000 $ 5,366,250 XO Communications Inc., senior note, 9.625%, 10/01/07 ........................ United States 17,350,000 7,373,750 XO Communications Inc., senior note, 9.00%, 3/15/08 .......................... United States 18,150,000 7,169,250 ----------- 602,454,857 ----------- CONSUMER DURABLES 1.3% Dura Operating Corp., senior sub. note, B, 9.00%, 5/01/09 .................... United States 11,000,000 10,532,500 Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02, 10.875% thereafter, 12/15/07 ........................................................ United States 10,200,000 8,619,000 Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 .................... United States 6,800,000 6,868,000 Westpoint Stevens Inc., senior note, 7.875%, 6/15/08 ......................... United States 17,500,000 8,575,000 ----------- 34,594,500 ----------- CONSUMER NON-DURABLES 2.0% Agrilink Foods Inc., senior sub. note, 11.875%, 11/01/08 ..................... United States 17,000,000 15,385,000 Del Monte Corp., senior sub. note, 144A, 9.25%, 5/15/11 ...................... United States 4,400,000 4,521,000 Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ........................... United States 5,900,000 5,900,000 Playtex Products Inc., senior sub. note, 144A, 9.375%, 6/01/11 ............... United States 3,100,000 3,189,125 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ............ United States 42,000,000 22,470,000 cSpecialty Retailers Inc., senior note, B, 8.50%, 7/15/05 ..................... United States 7,250,000 1,413,750 cSpecialty Retailers Inc., senior sub. note, B, 9.00%, 7/15/07 ................ United States 5,000,000 25,000 cStyling Technology Corp., senior sub. note, 10.875%, 7/01/08 ................. United States 22,000,000 330,000 ----------- 53,333,875 CONSUMER SERVICES 23.2% Adelphia Communications Corp., senior note, 10.875%, 10/01/10 ................ United States 27,500,000 29,150,000 Advantica Restaurant Group Inc., senior note, 11.25%, 1/15/08 ................ United States 13,896,030 8,685,019 cAMF Bowling Worldwide Inc., senior disc. note, B, zero cpn. to 3/15/01, 12.25% thereafter, 3/15/06 ......................................................... United States 9,951,000 447,795 AMFM Inc., senior note, 8.00%, 11/01/08 ...................................... United States 23,500,000 24,381,250 AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ............................... United States 15,000,000 15,731,250 Ascent Entertainment Group Inc., senior disc. note, zero cpn. to 12/15/02, 11.875% thereafter, 12/15/04 ........................................................ United States 19,500,000 17,647,500 Aztar Corp., senior sub. note, 8.875%, 5/15/07 ............................... United States 19,000,000 19,332,500 Benedek Communications Corp., senior disc. note, zero cpn. to 5/15/01, 13.25% thereafter, 5/15/06 ......................................................... United States 24,500,000 14,087,500 Callahan Nordrhein-Westfalen, senior disc. note, 144A, zero cpn. to 7/15/05, 16.00% thereafter, 07/15/10, ....................................................... Germany 43,000,000 20,425,000 Canwest Media Inc., senior sub. note, 144A, 10.625%, 5/15/11 ................. Canada 15,600,000 16,009,500 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 1/15/06, 13.50% thereafter, 01/15/11 ................................................. United States 15,500,000 9,881,250 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ................................................... United States 44,000,000 30,910,000 Choctaw Resort Development Enterprise, senior note, 144A, 9.25%, 4/01/09 ..... United States 11,500,000 11,902,500 CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09 ...................... United States 19,500,000 11,407,500
21 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ......................... United States $ 20,000,000 $ 22,100,000 CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ......................... United States 5,000,000 5,337,500 Diamond Cable Communication Co., senior disc. note, zero cpn. to 2/15/02, 10.75% thereafter, 2/15/07 ......................................................... United Kingdom 7,850,000 5,338,000 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ........................... United Kingdom 10,600,000 7,791,000 EchoStar Broadband Corp., senior note, 10.375%, 10/01/07 ..................... United States 30,000,000 30,825,000 cFamily Restaurant Inc., senior note, 9.75%, 2/01/02 .......................... United States 10,850,000 1,342,688 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 ......................................................... United States 22,650,000 21,630,750 Granite Broadcasting Corp., senior sub. note, A, 10.375%, 5/15/05 ............ United States 6,494,000 4,253,570 Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 .............. United States 15,250,000 15,516,875 Hollinger International Publishing Inc., senior sub. note, 9.25%, 2/01/06 .... United States 6,400,000 6,592,000 Hollinger International Publishing Inc., senior sub. note, 9.25%, 3/15/07 .... United States 12,800,000 13,184,000 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ............ United States 30,200,000 30,804,000 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 ........................................................ United States 17,300,000 13,753,500 Mandalay Resort Group, senior note, 9.50%, 8/01/08 ........................... United States 5,900,000 6,283,500 Mandalay Resort Group, senior sub. note, 10.25%, 8/01/07 ..................... United States 14,600,000 15,585,500 NTL Inc., senior note, zero cpn. to 4/01/03, 9.75% thereafter, 4/01/08 ....... United States 50,000,000 26,125,000 Premier Parks Inc., senior disc. note, zero cpn. to 4/01/03, 10.00% thereafter, 4/01/08 ........................................................ United States 8,000,000 6,710,000 Premier Parks Inc., senior note, 9.25%, 4/01/06 .............................. United States 8,000,000 8,270,000 Premier Parks Inc., senior note, 9.75%, 6/15/07 .............................. United States 22,500,000 23,428,125 Prime Hospitality Corp., senior sub. note, B, 9.75%, 4/01/07 ................. United States 23,200,000 23,664,000 Protection One Alarm Monitoring Inc., senior sub. note, 144A, 8.125%, 1/15/09 United States 11,900,000 6,366,500 cRegal Cinemas Inc., senior sub. note, 9.50%, 6/01/08 ......................... United States 29,650,000 5,930,000 Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ............. United States 14,400,000 14,616,000 Station Casinos Inc., senior note, 144A, 8.375%, 2/15/08 ..................... United States 15,000,000 15,206,250 Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 ...................... United States 15,000,000 15,731,250 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 ......................................................... United Kingdom 14,750,000 8,149,375 Telewest Communications PLC, senior disc. note, zero cpn. to 2/01/05, 11.375% thereafter, 2/01/10 ......................................................... United Kingdom 28,000,000 15,400,000 Telewest Communications PLC, senior note, 11.25%, 11/01/08 ................... United Kingdom 4,000,000 4,020,000 United Pan-Europe Communications NV, senior disc. note, zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 .................................................. Netherlands 37,300,000 9,884,500 Young Broadcasting Inc., senior sub. note, 144A, 10.00%, 3/01/11 ............. United States 19,000,000 19,095,000 ------------ 632,932,447 ------------ ELECTRONIC TECHNOLOGY 3.6% Alliant Techsystems Inc., senior sub. note, 144A, 8.50%, 5/15/11 ............. United States 6,900,000 7,003,500 Amkor Technology Inc., senior note, 9.25%, 5/01/06 ........................... United States 30,000,000 28,950,000 Fairchild Semiconductor Corp., senior sub. note, 144A, 10.50%, 2/01/09 ....... United States 15,400,000 15,477,000 Flextronics International Ltd., senior sub. note, 9.875%, 7/01/10 ............ Singapore 5,300,000 5,366,250
22 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ---------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) ELECTRONIC TECHNOLOGY (CONT.) L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 ....... United States $ 5,400,000 $ 5,764,500 SCG Holding and Semiconductor Co., senior sub. note, 12.00%, 8/01/09 ....... United States 18,951,000 15,160,800 Telecommun Techniques Co., senior sub. note, 9.75%, 5/15/08 ................ United States 24,000,000 20,160,000 ------------ 97,882,050 ------------ ENERGY MINERALS 2.9% (c)AEI Resources Inc., senior sub. note, 144A, 11.50%, 12/15/06 ............... United States 20,000,000 4,100,000 Bellwether Exploration Co., senior sub. note, 10.875%, 4/01/07 ............. United States 5,000,000 5,125,000 Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 .............. Mexico 23,300,000 26,620,250 P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ................... United States 7,000,000 7,490,000 P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 .............. United States 33,000,000 35,310,000 ------------ 78,645,250 ------------ FINANCE 2.1% Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 ...................... United States 23,000,000 25,472,500 Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 ..................... United States 30,000,000 30,450,000 ------------ 55,922,500 ------------ HEALTH SERVICES 3.1% Alliance Imaging, senior sub. note, 144A, 10.375%, 4/15/11 ................. United States 9,000,000 9,315,000 Davita Inc., first mortgage, 9.25%, 4/15/11 ................................ United States 4,700,000 4,911,500 HCA-The Healthcare Co., 8.75%, 9/01/10 ..................................... United States 11,200,000 11,984,000 Iasis Healthcare Corp., senior sub. note, 144A, 13.00%, 10/15/09 ........... United States 20,000,000 20,100,000 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 ............ United States 20,000,000 19,050,000 Magellan Health Services Inc., senior sub. note, 144A, 9.375%, 11/15/07 .... United States 8,400,000 8,547,000 Triad Hospitals Inc., senior note, 144A, 8.75%, 5/01/09 .................... United States 11,900,000 12,271,875 ------------ 86,179,375 ------------ INDUSTRIAL SERVICES 4.8% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ........... United States 24,000,000 23,580,000 Allied Waste North America Inc., senior sub. note, B, 10.00%, 8/01/09 ...... United States 10,000,000 10,375,000 Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ......... United States 4,750,000 4,773,750 Great Lakes Dredge & Dock Corp., senior sub. note, 144A, 11.25%, 8/15/08 ... United States 3,800,000 3,819,000 Key Energy Services Inc., senior sub. note, 14.00%, 1/15/09 ................ United States 30,000,000 35,175,000 R & B Falcon Corp., senior note, 9.50%, 12/15/08 ........................... United States 7,400,000 8,597,771 (c)Safety Kleen Services, senior sub. note, 9.25%, 6/01/08 .................... United States 10,000,000 250,000 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 ....................................................... United States 31,800,000 28,620,000 URS Corp., senior sub. note, 12.25%, 5/01/09 ............................... United States 16,500,000 16,912,500 ------------ 132,103,021 ------------
23 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ------------------------------------------------------------------------------------------------------------------------------------ BONDS (CONT.) NON-ENERGY MINERALS .4% Century Aluminum Co., senior sub. note, 144A, 11.75%, 4/15/08 ................ United States 8,000,000 $ 8,600,000 Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 ................... United States 8,000,000 2,040,000 -------------- 10,640,000 -------------- PROCESS INDUSTRIES 7.2% Anchor Glass, first mortgage, 11.25%, 4/01/05 ................................ United States 23,700,000 18,604,500 Anchor Glass Container, senior note, 9.875%, 3/15/08 ......................... United States 17,300,000 8,736,500 Avecia Group PLC, senior note, 11.00%, 7/01/09 ............................... United Kingdom 33,000,000 35,145,000 Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 .................. United States 11,700,000 11,115,000 Climachem Inc., senior sub. note, B, 10.75%, 12/01/07 ........................ United States 7,500,000 2,887,500 Equistar Chemicals LP, senior note, 8.75%, 2/15/09 ........................... United States 20,000,000 19,570,000 FiberMark Inc., senior note, 144A, 10.75%, 4/15/11 ........................... United States 17,000,000 17,340,000 Four M Corp., senior note, B, 12.00%, 6/01/06 ................................ United States 7,400,000 7,307,500 Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75% thereafter, 1/15/09 ......................................................... United States 5,600,000 2,513,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 .................... United States 6,600,000 5,049,000 Huntsman ICI Chemicals LLC, senior disc. note, zero cpn., 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 9,337,500 Lyondell Chemical Co., senior sub. note, 10.875%, 5/01/09 .................... United States 2,400,000 2,472,000 PMD Group Inc., 144A, senior sub. note, 11.00%, 2/28/11 ...................... United States 4,800,000 4,968,000 (c)Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17 .................. Indonesia 30,900,000 3,785,250 (c)Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 ........ Indonesia 27,750,000 2,844,375 Radnor Holdings Inc., senior note, 10.00%, 12/01/03 .......................... United States 6,250,000 5,093,750 Terra Industries Inc., senior note, B, 10.50%, 6/15/05 ....................... United States 15,000,000 12,768,750 (c)Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 .................. Indonesia 11,000,000 1,787,500 -------------- 195,306,075 -------------- PRODUCER MANUFACTURING 4.4% Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 ............. United States 8,000,000 4,600,000 Airxcel Inc., senior sub. note, B, 11.00%, 11/15/07 .......................... United States 13,500,000 6,817,500 American Axle & Manufacturing Inc., senior sub. note, 9.75%, 3/01/09 ......... United States 20,000,000 20,300,000 (c)Cambridge Industries Inc., senior sub. note, B, 10.25%, 07/15/2007 ........... United States 4,700,000 587,500 Goss Graphic Systems Inc., senior sub. note, PIK, 12.25%, 11/19/05 ........... United States 9,053,899 769,581 Neenah Corp., senior sub. note, B, 11.125%, 5/01/07 .......................... United States 6,100,000 3,202,500 Neenah Corp., senior sub. note, F, 11.125%, 5/01/07 .......................... United States 6,100,000 3,202,500 Nortek Inc., senior note, 8.875%, 8/01/08 .................................... United States 8,000,000 7,760,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 ................................. United States 19,200,000 18,960,000 Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 ........................ United States 4,450,000 4,483,375 (c)Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ............ United States 20,850,000 286,688 Tenneco Automotive Inc., senior sub. note, 11.625%, 10/15/09 ................. United States 30,000,000 14,400,000 Terex Corp., senior sub. note, 8.875%, 4/01/08 ............................... United States 24,750,000 24,007,500 Terex Corp., senior sub. note, D, 8.875%, 4/01/08 ............................ United States 9,500,000 9,215,000 Thermadyne Holdings Corp., senior sub. note, 10.75%, 11/01/03 ................ United States 19,781,000 989,050 -------------- 119,581,194 --------------
24 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL COUNTRY AMOUNT* VALUE ---------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) REAL ESTATE 1.7% HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ................. United States $ 11,000,000 $ 10,752,500 Lodgian Finance Corp, senior sub. note, 12.25%, 7/15/09 ...................... United States 34,250,000 22,433,750 Meristar Hospitality Corp., senior note, 144A, 9.00%, 1/15/08 ................ United States 14,500,000 14,790,000 ------------ 47,976,250 ------------ RETAIL TRADE .1% Pueblo Xtra International, senior note, 9.50%, 8/01/03 ....................... United States 9,500,000 1,710,000 Pueblo Xtra International, senior note, C, 9.50%, 8/01/03 .................... United States 5,000,000 900,000 ------------ 2,610,000 ------------ TECHNOLOGY SERVICES .3% (c)Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 .......................... United States 28,200,000 5,076,000 PSINet Inc., senior note, 10.50%, 12/01/06 ................................... United States 11,500,000 1,150,000 PSINet Inc., senior note, 11.00%, 8/01/09 .................................... United States 27,250,000 2,725,000 ------------ 8,951,000 ------------ TRANSPORTATION 4.2% Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 ......................... Bermuda 19,000,000 19,285,000 GS Superhighway Holdings Ltd., senior note, 10.25%, 8/15/07 .................. China 35,000,000 32,375,000 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 29,750,000 United Air Lines Inc., S.F., pass-through equipment trust, B-2, 9.06%, 9/26/14 United States 20,422,000 19,869,000 ------------ 114,379,500 ------------ UTILITIES 3.6% Calpine Corp., senior note, 8.625%, 8/15/10 .................................. United States 23,700,000 23,732,919 Calpine Corp., senior note, 8.50%, 2/15/11 ................................... United States 15,000,000 14,896,095 Edison Mission, senior sub. note, 144A, 9.875%, 4/15/11 ...................... United States 20,000,000 19,445,260 ESCOM, E168, utility deb., 11.00%, 6/01/08 ................................... South Africa 108,800,000 ZAR 12,757,732 ESI Tractebel Acq. Corp., secured notes, 7.99%, 12/30/11 ..................... United States 8,000,000 7,640,000 Midland Cogeneration Venture, S.F., senior lease obligation, A, 11.75%, 7/23/05 United States 4,500,000 4,954,045 Midland Cogeneration Venture, S.F., senior lease obligation, B, 13.25%, 7/23/06 United States 11,500,000 13,438,460 ------------ 96,864,511 ------------ TOTAL BONDS (COST $3,216,754,989) 2,423,617,356 CONVERTIBLE BONDS .2% COMMUNICATIONS .2% Level 3 Communications Inc., cvt., 6.00%, 3/15/10 (COST $14,137,123) ......... United States 17,500,000 5,818,750 ------------
25 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, MAY 31, 2001 (CONT.)
PRINCIPAL AMOUNT* VALUE ----------------------------------------------------------------------------------------------------------------------------- (b)REPURCHASE AGREEMENT 3.9% Joint Repurchase Agreement, 4.092%, 6/01/01, (Maturity Value $107,039,152) (COST $107,026,985) $ 107,026,985 $ 107,026,985 ABN Amro Inc. Banc of America Securities LLC Barclays Capital Inc. Bear, Stearns & Co. Inc. BMO Nesbitt Burns Corp. BNP Securities Corp. Deutsche Banc Alex. Brown Inc. Dresdner Kleinwort Benson, North America LLC Goldman, Sachs & Co. Lehman Brothers Inc. Morgan Stanley & Co. Inc. Paribas Capital Markets Societe Generale UBS Warburg LLC Collateralized by U.S. Treasury Bills, Notes, and Bonds, and U.S. Government Agency Securities -------------- TOTAL INVESTMENTS (COST $3,600,810,995) 98.5% ................................ 2,684,389,373 OTHER ASSETS, LESS LIABILITIES 1.5% .......................................... 41,900,179 -------------- NET ASSETS 100.0% ............................................................ $2,726,289,552 -------------- 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, 2001, all repurchase agreements held by the Fund had been entered into on that date. (c)See Note 6 regarding defaulted securities. (d)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, 2001 were $17,009,823. See notes to financial statements. 26 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2001
Assets: Investments in securities: Cost .................................................... $3,600,810,995 =============== Value ................................................... 2,684,389,373 Receivables: Investment securities sold .............................. 1,481,448 Capital shares sold ..................................... 7,102,510 Dividends and interest .................................. 50,648,494 --------------- Total assets ........................................ 2,743,621,825 --------------- Liabilities: Payables: Investment securities purchased ......................... 9,710,778 Capital shares redeemed ................................. 4,910,966 Affiliates .............................................. 1,825,267 Shareholders ............................................ 443,763 Other liabilities ........................................ 441,499 --------------- Total liabilities ................................... 17,332,273 --------------- Net assets, at value ............................... $2,726,289,552 =============== Net assets consist of: Undistributed net investment income ...................... $ (18,556,839) Net unrealized depreciation .............................. (916,367,541) Accumulated net realized loss ............................ (206,065,280) Capital shares ........................................... 3,867,279,212 --------------- Net assets, at value ............................... $2,726,289,552 ===============
See notes to financial statements. 27 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF ASSETS AND LIABILITIES (CONT.) MAY 31, 2001
CLASS A: Net assets, at value ......................................................... $2,222,712,567 -------------- Shares outstanding ........................................................... 1,065,073,938 -------------- Net asset value per share(a) ................................................. $2.09 -------------- Maximum offering price per share (net asset value per share / 95.75%) ........ $2.18 -------------- CLASS B: Net assets, at value ......................................................... $ 119,496,350 -------------- Shares outstanding ........................................................... 57,349,183 -------------- Net asset value and maximum offering price per share(a) ...................... $2.08 -------------- CLASS C: Net assets, at value ......................................................... $ 362,040,042 -------------- Shares outstanding ........................................................... 172,959,459 -------------- Net asset value per share(a) ................................................. $2.09 -------------- Maximum offering price per share (net asset value per share / 99.00%) ........ $2.11 -------------- ADVISOR CLASS: Net assets, at value ......................................................... $ 22,040,593 -------------- Shares outstanding ........................................................... 10,549,070 -------------- Net asset value and maximum offering price per share ......................... $2.09 --------------
(a)Redemption price is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 28 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE YEAR ENDED MAY 31, 2001
Investment income: Dividends .................................................................... $ 6,521,492 Interest ..................................................................... 301,162,669 ------------- Total investment income ................................................. 307,684,161 ------------- Expenses: Management fees (Note 3) ..................................................... 12,736,285 Distribution fees (Note 3) Class A ..................................................................... 3,199,080 Class B ..................................................................... 596,374 Class C ..................................................................... 2,298,011 Transfer agent fees (Note 3) ................................................. 3,722,069 Custodian fees ............................................................... 33,413 Reports to shareholders ...................................................... 155,077 Registration and filing fees ................................................. 137,242 Professional fees (Note 3) ................................................... 204,424 Trustees' fees and expenses .................................................. 58,058 Other ........................................................................ 78,531 ------------- Total expenses .......................................................... 23,218,564 ------------- Net investment income .................................................. 284,465,597 ------------- Realized and unrealized gains (losses): Net realized loss from: Investments ................................................................. (94,839,108) Foreign currency transactions ............................................... (142,148) ------------- Net realized loss ....................................................... (94,981,256) Net unrealized appreciation (depreciation) on: Investments ................................................................. (149,770,900) Translation of assets and liabilities denominated in foreign currencies ..... 54,262 ------------- Net unrealized depreciation ............................................. (149,716,638) ------------- Net realized and unrealized loss .............................................. (244,697,894) ------------- Net increase in net assets resulting from operations .......................... $ 39,767,703 =============
See notes to financial statements. 29 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED MAY 31, 2001 AND 2000
2001 2000 ---------------------------------- Increase (decrease) in net assets: Operations: Net investment income .............................................. $284,465,597 $342,227,963 Net realized loss from investments and foreign currency transactions (94,981,256) (85,008,346) Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies ........... (149,716,638) (420,267,660) ---------------------------------- Net increase (decrease) in net assets resulting from operations 39,767,703 (163,048,043) Distributions to shareholders from: Net investment income: Class A ........................................................... (260,710,882) (297,771,870) Class B ........................................................... (9,711,687) (5,227,817) Class C ........................................................... (38,176,951) (43,745,502) Advisor Class ..................................................... (2,561,409) (4,338,546) ---------------------------------- Total distributions to shareholders ................................. (311,160,929) (351,083,735) Capital share transactions: (Note 2) Class A ........................................................... 4,890,760 (233,459,046) Class B ........................................................... 59,181,132 51,873,634 Class C ........................................................... 29,998,866 (53,256,052) Advisor Class ..................................................... 7,230,325 (16,099,369) ================================== Total capital share transactions .................................... 101,301,083 (250,940,833) Net decrease in net assets ..................................... (170,092,143) (765,072,611) Net assets Beginning of year ................................................... 2,896,381,695 3,661,454,306 ================================== End of year ......................................................... $2,726,289,552 $2,896,381,695 ================================== Undistributed net investment income included in net assets: End of year ......................................................... $ (18,556,839)$ $ 8,211,460 ==================================
30 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. 31 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 accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. f. AUDIT GUIDE: In November 2000, a revised AICPA Audit and Accounting Guide, Audits of Investment Companies, was issued, and is effective for fiscal years beginning after December 15, 2000. The revised Guide will require the Fund to amortize all premium and discount on fixed-income securities. Such amortization will be included in net investment income but will not impact the net assets or the distributions of the Fund. As of May 31, 2001, the Fund estimates that the initial adjustment required upon adoption of premium and discount amortization will decrease the recorded cost of its investments by approximately $6,493. 2. SHARES OF BENEFICIAL INTEREST The Fund offers four classes of shares: Class A, Class B, Class C, and Advisor Class. 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, 2001, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
YEAR ENDED YEAR ENDED MAY 31, 2001 MAY 31, 2000 --------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT --------------------------------------------------------------------- CLASS A SHARES: Shares sold .................................. 333,032,241 $ 734,533,743 331,634,709 $ 828,749,061 Shares issued in reinvestment of distributions 50,263,433 109,950,786 51,595,884 129,033,053 Shares redeemed .............................. (379,438,383) (839,593,769) (478,461,066) (1,191,241,160) --------------------------------------------------------------------- Net increase (decrease) ...................... 3,857,291 $ 4,890,760 (95,230,473) $ (233,459,046) ===================================================================== CLASS B SHARES: Shares sold .................................. 34,482,540 $ 75,232,906 24,687,653 $ 61,971,524 Shares issued in reinvestment of distributions 1,737,998 3,781,178 934,613 2,307,752 Shares redeemed .............................. (9,146,568) (19,832,952) (5,068,871) (12,405,642) --------------------------------------------------------------------- Net increase ................................. 27,073,970 $ 59,181,132 20,553,395 $ 51,873,634 ===================================================================== CLASS C SHARES: Shares sold .................................. 54,408,659 $ 119,133,448 45,033,235 $ 113,693,172 Shares issued in reinvestment of distributions 8,683,509 19,069,148 9,310,496 23,372,653 Shares redeemed .............................. (49,218,498) (108,203,730) (76,051,198) (190,321,877) --------------------------------------------------------------------- Net increase (decrease) ...................... 13,873,670 $ 29,998,866 (21,707,467) $ (53,256,052) =====================================================================
32 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 2. SHARES OF BENEFICIAL INTEREST (CONT.)
YEAR ENDED YEAR ENDED MAY 31, 2001 MAY 31, 2000 -------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- ADVISOR CLASS SHARES: Shares sold .................................. 5,077,687 $11,514,464 18,904,229 $ 48,575,190 Shares issued in reinvestment of distributions 718,727 1,573,038 1,517,475 3,824,741 Shares redeemed .............................. (2,724,918) (5,857,177) (27,568,659) (68,499,300) -------------------------------------------------------------------- Net increase (decrease) ...................... 3,071,496 $ 7,230,325 (7,146,955) $ (16,099,369) ====================================================================
3. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Funds are also officers and/or directors of the following entities:
ENTITY AFFILIATION ------------------------------------------------------------------------------------ Franklin Advisers, Inc. (Advisers) Investment manager Franklin Templeton Services, LLC (FT Services) Administrative manager Franklin/Templeton Distributors, Inc. (Distributors) Principal underwriter Franklin/Templeton Investor Services, LLC (Investor Services) Transfer agent
The Fund pays an investment management fee to Advisers based on the 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 $2,740,504 and $412,999 respectively. The Fund paid transfer agent fees of $3,722,069, of which $2,865,167 was paid to Investor Services. Included in professional fees are legal fees of $9,919 that were paid to a law firm in which a partner of the law firm was an officer of the Fund. 33 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 4. INCOME TAXES At May 31, 2001, 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: 2002 ........................................................ $ 12,243,104 2003 ........................................................ 4,606,276 2009 ........................................................ 126,000,271 ------------ $142,849,651 ============
On May 31, 2001, the Fund had expired capital loss carryovers of $14,304,993 which were reclassified to paid-in-capital. At May 31, 2001, the Fund has deferred capital losses and deferred currency losses occurring subsequent to October 31, 2000 of $63,133,419 and $69,181, respectively. For tax purposes, such losses will be reflected in the year ending 2002. At May 31, 2001, the net unrealized depreciation based on the cost of investments for income tax purposes of $3,601,731,003 was as follows:
Unrealized appreciation ............................... $ 81,400,536 Unrealized depreciation ............................... (998,742,166) ------------- Net unrealized depreciation ........................... $(917,341,630) =============
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities and foreign currency transactions. Net realized losses 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 year ended May 31, 2001 aggregated $567,864,456 and $603,110,002, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 85.8% of its portfolio invested in below investment grade and comparable quality unrated high yield securities, which tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At May 31, 2001, the Fund held defaulted securities with a value aggregating $36,911,060 representing 1.4% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. 34 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 6. CREDIT RISK AND DEFAULTED SECURITIES (CONT.) For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. 7. OTHER CONSIDERATIONS Advisers, as the Fund's investment manager, may serve as a member of various bondholder's steering committees, representing bondholder's interests in certain corporate restructuring negotiations, or on creditors committees. Currently Advisers serves on the Official Committee of Unsecured Creditors of AMF Bowling Worldwide Inc., Anacomp Inc., Metrocall Inc., Styling Technology Corp., and Talon Automotive Group Inc. As a result of this involvement, Advisers may be in possession of certain material non-public information. Advisers has not nor does it intend to sell any of its holdings in these securities while in possession of such information. 35 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Independent Auditors' Report TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF FRANKLIN HIGH INCOME TRUST In our opinion, the accompanying statement of assets and liabilities, including the statement of investments, and the related statements 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, 2001, 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 of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, 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, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California July 3, 2001 36 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Tax Designation Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 2.0% of the ordinary income dividends as income qualifying for the dividends received deduction for the fiscal year ended May 31, 2001. 37 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank.