-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HLjEXhyPzWp0zPhXcCJHTE5891TdGFwHdPUPOjXqdnqLZ5KSOSak+8LgPU5nJRjk DLywIUzz/wzQxO0d3oqZGA== 0000002768-02-000006.txt : 20020414 0000002768-02-000006.hdr.sgml : 20020414 ACCESSION NUMBER: 0000002768-02-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20011130 FILED AS OF DATE: 20020130 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000002768 IRS NUMBER: 941693697 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-01608 FILM NUMBER: 02521763 BUSINESS ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 BUSINESS PHONE: 650-312-2000 MAIL ADDRESS: STREET 1: ONE FRANKLIN PARKWAY CITY: SAN MATEO STATE: CA ZIP: 94403-1906 FORMER COMPANY: FORMER CONFORMED NAME: AGE FUND INC DATE OF NAME CHANGE: 19810128 FORMER COMPANY: FORMER CONFORMED NAME: AGE HIGH INCOME FUND INC DATE OF NAME CHANGE: 19920703 N-30D 1 fhitn30ds.txt SHAREHOLDER LETTER - -------------------------------------------------------------------------------- Your Fund's Goal: Franklin's AGE High Income Fund seeks to provide investors with high, current income, with a secondary objective of principal appreciation. The Fund invests in a diversified portfolio consisting primarily of high yield, lower-rated corporate bonds. - -------------------------------------------------------------------------------- Dear Shareholder: This semiannual report for Franklin's AGE High Income Fund covers the period ended November 30, 2001. The six months under review proved to be extremely challenging for the securities markets, including the high yield corporate bond market. The U.S. economy, which had been weakening during the early part of 2001, slowed even further through the summer months. September 11's tragic and unsettling events pushed the already fragile economy over the edge. The National Bureau of Economic Research announced recently that after a record ten years of sustained economic growth, the domestic economy officially entered a recession in March 2001. Aimed at revitalizing economic activity, the Federal Reserve Board (the Fed) aggressively lowered interest rates by 450 basis points since January 2001, bringing the federal funds target rate to a 40-year low of 2.0%. As economic growth waned, corporate profitability fell sharply, driving equity markets lower. Because high yield corporate bonds tend to be more like equities than other fixed income sectors, the stock market decline negatively impacted the asset class. Thus, the risk premium investors demand for accepting the higher credit risk of high yield CONTENTS Shareholder Letter ..................................................... 1 Performance Summary .................................................... 6 Financial Highlights & Statement of Investments ............................................... 8 Financial Statements ................................................... 21 Notes to Financial Statements ................................................... 25
FUND CATEGORY [PYRAMID GRAPHIC] 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 12. PORTFOLIO BREAKDOWN Based on Total Net Assets 11/30/01 [PIE CHART] Bonds 89.0% Equities 4.9% Short-Term Investments & Other Net Assets 6.1%
bonds, as measured by the interest rate spread for the CSFB High Yield Index over U.S. Treasuries, widened from 7.9% at the beginning of the period to a near-record 8.8% at period-end.(1) In contrast, 10-year Treasury yields fell from 5.4% to 4.8% for the same time. The widening of interest spreads was acute particularly in more speculative corporate issues, as banks and investors greatly reduced their tolerance for high levels of credit risk. Unfortunately, the Fund was not immune to the high yield market's volatility and price weakness. For the six-month period ended November 30, 2001, Franklin's AGE High Income Fund - Class A posted a -1.61% cumulative total return, as shown in the Performance Summary beginning on page 6. On a relative basis, however, the Fund's Class A shares outperformed the -2.06% return of the Lipper High Current Yield Average, composed of 400 high yield bond funds on November 30, 2001.(2) We think it bears noting that the Fund's return also outperformed the Standard & Poor's 500 Composite Index (S&P 500(R)) and the Nasdaq Composite Index, which returned -8.65% and -7.69% for the same period.(3) Although the markets continued to be volatile during the period under review, we maintained our long-term focus on industries that demonstrated solid fundamentals and attractive growth prospects. At the close of the period, our top five industry weightings were wireless communications (11.9%), pay televi- - ---------- 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. The Fund's performance relative to the average may have differed if such charges had been considered. Past performance does not guarantee future results. 3. Source: Standard & Poor's Micropal. The S&P 500 consists of 500 stocks chosen for market size, liquidity and industry group representation. Each stock's weight in the index is proportionate to its market value. The S&P 500 is one of the most widely used benchmarks of U.S. equity performance. The Nasdaq Composite Index measures all Nasdaq National Market common stocks. The index is market value-weighted and includes over 4,000 companies. The indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 2 sion (8.6%), telecommunications (6.4%), media (6.3%) and transportation (5.4%). SECTOR DISCUSSIONS WIRELESS - COMMUNICATIONS In contrast to traditional, wired telecommunications, companies that provide mobile telecommunications services and the associated network infrastructure constitute the wireless communications industry. During the reporting period, the wireless industry continued to benefit from healthy growth and increased market penetration. Revenues grew despite increased pricing pressures. Although highly competitive, the wireless services market provided attractive opportunities for companies with sound business plans. In general, we focused on lower-cost operators who successfully expanded their networks, offering their customers better coverage. For example, Nextel Communications, a Fund holding, announced recently that a new technological advance in its transmission protocol would allow the company to increase its network capacity with reduced capital expenditures. Additionally, we continue to expect that industry consolidation will positively impact high yield wireless issuers over the long term. Following Telus's acquisition of Clearnet, a Canadian cellular company, the Fund sold its Clearnet bonds into a tender offer at a significant premium. PAY TELEVISION - CONSUMER SERVICES The pay television industry, composed primarily of cable television and direct broadcast satellite (DBS) providers, performed well during the period. In general, pay television companies enjoy more stable, utility-like revenue streams with less demand volatility. We believe this attribute makes the industry relatively more defensive and should provide some insulation during an economic downturn while still offering attractive growth potential. EchoStar, one of the Fund's holdings, has many of the qualities we look for in the DBS segment and is a prime example of our strategy in practice. During the period, the company TOP 10 HOLDINGS 11/30/01
COMPANY % OF TOTAL INDUSTRY NET ASSETS - -------------------------------------------------------------------------------- Intermedia Communications Inc. 1.9% Communications Charter Communications Holdings LLC 1.7% Consumer Services Adelphia Communications Corp. 1.6% Consumer Services AM/FM Inc. 1.6% Consumer Services Calpine Corp. 1.5% Utilities Premier Parks Inc. 1.5% Consumer Services Dobson/Sygnet Communications Co. 1.5% Communications Fresenius Medical Care Capital Trust 1.5% Health Services Triton PCS Inc. 1.4% Communications P&L Coal Holdings 1.3% Corp. Energy Minerals
3 DIVIDEND DISTRIBUTIONS 6/1/01 - 11/30/01
DIVIDEND PER SHARE ------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C ADVISOR CLASS - -------------------------------------------------------------------------------- June 2.0 cents 1.92 cents 1.91 cents 2.03 cents July 1.7 cents 1.62 cents 1.61 cents 1.72 cents August 1.7 cents 1.62 cents 1.61 cents 1.72 cents September 1.7 cents 1.61 cents 1.61 cents 1.73 cents October 1.7 cents 1.61 cents 1.61 cents 1.72 cents November 1.7 cents 1.61 cents 1.61 cents 1.72 cents - -------------------------------------------------------------------------------- TOTAL 10.5 CENTS 9.99 CENTS 9.96 CENTS 10.64 CENTS
added subscribers at a rapid rate as it continued to invest in its customer base. EchoStar also recently bid successfully for its largest competitor, Hughes Electronics. If regulators approve the transaction, EchoStar would have a significantly larger presence in North America. MEDIA The media sector encompasses a diverse group of companies, ranging from printers to outdoor advertisers, and even theme parks, providing a variety of business models. Accordingly, we maintained our bottom-up, company-specific approach to looking at the industry, concentrating mostly on companies that are industry leaders having strong business plans, visionary management teams and favorable cost structures. Despite some near-term pressure on advertising revenues, the Fund added to its media sector exposure with the purchase of Yell Holdings, the dominant U.K. and leading U.S. independent Yellow Pages publisher. LOOKING FORWARD Now that economic data confirm the U.S. is in recession, history may provide investors with some guidelines on the timing of an eventual recovery. The average length of 10 post-World War II 4 recessions was 11 months. Taking into account the aggressive Fed actions through 2001, and the prospect of additional fiscal policy stimulus in 2002, we do not expect this downturn to be significantly different from previous ones. Consequently, we believe signs of renewed economic growth may appear in mid-2002. Considering the high yield market's forward-looking nature, and using the 1990-91 recession as a guide, we expect the high yield corporate bond market to improve before the economy emerges from the current recession. Although financial market volatility following September 11 may continue to affect the high yield market in the short term, we believe the asset class's long-term fundamentals remain positive. Additionally, we believe current valuations are quite attractive on a historical basis and that Franklin's AGE High Income Fund is well-positioned for the economy's eventual recovery. We thank you for your participation in the Fund and look forward to serving your future investment needs. Sincerely, /s/ Christopher J. Molumphy Christopher J. Molumphy Senior Portfolio Manager Franklin's AGE High Income Fund - -------------------------------------------------------------------------------- This discussion reflects our views, opinions and portfolio holdings as of November 30, 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. - -------------------------------------------------------------------------------- 5 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY AS OF 11/30/01 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. PRICE AND DISTRIBUTION INFORMATION
CLASS A CHANGE 11/30/01 5/31/01 - -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.14 $1.95 $2.09 DISTRIBUTIONS (6/1/01 - 11/30/01) Dividend Income $0.1050 CLASS B CHANGE 11/30/01 5/31/01 - -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.13 $1.95 $2.08 DISTRIBUTIONS (6/1/01 - 11/30/01) Dividend Income $0.0999 CLASS C CHANGE 11/30/01 5/31/01 - -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.13 $1.96 $2.09 DISTRIBUTIONS (6/1/01 - 11/30/01) Dividend Income $0.0996 ADVISOR CLASS CHANGE 11/30/01 5/31/01 - -------------------------------------------------------------------------------- Net Asset Value (NAV) -$0.14 $1.95 $2.09 DISTRIBUTIONS (6/1/01 - 11/30/01) Dividend Income $0.1064
6 PERFORMANCE
CLASS A 6-MONTH 1-YEAR 5-YEAR 10-YEAR - ------------------------------------------------------------------------------------ Cumulative Total Return(1) -1.61% +5.66% +11.74% +102.97% Average Annual Total Return(2) -5.67% +1.23% +1.35% +6.89% Value of $10,000 Investment(3) $9,433 $10,123 $10,692 $19,467 Avg. Ann. Total Return (12/31/01)(4) -1.35% +0.85% +6.71% Distribution Rate(5) 10.00% 30-Day Standardized Yield(6) 9.85%
INCEPTION CLASS B 6-MONTH 1-YEAR (1/1/99) - -------------------------------------------------------------------------------- Cumulative Total Return(1) -1.39% +5.63% -4.91% Average Annual Total Return(2) -5.14% +1.83% -2.47% Value of $10,000 Investment(3) $ 9,486 $10,183 $ 9,297 Avg. Ann. Total Return (12/31/01)(4) -0.81% -2.63% Distribution Rate(5) 9.91% 30-Day Standardized Yield(6) 9.76%
INCEPTION CLASS C 6-MONTH 1-YEAR 5-YEAR (5/16/95) - -------------------------------------------------------------------------------- Cumulative Total Return(1) -1.40% +5.60% +9.22% +30.19% Average Annual Total Return(2) -3.26% +3.64% +1.57% +3.94% Value of $10,000 Investment(3) $9,674 $10,364 $10,809 $12,879 Avg. Ann. Total Return (12/31/01)(4) +0.98% +1.07% +3.78% Distribution Rate(5) 9.76% 30-Day Standardized Yield(6) 9.66%
ADVISOR CLASS(7) 6-MONTH 1-YEAR 5-YEAR 10-YEAR - -------------------------------------------------------------------------------- Cumulative Total Return(1) -1.55% +5.78% +12.82% +104.93% Average Annual Total Return(2) -1.55% +5.78% +2.44% +7.44% Value of $10,000 Investment(3) $9,845 $10,578 $11,282 $20,493 Avg. Ann. Total Return (12/31/01)(4) +3.04% +1.94% +7.26% Distribution Rate(5) 10.58% 30-Day Standardized Yield(6) 10.45%
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. Six- month return has not been annualized. 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 November dividend and the maximum offering price (NAV for Class B and Advisor Class) per share on 11/30/01. 6. Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 11/30/01. 7. Effective 1/2/97, the Fund began offering Advisor Class shares, which do not have sales charges or a Rule 12b-1 plan. 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, but reflecting the effect of the Class A Rule 12b-1 fees; and (b) for periods after 1/1/97, actual Advisor Class performance is used reflecting 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 +10.81% and +2.11%. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 7 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights
CLASS A --------------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, YEAR ENDED MAY 31, 2001 ----------------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997 --------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period............. $ 2.09 $ 2.30 $ 2.69 $ 2.98 $ 2.90 $ 2.79 --------------------------------------------------------------------------------- Income from investment operations: Net investment income(a)....................... .10 .23 .26 .26 .26 .26 Net realized and unrealized gains (losses)..... (.14) (.19) (.39) (.29) .08 .11 --------------------------------------------------------------------------------- Total from investment operations................. (.04) .04 (.13) (.03) .34 .37 --------------------------------------------------------------------------------- Less distributions from net investment income.............................. (.10) (.25) (.26) (.26) (.26) (.26) --------------------------------------------------------------------------------- Net asset value, end of period................... $ 1.95 $ 2.09 $ 2.30 $ 2.69 $ 2.98 $ 2.90 ================================================================================= Total return(b).................................. (1.61)% 1.73% (5.01)% (.74)% 12.32% 14.09% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's)................ $2,077,809 $2,222,713 $2,442,432 $3,108,809 $3,236,134 $2,638,914 Ratios to average net assets: Expenses....................................... .76%(c) .76% .74% .72% .70% .71% Net investment income.......................... 10.53%(c) 10.30% 10.28% 9.40% 9.04% 9.31% Portfolio turnover rate.......................... 7.61% 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. (c) Annualized 8 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS B --------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2001 YEAR ENDED MAY 31, ----------------------------- (UNAUDITED) 2001 2000 1999(d) --------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........................ $2.08 $2.30 $2.68 $2.76 --------------------------------------------- Income from investment operations: Net investment income(a) .................................. .10 .21 .24 .11 Net realized and unrealized losses ........................ (.13) (.19) (.37) (.08) --------------------------------------------- Total from investment operations ............................ (.03) .02 (.13) .03 --------------------------------------------- Less distributions from net investment income ............... (.10) (.24) (.25) (.11) --------------------------------------------- Net asset value, end of period .............................. $1.95 $2.08 $2.30 $2.68 ============================================= Total return(b) ............................................. (1.39)% .73% (5.49)% 1.29% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ........................... $131,748 $119,496 $69,565 $26,095 Ratios to average net assets: Expenses .................................................. 1.26%(c) 1.27% 1.25% 1.24%(c) Net investment income ..................................... 10.03%(c) 9.79% 9.85% 8.41%(c) Portfolio turnover rate ..................................... 7.61% 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) Annualized (d) For the period January 1, 1999 (effective date) to May 31, 1999. 9 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS C -------------------------------------------------------------------------- SIX MONTHS ENDED NOVEMBER 30, 2001 YEAR ENDED MAY 31, -------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997 -------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .... $2.09 $2.31 $2.69 $2.98 $2.90 $2.79 -------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .............. .10 .22 .25 .25 .25 .25 Net realized and unrealized gains (losses) .............................. (.13) (.20) (.38) (.29) .08 .11 -------------------------------------------------------------------------- Total from investment operations ........ (.03) .02 (.13) (.04) .33 .36 -------------------------------------------------------------------------- Less distributions from net investment income ....................... (.10) (.24) (.25) (.25) (.25) (.25) -------------------------------------------------------------------------- Net asset value, end of period .......... $1.96 $2.09 $2.31 $2.69 $2.98 $2.90 ========================================================================== Total return(b) ......................... (1.40)% .75% (5.46)% (.93)% 11.69% 13.41% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ....... $366,996 $172,959 $367,151 $487,196 $394,612 $151,073 Ratios to average net assets: Expenses .............................. 1.26%(c) 1.27% 1.25% 1.24% 1.23% 1.25% Net investment income ................. 10.02%(c) 9.79% 9.76% 8.89% 8.51% 8.75% Portfolio turnover rate ................. 7.61% 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. (c) Annualized FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
ADVISOR CLASS --------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, 2001 ------------------------------------------------------ (UNAUDITED) 2001 2000 1999 1998 1997(d) --------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ................ $2.09 $2.30 $2.69 $2.98 $2.90 $2.90 --------------------------------------------------------------------------- Income from investment operations: Net investment income(a) .......................... .11 .23 .26 .27 .27 .12 Net realized and unrealized gains (losses) ........ (.14) (.19) (.38) (.29) .08 (.01) --------------------------------------------------------------------------- Total from investment operations .................... (.03) .04 (.12) (.02) .35 .11 --------------------------------------------------------------------------- Less distributions from net investment income ....... (.11) (.25) (.27) (.27) (.27) (.11) --------------------------------------------------------------------------- Net asset value, end of period ...................... $1.95 $2.09 $2.30 $2.69 $2.98 $2.90 =========================================================================== Total return(b) ..................................... (1.55)% 1.86% (4.88)% (.61)% 12.46% 3.94% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ................... $24,899 $22,041 $17,234 $39,354 $28,026 $6,224 Ratios to average net assets: Expenses .......................................... .62%(c) .62% .60% .59% .58% .61%(c) Net investment income ............................. 10.66%(c) 10.43% 10.29% 9.52% 9.17% 9.25%(c) Portfolio turnover rate ............................. 7.61% 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) Annualized (d) For the period January 2, 1997 (effective date) to May 31, 1997. See notes to financial statements. 11 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED)
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE - ----------------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, WARRANTS AND RIGHTS 2.1% (a) COMMUNICATIONS .3% ICO Global Communications Holdings Ltd. .................................. United States 2,105,368 $ 3,947,565 ICO Global Communications Holdings Ltd., wts., 5/16/06 ................... United States 528,825 21,260 International Wireless Communications Holdings ........................... United States 1,759,743 1,055,846 Loral Orion Network Sys., wts., 1/15/07 .................................. United States 35,300 45,537 McCaw International Ltd., wts., 4/15/07 .................................. United States 28,500 285 Nextel Communications Inc., A ............................................ United States 128,674 1,379,385 Occidente Y Caribe Celular SA, wts., 144A, 3/15/04 ....................... Colombia 152,660 1,526,600 Poland Telecom Finance, wts., 12/01/07 ................................... Poland 30,000 -- --------------- 7,976,478 --------------- CONSUMER NON-DURABLES .4% R.J. Reynolds Tobacco Holdings Inc. ...................................... United States 170,000 9,752,900 --------------- (a) CONSUMER SERVICES Jack in the Box Inc. ..................................................... United States 24,090 623,449 --------------- (a) ENERGY MINERALS McMoran Exploration Co. .................................................. United States 25,937 176,372 --------------- GOVERNMENT BONDS United Mexican States, rts., 6/30/03 ..................................... Mexico 3,000,000 16,500 --------------- (a) HEALTH SERVICES .9% Kindred Healthcare Inc. .................................................. United States 246,736 12,489,776 Kindred Healthcare Inc., A, wts., 4/20/06 ................................ United States 134,263 3,557,970 Kindred Healthcare Inc., B, wts., 4/20/06 ................................ United States 335,658 8,055,792 --------------- 24,103,538 --------------- (a) INDUSTRIAL SERVICES .1% Transocean Sedco Forex Inc., wts., 144A, 5/01/09 ......................... United States 11,750 1,905,556 --------------- PROCESS INDUSTRIES .1% (a) Darling International Inc. ............................................... United States 504,447 340,502 Walter Industries Inc. ................................................... United States 189,505 2,008,753 --------------- 2,349,255 --------------- (a) PRODUCER MANUFACTURING Goss Holdings Inc., B .................................................... United States 211,174 2,112 (b) Harvard Industries Inc. .................................................. United States 793,966 142,914 --------------- 145,026 --------------- (a) RETAIL TRADE .3% Penn Traffic Co. ......................................................... United States 389,598 1,753,191 Stage Stores, Inc. ....................................................... United States 335,409 4,863,431 Stage Stores, Inc., A, wts., 08/23/06 .................................... United States 25,601 128,005 Stage Stores, Inc., B, wts., 08/23/06 .................................... United States 53,895 148,217 --------------- 6,892,844 --------------- TOTAL COMMON STOCKS, WARRANTS AND RIGHTS (COST $129,943,320) ............. 53,941,918 ---------------
12 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
SHARES/ WARRANTS/ COUNTRY RIGHTS VALUE - ----------------------------------------------------------------------------------------------------------------------------------- PREFERRED STOCKS 2.0% (a) Asia Pulp & Paper Co. Ltd., 12.00%, pfd. ................................. Indonesia 24,700 $ 262,561 Fresenius Medical Care Capital Trust, 7.875%, pfd. ....................... United States 24,000 24,300,000 Fresenius Medical Care Capital Trust, 9.00%, pfd. ........................ United States 13,100 13,558,500 Sinclair Capital, 11.625%, pfd. .......................................... United States 147,000 14,773,500 --------------- TOTAL PREFERRED STOCKS (COST $76,500,000) ................................ 52,894,561 --------------- CONVERTIBLE PREFERRED STOCKS .7% UTILITIES CMS Energy Trust I, 7.75%, cvt. pfd. (COST $26,500,000) .................. United States 530,000 19,263,910 --------------- PARTNERSHIP UNITS .1% (a) PROCESS INDUSTRIES Phosphate Resource Partners LP (COST $1,313,552) ......................... United States 415,000 1,826,000 ---------------
PRINCIPAL AMOUNT(d) ------------- BONDS 89.0% COMMERCIAL SERVICES 4.7% (c) AmeriServe Food Distribution Inc., senior note, 8.875%, 10/15/06 ......... United States $ 16,150,000 242,250 (c) AmeriServe Food Distribution Inc., senior sub. note, 10.125%, 7/15/07 .... United States 14,210,000 213,150 Intertek Finance PLC, senior sub. note, B, 10.25%, 11/01/06 .............. United Kingdom 9,400,000 9,259,000 Iron Mountain Inc., senior sub. note, 8.75%, 9/30/09 ..................... United States 16,650,000 17,732,250 Iron Mountain Inc., senior sub. note, 8.25%, 7/01/11 ..................... United States 7,500,000 7,762,500 Iron Mountain Inc., senior sub. note, 8.625%, 4/01/13 .................... United States 6,000,000 6,390,000 Key3Media Group Inc., senior sub. note, 11.25%, 6/15/11 .................. United States 20,000,000 16,200,000 Lamar Advertising Co., senior sub. note, 9.625%, 12/01/06 ................ United States 20,000,000 21,300,000 Quebecor Media Inc., senior disc. note, zero cpn. to 7/15/06, 13.75% thereafter, 7/15/11 .................................................... Canada 31,500,000 19,766,250 Yell Finance BV, senior disc. note, zero cpn. to 8/01/06, 13.50% thereafter, 8/01/11 .................................................... Netherlands 19,250,000 11,646,250 Yell Finance BV, senior note, 10.75%, 8/01/11 ............................ Netherlands 10,000,000 10,700,000 --------------- 121,211,650 --------------- COMMUNICATIONS 17.5% Allegiance Telecom Inc., senior disc. note, B, zero cpn. to 2/15/03, 11.75% thereafter, 2/15/08 ............................................. United States 22,000,000 10,230,000 Allegiance Telecom Inc., senior note, 12.875%, 5/15/08 ................... United States 20,500,000 15,477,500 American Cellular Corp., senior sub. note, 9.50%, 10/15/09 ............... United States 28,400,000 29,252,000 American Tower Corp., senior note, 9.375%, 2/01/09 ....................... United States 20,000,000 17,100,000 (c) Arch Escrow Corp., 13.75%, 4/15/08 ....................................... United States 14,500,000 145,000 Asia Global Crossing Ltd., 13.375%, 10/15/10 ............................. Bermuda 21,000,000 6,825,000 AT&T Wireless Group, senior note, 7.875%, 3/01/11 ........................ United States 27,000,000 28,912,086 Call-Net Enterprises Inc., senior disc. note, zero cpn. to 5/15/04, 10.80% thereafter, 5/15/09 .................................................... Canada 29,500,000 7,817,500 Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ............................................. United States 51,000,000 32,640,000 Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 .......... United States 34,250,000 38,017,500 Global Crossing Holdings Ltd., senior note, 9.50%, 11/15/09 .............. Bermuda 20,000,000 2,700,000
13 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMUNICATIONS (CONT.) (c) IntelCom Group Inc., senior disc. note, 12.50%, 5/01/06 .................. United States $ 32,500,000 $ 2,437,500 Intermedia Communications Inc., senior disc. note, B, zero cpn. to 7/15/02, 11.25% thereafter, 7/15/07 .................................... United States 37,500,000 37,593,750 Intermedia Communications Inc., senior note, 9.50%, 3/01/09 .............. United States 10,000,000 10,650,000 (c) Iridium LLC/CAP, senior note, D, 10.875%, 7/15/05 ........................ Bermuda 17,000,000 850,000 Level 3 Communications Inc., senior disc. note, zero cpn to 12/01/03, 10.50% thereafter, 12/01/08 ............................................ United States 38,000,000 11,590,000 Loral Space and Communications Ltd., senior disc. note, zero cpn to 1/15/02, 12.50% thereafter, 1/15/07 .................................... United States 22,300,000 11,038,500 McLeodUSA Inc., senior disc. note, zero cpn. to 3/01/02, 10.50% thereafter, 3/01/07 .................................................... United States 10,000,000 1,550,000 McLeodUSA Inc., senior note, 9.50%, 11/01/08 ............................. United States 16,000,000 2,560,000 McLeodUSA Inc., senior note, 11.375%, 1/01/09 ............................ United States 6,000,000 930,000 (c) Metrocall Inc., senior sub. note, 9.75%, 11/01/07 ........................ United States 31,000,000 465,000 (c) Metrocall Inc., senior sub. note, 11.00%, 9/15/08 ........................ United States 10,000,000 150,000 Millicom International Cellular SA, senior sub. note, 13.50%, 6/01/06 .... . Luxembourg 32,300,000 20,510,500 Nextel Communications Inc., senior disc. note, zero cpn. to 10/31/02, 9.75% thereafter, 10/31/07 ............................................. United States 35,500,000 26,713,750 Nextel Communications Inc., 9.50%, 2/01/11 ............................... United States 5,000,000 4,087,500 Nextel International Inc., senior disc. note, zero cpn. to 4/15/03, 12.125% thereafter, 4/15/08 ............................................ United States 20,000,000 900,000 Nextel International Inc., senior note, 12.75%, 8/01/10 .................. United States 25,200,000 2,016,000 Nextel Partners Inc., senior disc. note, zero cpn. to 2/01/04, 14.00%, thereafter ............................................................. United States 15,600,000 10,491,000 Nextel Partners Inc., senior note, 11.00%, 3/15/10 ....................... United States 12,600,000 10,930,500 (c) Poland Telecom Finance, senior note, B, 14.00%, 12/01/07 ................. Poland 30,000,000 3,000 (c) RSL Communications PLC, senior disc. note, zero cpn. to 3/01/03, 10.125% thereafter, 3/01/08 .................................................... United Kingdom 44,500,000 1,780,000 (c) RSL Communications PLC, senior note, 12.00%, 11/01/08 .................... United Kingdom 6,250,000 281,250 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 4/15/04, 11.25% thereafter, 4/15/09 .................................................... United States 20,500,000 6,457,500 Spectrasite Holdings Inc., senior disc. note, zero cpn. to 3/15/05, 12.875% thereafter, 3/15/10 ............................................ United States 35,000,000 9,975,000 Time Warner Telecom Inc., senior note, 10.125%, 2/01/11 .................. United States 6,000,000 5,010,000 Triton PCS Inc., senior sub. note, 9.375%, 2/01/11 ....................... United States 11,900,000 12,614,000 Triton PCS Inc., sub. disc. note, zero cpn. to 5/01/03, 11.00% thereafter, 5/01/08 ................................................................ United States 25,000,000 23,125,000 VoiceStream Wireless Corp., senior disc. note, zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 ........................................... United States 29,750,000 25,808,125 Williams Communications Group Inc., senior note, 10.875%, 10/01/09 ....... United States 32,500,000 15,112,500 Williams Communications Group Inc., senior note, 11.875%, 8/01/10 ........ United States 10,300,000 4,789,500 XO Communications Inc., senior disc. note, zero cpn to 4/15/03, 9.45% thereafter, 4/15/08 .................................................... United States 20,250,000 2,227,500 XO Communications Inc., senior note, 9.625%, 10/01/07 .................... United States 17,350,000 2,602,500 XO Communications Inc., senior note, 9.00%, 3/15/08 ...................... United States 18,150,000 2,359,500 --------------- 456,725,961 ---------------
14 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER DURABLES .6% Sealy Mattress Co., senior disc. note, B, zero cpn. to 12/15/02, 10.875% thereafter, 12/15/07 ................................................... United States $ 10,200,000 $ 8,721,000 Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 ................ United States 6,800,000 6,630,000 --------------- 15,351,000 --------------- CONSUMER NON-DURABLES 1.8% Agrilink Foods Inc., senior sub. note, 11.875%, 11/01/08 ................. United States 17,000,000 15,810,000 Hartmarx Corp., senior sub. note, 10.875%, 1/15/02 ....................... United States 5,900,000 5,900,000 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ........ United States 42,000,000 21,210,000 (c) Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 ............. United States 22,000,000 495,000 Westpoint Stevens Inc., senior note, 7.875%, 6/15/08 ..................... United States 7,500,000 2,287,500 --------------- 45,702,500 --------------- CONSUMER SERVICES 24.0% Adelphia Communications Corp., senior note, 10.875%, 10/01/10 ............ United States 27,500,000 28,668,750 Adelphia Communications Corp., senior note, 10.25%, 6/15/11 .............. United States 12,500,000 12,687,500 Advantica Restaurant Group Inc., senior note, 11.25%, 1/15/08 ............ United States 13,896,030 9,484,040 (c) AMF Bowling Worldwide Inc., senior disc. note, B, 12.25%, 3/15/06 ........ United States 9,951,000 62,194 AMFM Inc., senior note, 8.00%, 11/01/08 .................................. United States 23,500,000 24,851,250 AMFM Inc., senior sub. note, B, 8.75%, 6/15/07 ........................... United States 15,000,000 15,825,000 Argosy Gaming Co., senior sub. note, 9.00%, 9/01/11 ...................... United States 8,300,000 8,943,250 Ascent Entertainment Group Inc., senior disc. note, zero cpn. to 12/15/02, 11.875% thereafter, 12/15/04 ........................................... United States 19,500,000 17,842,500 Aztar Corp., senior sub. note, 8.875%, 5/15/07 ........................... United States 19,000,000 20,045,000 (c) Benedek Communications Corp., 13.25%, 5/15/06 ............................ United States 24,500,000 13,597,500 Callahan Nordrhein-Westfalen, senior disc. note, zero cpn. 7/15/05, 16.00% thereafter, 07/15/10, .................................................. Germany 43,000,000 13,115,000 Canwest Media Inc., 10.625%, 5/15/11 ..................................... Canada 15,600,000 16,926,000 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ..................................... United States 44,000,000 32,890,000 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 1/15/06, 13.50% thereafter, 1/15/11 .................................... United States 15,500,000 10,540,000 Choctaw Resort Development Enterprise, senior note, 9.25%, 4/01/09 ....... United States 11,500,000 11,945,625 CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09 .................. United States 19,500,000 16,380,000 CSC Holdings Inc., senior sub. deb., 10.50%, 5/15/16 ..................... United States 20,000,000 22,025,000 CSC Holdings Inc., senior sub. deb., 9.875%, 4/01/23 ..................... United States 5,000,000 5,431,250 Diamond Cable Communication Co., senior disc. note, zero cpn. to 2/15/02, 10.75% thereafter, 2/15/07 ............................................. United Kingdom 7,850,000 1,766,250 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ....................... United Kingdom 10,600,000 7,261,000 EchoStar Broadband Corp., senior note, 10.375%, 10/01/07 ................. United States 30,000,000 32,325,000 (c) Family Restaurant Inc., senior note, 9.75%, 2/01/02 ...................... United States 10,850,000 610,313 Fox/Liberty Networks LLC, senior disc. note, zero cpn. to 8/15/02, 9.75% thereafter, 8/15/07 .................................................... United States 22,650,000 22,650,000 Granite Broadcasting Corp., senior sub. note, 10.375%, 5/15/05 ........... United States 6,494,000 4,724,385 Harrah's Operating Co. Inc., senior sub. note, 7.875%, 12/15/05 .......... United States 15,250,000 16,088,750
15 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Hollinger International Publishing Inc., senior sub. note, 9.25%, 2/01/06 United States $ 6,400,000 $ 6,336,000 Hollinger International Publishing Inc., senior sub. note, 9.25%, 3/15/07 United States 2,800,000 2,772,000 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ........ United States 30,200,000 31,710,000 LIN Holdings Corp., senior disc. note, zero cpn. to 3/01/03, 10.00% thereafter, 3/01/08 .................................................... United States 17,300,000 10,812,500 Mandalay Resort Group, senior note, 9.50%, 8/01/08 ....................... United States 5,900,000 6,313,000 Mandalay Resort Group, senior sub note, 10.25%, 8/01/07 .................. United States 14,600,000 15,603,750 NTL Inc., senior note, zero cpn. to 4/01/03, 9.75% thereafter, 4/01/08 ... United States 50,000,000 14,250,000 Premier Parks Inc., senior disc. note, zero cpn. to 4/01/03, 10.00% thereafter, 4/01/08 .................................................... United States 8,000,000 6,860,000 Premier Parks Inc., senior note, 9.25%, 4/01/06 .......................... United States 8,000,000 8,160,000 Premier Parks Inc., senior note, 9.75%, 6/15/07 .......................... United States 22,500,000 23,287,500 Prime Hospitality Corp., senior sub. note, B, 9.75%, 4/01/07 ............. United States 23,200,000 23,548,000 Sinclair Broadcast Group Inc., senior sub. note, 10.00%, 9/30/05 ......... United States 14,400,000 14,976,000 Station Casinos Inc., senior note, 8.375%, 2/15/08 ....................... United States 15,000,000 15,525,000 Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 .................. United States 15,000,000 15,450,000 Sun International Hotels, senior sub. note, 9.00%, 3/15/07 ............... United States 5,100,000 5,023,500 Sun International Hotels, senior sub. note, 8.875%, 8/15/11 .............. United States 13,800,000 13,455,000 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 .............................................. United Kingdom 14,750,000 7,080,000 Telewest Communications PLC, senior disc. note, zero cpn to 2/01/05, 11.375% thereafter, 2/01/10 ............................................ United Kingdom 28,000,000 12,040,000 Telewest Communications PLC, senior note, 11.25%, 11/01/08 ............... United Kingdom 4,000,000 3,340,000 United Pan-Europe Communications NV, senior disc.note, zero cpn. to 8/01/04, 12.50% thereafter, 8/01/09 .................................... Netherlands 14,474,000 1,483,585 Young Broadcasting Inc., 10.00%, 3/01/11 ................................. United States 19,000,000 18,477,500 --------------- 623,188,892 --------------- ELECTRONIC TECHNOLOGY 2.9% Alliant Techsystems Inc., senior sub note, 8.50%, 5/15/11 ................ United States 6,900,000 7,348,500 Amkor Technology Inc., senior note, 9.25%, 5/01/06 ....................... United States 30,000,000 28,950,000 Fairchild Semiconductor Corp., senior sub. note, 10.50%, 2/01/09 ......... United States 15,400,000 16,555,000 Flextronics International Ltd., senior sub. note, 9.875%, 7/01/10 ........ Singapore 5,300,000 5,750,500 L-3 Communications Holdings Inc., senior sub. note, 10.375%, 5/01/07 ..... United States 5,400,000 5,872,500 SCG Holding and Semiconductor Co., senior sub. note, 12.00%, 8/01/09 ..... United States 9,951,000 3,532,605 Telecommun Techniques Co., senior sub. note, 9.75%, 5/15/08 .............. United States 24,000,000 7,320,000 --------------- 75,329,105 --------------- ENERGY MINERALS 2.6% (c) AEI Resources Inc., senior sub. note, 144A, 11.50%, 12/15/06 ............. United States 20,000,000 2,300,000 Conproca SA, S.F., senior secured note, 144A, 12.00%, 6/16/10 ............ Mexico 23,300,000 26,853,250 Mission Resources Corp., senior sub. note, C, 10.875%, 4/01/07 ........... United States 5,000,000 4,700,000 P&L Coal Holdings Corp., senior note, B, 8.875%, 5/15/08 ................. United States 5,166,000 5,579,280 P&L Coal Holdings Corp., senior sub. note, B, 9.625%, 5/15/08 ............ United States 26,600,000 28,728,000 --------------- 68,160,530 ---------------
16 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) FINANCE 1.9% Sovereign Bancorp Inc., senior note, 10.50%, 11/15/06 .................... United States $ 16,500,000 $ 18,211,054 Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 ................... United States 30,000,000 31,350,000 --------------- 49,561,054 --------------- HEALTH SERVICES 3.5% Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 ................ United States 9,000,000 9,765,000 Davita Inc., senior sub. note, B, 9.25%, 4/15/11 ......................... United States 4,700,000 4,982,000 HCA Inc., 8.75%, 9/01/10 ................................................. United States 11,200,000 12,488,000 Iasis Healthcare Corp., senior sub. note, 13.00%, 10/15/09 ............... United States 20,000,000 22,100,000 Magellan Health Services Inc., senior note, 144A, 9.375%, 11/15/07 ....... United States 8,400,000 8,988,000 Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 .......... United States 20,000,000 19,800,000 Triad Hospitals Inc., senior note, 8.75%, 5/01/09 ........................ United States 11,900,000 12,911,500 --------------- 91,034,500 --------------- INDUSTRIAL SERVICES 4.8% Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ......... United States 24,000,000 23,640,000 Allied Waste North America Inc., senior sub. note, B, 10.00%, 8/01/09 .... .United States 10,000,000 10,350,000 Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ....... United States 4,750,000 4,868,750 Great Lakes Dredge & Dock Corp., senior sub. note, 144A, 11.25%, 8/15/08 . United States 3,800,000 3,895,000 Key Energy Services Inc., senior sub. note, 14.00%, 1/15/09 .............. United States 27,939,000 32,129,850 (c) Safety Kleen Services, senior sub. note, 9.25%, 6/01/08 .................. United States 10,000,000 1,000 Universal Compression Inc., senior disc. note, zero cpn. to 2/15/03, 9.875% thereafter, 2/15/08 ............................................. United States 31,800,000 29,613,750 URS Corp., senior sub. note, 12.25%, 5/01/09 ............................. United States 19,700,000 20,291,000 --------------- 124,789,350 --------------- NON-ENERGY MINERALS .6% Century Aluminum Co., first mortgage, 144A, 11.75%, 4/15/08 .............. United States 8,000,000 8,320,000 Louisiana Pacific Corp., 10.875, senior sub. note, 10.875%, 11/15/08 ..... United States 4,500,000 4,567,500 (c) Sheffield Steel Corp., first mortgage, B, 11.50%, 12/01/05 ............... United States 8,000,000 2,240,000 --------------- 15,127,500 --------------- PROCESS INDUSTRIES 8.4% Anchor Glass, first mortgage, 11.25%, 4/01/05 ............................ United States 23,700,000 19,789,500 Anchor Glass Container, senior note, 9.875%, 3/15/08 ..................... United States 17,300,000 10,466,500 Avecia Group PLC, senior note, 11.00%, 7/01/09 ........................... United Kingdom 33,000,000 32,010,000 Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 .............. United States 11,700,000 11,056,500 Climachem Inc., senior sub. note, B, 10.75%, 12/01/07 .................... United States 7,500,000 3,450,000 Equistar Chemicals LP, senior note, 10.125%, 9/01/08 ..................... United States 4,000,000 4,100,000 Equistar Chemicals LP, senior note, 8.75%, 2/15/09 ....................... United States 20,000,000 19,107,580 FiberMark Inc., senior note, 10.75%, 4/15/11 ............................. United States 17,000,000 15,300,000 Four M Corp., senior note, B, 12.00%, 6/01/06 ............................ United States 7,400,000 7,178,000 Graham Packaging Co., senior disc. note, B, zero cpn. to 1/15/03, 10.75% thereafter, 1/15/09 .................................................... United States 5,600,000 4,004,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ................ United States 6,600,000 5,643,000 Huntsman ICI Chemicals LLC, senior disc. note, zero cpn., 12/31/09 ....... United States 76,130,000 19,793,800 Lyondell Chemical Co., senior sub. note, 10.875%, 5/01/09 ................ United States 2,400,000 2,286,000
17 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) PROCESS INDUSTRIES (CONT.) MacDermid Inc., senior sub. note, 9.125%, 7/15/11 ........................ United States $ 8,900,000 $ 9,256,000 Noveon Inc., B, 11.00%, 2/28/11 .......................................... United States 4,800,000 5,136,000 (c) Pindo Deli Finance Mauritius, senior note, 11.75%, 10/01/17 .............. Indonesia 30,900,000 4,094,250 (c) Polysindo International Finance Co. BV, secured note, 9.375%, 7/30/07 .... Indonesia 27,750,000 3,399,375 Radnor Holdings Inc., senior note, 10.00%, 12/01/03 ...................... United States 6,250,000 4,718,750 Riverwood International Co., senior note, 10.625%, 8/01/07 ............... United States 23,000,000 24,610,000 Terra Industries Inc., senior note, B, 10.50%, 6/15/05 ................... United States 15,000,000 11,325,000 (c) Tjiwi Kimia Finance Mauritius, senior note, 10.00%, 8/01/04 .............. Indonesia 11,000,000 1,760,000 --------------- 218,484,255 --------------- PRODUCER MANUFACTURING 5.0% Advanced Accessory Systems, senior sub. note, B, 9.75%, 10/01/07 ......... United States 8,000,000 6,640,000 Airxcel Inc., senior sub. note, B, 11.00%, 11/15/07 ...................... United States 13,500,000 7,492,500 American Axle & Manufacturing Inc., senior sub. note, 9.75%, 3/01/09 ..... United States 20,000,000 21,100,000 (c) Cambridge Industries Inc., senior sub. note, B, 10.25%, 7/15/07 .......... United States 4,700,000 587,500 Dura Operating Corp., senior sub note, Series D, 9.00%, 5/01/09 .......... United States 11,000,000 10,670,000 (c) Goss Graphic Systems Inc., 12.25%, 11/19/05 .............................. United States 9,053,899 49,796 Neenah Corp., senior sub. note, B, 11.125%, 5/01/07 ...................... United States 600,000 333,000 Neenah Corp., senior sub. note, F, 11.125%, 5/01/07 ...................... United States 5,300,000 2,941,500 Nortek Inc., senior note, B, 8.875%, 8/01/08 ............................. United States 8,000,000 8,000,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 ............................. United States 19,200,000 19,488,000 Oshkosh Truck Corp., senior sub. note, 8.75%, 3/01/08 .................... United States 4,450,000 4,516,750 (c) Talon Automotive Group Inc., senior sub. note, B, 9.625%, 5/01/08 ........ United States 20,850,000 312,750 Tenneco Automotive Inc., senior sub. note, 11.625%, 10/15/09 ............. United States 30,000,000 14,550,000 Terex Corp., senior sub. note, 8.875%, 4/01/08 ........................... United States 34,250,000 34,164,375 (c) Thermadyne Holdings Corp., senior sub. note, 10.75%, 11/01/03 ............ United States 19,781,000 1,978 --------------- 130,848,149 --------------- REAL ESTATE 1.4% HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 ............. United States 23,000,000 21,648,750 Meristar Hospitality Corp., senior note, 9.00%, 1/15/08 .................. United States 14,500,000 13,883,750 --------------- 35,532,500 --------------- RETAIL TRADE 1.4% Office Depot Inc., senior sub. note, 10.00%, 7/15/08 ..................... United States 22,000,000 24,035,000 Pueblo Xtra International, senior note, 9.50%, 8/01/03 ................... United States 9,500,000 1,567,500 Pueblo Xtra International, senior note, C, 9.50%, 8/01/03 ................ United States 5,000,000 825,000 Rite Aid Corp., 144A, 6.125%, 12/15/2008 ................................. United States 14,600,000 11,242,000 --------------- 37,669,500 --------------- (c) TECHNOLOGY SERVICES .3% Anacomp Inc., senior sub. note, D, 10.875%, 4/01/04 ...................... United States 28,200,000 5,217,000 PSINet Inc., 10.50%, 12/01/06 ............................................ United States 11,500,000 977,500 PSINet Inc., 11.00%, 8/01/09 ............................................. United States 27,250,000 2,316,250 --------------- 8,510,750 ---------------
18 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL COUNTRY AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) TRANSPORTATION 3.8% Gearbulk Holding Ltd., senior note, 11.25%, 12/01/04 ..................... Bermuda $ 19,000,000 $ 19,570,000 GS Superhighway Holdings Ltd., senior note, 10.25%, 8/15/07 .............. China 22,000,000 22,495,000 Sea Containers Ltd., senior note, 10.75%, 10/15/06 ....................... United States 19,700,000 11,721,500 Ultrapetrol Ltd., first mortgage, 10.50%, 4/01/08 ........................ United States 34,000,000 28,772,500 United Air Lines Inc., S.F., pass-through equipment trust, B-2, 9.06%, 9/26/14 ................................................................ United States 20,422,000 16,325,040 --------------- 98,884,040 --------------- UTILITIES 3.8% Calpine Corp., senior note, 8.625%, 8/15/10 .............................. United States 23,700,000 23,794,231 Calpine Corp., senior note, 8.50%, 2/15/11 ............................... United States 15,000,000 14,960,145 Edison Mission, 9.875%, 4/15/11 .......................................... United States 20,000,000 22,050,000 ESCOM, E168, utility deb., 11.00%, 6/01/08 ............................... South Africa 108,800,000 ZAR 10,808,560 ESI Tractebel Acq. Corp., secured notes, 7.99%, 12/30/11 ................. United States 8,000,000 8,206,688 Midland Cogeneration Venture, S.F., senior lease obligation, A, 11.75%, 7/23/05 ................................................................ United States 4,500,000 4,954,793 Midland Cogeneration Venture, S.F., senior lease obligation, B, 13.25%, 7/23/06 ................................................................ United States 11,500,000 13,400,075 --------------- 98,174,492 --------------- TOTAL BONDS (COST $3,200,491,099) ........................................ 2,314,285,728 --------------- TOTAL LONG TERM INVESTMENTS (COST $3,434,747,971) ........................ 2,442,212,117 ---------------
19 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 2001 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT(d) VALUE - ----------------------------------------------------------------------------------------------------------------------------------- (e) REPURCHASE AGREEMENT 4.4% Joint Repurchase Agreement, 2.095%, 12/03/01, (Maturity Value $115,243,218) (COST $115,223,102) ................................................................ $ 115,223,102 $ 115,223,102 ABN AMRO Inc. BMO Nesbitt Burns Corp. BNP Paribas Securities Corp. Banc of America Securities LLC Barclays Capital Inc. Bear, Stearns & Co., Inc. Credit Suisse First Boston Corp. Deutsche Banc Alex Brown Inc. Dresdner Kleinwort Wasserstein Securities LLC Greenwich Capital Markets Inc. Lehman Brothers Inc. Morgan Stanley & Co. Inc. UBS Warburg LLC Collateralized by U.S. Treasury Bills, Notes and Bonds, and U.S. Government Agency Securities --------------- TOTAL INVESTMENTS (COST $3,549,971,073) 98.3% ...................................... 2,557,435,219 OTHER ASSETS, LESS LIABILITIES 1.7% ................................................ 44,015,866 --------------- NET ASSETS 100.0% .................................................................. $ 2,601,451,085 =============== CURRENCY ABBREVIATIONS ZAR - South African Rand
(a) Non-income producing (b) 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 November 30, 2001 were $142,914. (c) See Note 6 regarding defaulted securities. (d) The principal amount is stated in U.S. dollars unless otherwise indicated. (e) Investment is through participation in a joint account with other funds managed by the investment advisor. At November 30, 2001, all repurchase agreements held by the Fund had been entered into on that date. 20 See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 2001 (UNAUDITED) Assets: Investments in securities: Cost ........................................ $ 3,549,971,073 =============== Value ....................................... 2,557,435,219 Receivables: Investment securities sold .................. 10,050,417 Capital shares sold ......................... 6,843,125 Dividends and interest ...................... 53,323,103 --------------- Total assets ........................... 2,627,651,864 --------------- Liabilities: Payables: Investment securities purchased ............. 17,679,166 Capital shares redeemed ..................... 4,692,773 Affiliates .................................. 1,707,248 Shareholders ................................ 1,765,300 Other liabilities ............................. 356,292 --------------- Total liabilities ...................... 26,200,779 --------------- Net assets, at value .................. $ 2,601,451,085 =============== Net assets consist of: Undistributed net investment income ......... $ (19,659,809) Net unrealized depreciation ................. (992,575,588) Accumulated net realized loss ............... (304,206,978) Capital shares .............................. 3,917,893,460 --------------- Net assets, at value .................. $ 2,601,451,085 ===============
See notes to financial statements. 21 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF ASSETS AND LIABILITIES (CONT.) NOVEMBER 30, 2001 (UNAUDITED) CLASS A: Net assets, at value ................................................................................ $2,077,808,723 ============== Shares outstanding .................................................................................. 1,064,379,141 ============== Net asset value per share(a) ........................................................................ $ 1.95 ============== Maximum offering price per share (net asset value per share / 95.75%) ............................... $ 2.04 ============== CLASS B: Net assets, at value ................................................................................ $ 131,747,894 ============== Shares outstanding .................................................................................. 67,598,178 ============== Net asset value and maximum offering price per share(a) ............................................. $ 1.95 ============== CLASS C: Net assets, at value ................................................................................ $ 366,995,842 ============== Shares outstanding .................................................................................. 187,356,270 ============== Net asset value per share(a) ........................................................................ $ 1.96 ============== Maximum offering price per share (net asset value per share / 99%) .................................. $ 1.98 ============== ADVISOR CLASS: Net assets, at value ................................................................................ $ 24,898,626 ============== Shares outstanding .................................................................................. 12,737,471 ============== Net asset value and maximum offering price per share ................................................ $ 1.95 ==============
(a)Redemption price is equal to net asset value less any applicable contingent deferred sales charge and redemption fees retained by the Fund. 22 See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001 (UNAUDITED) Investment income: Dividends ........................................................................................... $ 3,073,333 Interest ............................................................................................ 142,794,718 ------------- Total investment income ...................................................................... 145,868,051 ------------- Expenses: Management fees (Note 3) ............................................................................. 5,919,066 Distribution fees (Note 3) Class A ............................................................................................. 1,463,794 Class B ............................................................................................. 399,644 Class C ............................................................................................. 1,148,053 Transfer agent fees (Note 3) ......................................................................... 1,720,320 Custodian fees ....................................................................................... 18,634 Reports to shareholders .............................................................................. 79,573 Registration and filing fees ......................................................................... 68,575 Professional fees .................................................................................... 83,194 Trustees' fees and expenses .......................................................................... 32,095 Other ................................................................................................ 28,334 ------------- Total expenses ............................................................................... 10,961,282 ------------- Net investment income ....................................................................... 134,906,769 ------------- Realized and unrealized losses: Net realized loss from: Investments ........................................................................................ (98,123,599) Foreign currency transactions ...................................................................... (18,099) ------------- Net realized loss ........................................................................... (98,141,698) Net unrealized depreciation on: Investments ......................................................................................... (76,120,725) Translation of assets and liabilities denominated in foreign currencies ............................. (93,815) ------------- Net unrealized depreciation ................................................................. (76,214,540) ------------- Net realized and unrealized loss ...................................................................... (174,356,238) ------------- Net decrease in net assets resulting from operations .................................................. $ (39,449,469) =============
See notes to financial statements. 23 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001 (UNAUDITED) AND THE YEAR ENDED MAY 31, 2001
SIX MONTHS YEAR ENDED ENDED NOVEMBER 30, 2001 MAY 31, 2001 ----------------- ------------ Increase (decrease) in net assets: Operations: Net investment income ................................................................. $ 134,906,769 $ 284,465,597 Net realized loss from investments and foreign currency transactions .................. (98,141,698) (94,981,256) Net unrealized depreciation on investments and translation of assets and liabilities denominated in foreign currencies ................................................... (76,214,540) (149,716,638) ------------------------------------ Net increase (decrease) in net assets resulting from operations ................. (39,449,469) 39,767,703 Distributions to shareholders from: Net investment income: Class A ............................................................................... (110,957,552) (260,710,882) Class B ............................................................................... (6,152,892) (9,711,687) Class C ............................................................................... (17,712,068) (38,176,951) Advisor Class ......................................................................... (1,180,734) (2,561,409) ------------------------------------ Total distributions to shareholders .................................................... (136,003,246) (311,160,929) Capital share transactions: (Note 2) Class A ............................................................................... (2,598,840) 4,890,760 Class B ............................................................................... 20,310,971 59,181,132 Class C ............................................................................... 28,605,374 29,998,866 Advisor Class ......................................................................... 4,296,743 7,230,325 ------------------------------------ Total capital share transactions ....................................................... 50,614,248 101,301,083 Net decrease in net assets ...................................................... (124,838,467) (170,092,143) Net assets: Beginning of period .................................................................... 2,726,289,552 2,896,381,695 ------------------------------------ End of period .......................................................................... $ 2,601,451,085 $ 2,726,289,552 ==================================== Undistributed net investment income included in net assets: End of period .......................................................................... $ (19,659,809) $ (18,556,839) ====================================
24 See notes to financial statements. FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin High Income Trust (the Trust) is registered under the Investment Company Act of 1940 as a diversified, open-end investment company, consisting of one Fund, the Franklin AGE High Income Fund (the Fund). The Fund seeks to provide a high level of current income while seeking capital appreciation. The following summarizes the Fund's significant accounting policies. a. SECURITY VALUATION: Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. 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 and premium is amortized on a yield to maturity 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. 25 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) e. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with 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 requires the Fund to amortize all premium and discount on fixed-income securities. Such amortization is included in net investment income but did not impact the net assets or the distributions of the Fund. Prior to June 1, 2001, premiums on fixed-income securities were included in realized gains and losses. The cumulative effect of this accounting change resulted in a reduction of $6,493 in the recorded cost of investments and a corresponding increase in net unrealized appreciation. The effect of this change for the period ended November 30, 2001 was to increase net investment income by $97,147, decrease unrealized gains by $15,723, and decrease realized gains by $81,424. The statement of changes in net assets and the financial highlights for prior periods have not been restated to reflect this change in accounting policy. g. REDEMPTION FEES: Effective September 17, 2001, the Fund charges a 2% redemption fee to market timers who redeem shares held for less than 90 days. Such fees are retained by the Fund and accounted for as additional paid-in capital. 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 November 30, 2001, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 2001 MAY 31, 2001 ------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------- CLASS A SHARES: Shares sold ................................ 108,673,193 $ 212,678,012 333,032,241 $ 734,533,743 Shares issued in reinvestment of distributions ............................. 24,031,722 47,345,212 50,263,433 109,950,786 Shares redeemed ............................ (133,399,712) (262,622,064) (379,438,383) (839,593,769) ------------------------------------------------------------------------------- Net increase (decrease) .................... (694,797) $ (2,598,840) 3,857,291 $ 4,890,760 ===============================================================================
26 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 2. SHARES OF BENEFICIAL INTEREST (CONT.)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 2001 MAY 31, 2001 ------------------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------------------------------------------------------------------------------- CLASS B SHARES: Shares sold ................................ 15,850,800 $ 31,264,014 34,482,540 $ 75,232,906 Shares issued in reinvestment of distributions ............................ 1,236,020 2,428,766 1,737,998 3,781,178 Shares redeemed ............................ (6,837,825) (13,381,809) (9,146,568) (19,832,952) ------------------------------------------------------------------------------- Net increase ............................... 10,248,995 $ 20,310,971 27,073,970 $ 59,181,132 =============================================================================== CLASS C SHARES: Shares sold ................................ 32,709,200 $ 64,616,767 54,408,659 $ 119,133,448 Shares issued in reinvestment of distributions ............................ 4,460,940 8,818,360 8,683,509 19,069,148 Shares redeemed ............................ (22,773,329) (44,829,753) (49,218,498) (108,203,730) ------------------------------------------------------------------------------- Net increase ............................... 14,396,811 $ 28,605,374 13,873,670 $ 29,998,866 =============================================================================== ADVISOR CLASS SHARES: Shares sold ................................ 2,724,479 $ 5,328,859 5,077,687 $ 11,514,464 Shares issued in reinvestment of distributions ............................ 354,206 697,362 718,727 1,573,038 Shares redeemed ............................ (890,284) (1,729,478) (2,724,918) (5,857,177) ------------------------------------------------------------------------------- Net increase ............................... 2,188,401 $ 4,296,743 3,071,496 $ 7,230,325 ===============================================================================
3. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Fund 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
27 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 3. TRANSACTIONS WITH AFFILIATES (CONT.) 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 Fund shares, and received contingent deferred sales charges for the period of $1,179,664 and $271,892, respectively. The Fund paid transfer agent fees of $1,720,320, of which $1,212,216 was paid to Investor Services. 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 ============
At May 31, 2001, the Fund had 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. On May 31, 2001 the Fund had expired capital loss carryovers of $14,304,993 which were reclassified to paid-in capital. At November 30, 2001, the net unrealized depreciation based on the cost of investments for income tax purposes of $3,549,961,843 was as follows: Unrealized appreciation ........................... $ 103,162,745 Unrealized depreciation ........................... (1,095,689,369) --------------- Net unrealized depreciation ....................... $ (992,526,624) ===============
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions and bond discounts. Net realized losses differ for financial statement and tax purposes primarily due to differing treatment of foreign currency transactions and bond discounts. 28 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (unaudited) (continued) 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended November 30, 2001 aggregated $192,188,345 and $188,529,385, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 85.0% 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 November 30, 2001, the Fund held defaulted securities with a value aggregating $44,589,556 representing 1.7% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. 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 the manager serves on the bondholder committees of Anacomp Inc., Arch Communications 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. If the Fund's Manager, while in possession of such information, seeks to sell any of its holdings in these securities it will comply with all applicable federal securities laws. 29 This page intentionally left blank. This page intentionally left blank. This page intentionally left blank. -----END PRIVACY-ENHANCED MESSAGE-----