-----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, ACHHiDHdelQkU4iDmBdzUBK+7ON0C6YjuiNyBESoCd1TuxQ8ypx90T7x/CPgToE2 8FhAG8YLmR/nMNNvrsY8lA== 0000002768-03-000011.txt : 20030805 0000002768-03-000011.hdr.sgml : 20030805 20030805135742 ACCESSION NUMBER: 0000002768-03-000011 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20030531 FILED AS OF DATE: 20030805 EFFECTIVENESS DATE: 20030805 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-01608 FILM NUMBER: 03823236 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 HIGH INCOME FUND INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: AGE FUND INC DATE OF NAME CHANGE: 19810128 N-CSR 1 fhitncsrform.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-1608 -------- FRANKLIN HIGH INCOME TRUST -------------------------- (Exact name of registrant as specified in charter) ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 (Address of principal executive offices) (Zip code) MURRAY L. SIMPSON, ONE FRANKLIN PARKWAY, SAN MATEO, CA 94403-1906 ----------------------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (650) 312-2000 -------------- Date of fiscal year end: 5/31 ---- Date of reporting period: 5/31/03 ------- ITEM 1. REPORTS TO STOCKHOLDERS. MAY 31, 2003 [GRAPHIC OMITTED] ANNUAL REPORT AND SHAREHOLDER LETTER [GRAPHIC OMITTED] INCOME FRANKLIN'S AGE HIGH INCOME FUND [LOGO OMITTED] FRANKLINTEMPLETON(R) INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? ELIGIBLE SHAREHOLDERS CAN SIGN UP FOR EDELIVERY AT FRANKLINTEMPLETON.COM. SEE INSIDE FOR DETAILS. FRANKLIN TEMPLETON INVESTMENTS GAIN FROM OUR PERSPECTIVE Franklin Templeton's distinct multi-manager structure combines the specialized expertise of three world-class investment management groups--Franklin, Templeton and Mutual Series. SPECIALIZED EXPERTISE Each of our portfolio management groups operates autonomously, relying on its own research and staying true to the unique investment disciplines that underlie its success. FRANKLIN. Founded in 1947, Franklin is a leader in tax-free investing and a driving force in fixed income investing around the globe. They also bring expertise in growth- and value-style U.S. equity investing. TEMPLETON. Founded in 1940, Templeton pioneered international investing and, in 1954, launched what has become the industry's oldest global fund. Today, with research offices in over 25 countries, they offer investors the broadest global reach in the industry. MUTUAL SERIES. Established in 1949, Mutual Series is dedicated to a unique style of value investing, searching aggressively for opportunity among undervalued stocks, arbitrage situations and distressed companies. TRUE DIVERSIFICATION Because our management groups work independently and adhere to distinctly different investment approaches, Franklin, Templeton and Mutual Series funds typically have a low overlap of securities. That's why our funds can be used to build truly diversified portfolios covering every major asset class. RELIABILITY YOU CAN TRUST At Franklin Templeton Investments, we seek to consistently provide investors with exceptional risk-adjusted returns over the long term, as well as the reliable account services that have helped us become one of the most trusted names in financial services. MUTUAL FUNDS | RETIREMENT PLANS | 529 COLLEGE SAVINGS PLANS | SEPARATE ACCOUNTS [GRAPHIC OMITTED] Not part of the annual report Contents SHAREHOLDER LETTER ................. 1 ANNUAL REPORT Franklin's AGE High Income Fund .... 3 Performance Summary ................ 7 Financial Highlights & Statement of Investments ...........12 Financial Statements ...............26 Notes to Financial Statements ......30 Independent Auditors' Report .......36 Tax Designation ....................37 Board Members and Officers .........38 - -------------------------------------------------------------------------------- Shareholder Letter Dear Shareholder: The year ended May 31, 2003, witnessed mixed signs for the U.S. economy, geopolitical landscape and financial markets. The economy grew moderately, but unevenly, during the 12-month period. Despite rising unemployment and continued anemic business spending, consumer spending held its ground for the most part. In the second half of the fiscal year, financial markets experienced significant volatility, but most equity markets showed smaller losses and some gains compared with the first half. We believe these may be signs of better things to come. As the war with Iraq began in mid-March, concerns about its duration, outcome and repercussions took center stage. At period-end, with combat successfully over, attention returned to the U.S. economy. Global business confidence began to revive, consumer attitudes brightened and inflation remained tame. We believe financial market volatility will continue, however, until the U.S. economy shows more definite and sustained strength. Although future economic and market developments are impossible to predict, as an investor, you can follow certain basic principles in planning for future needs. First, investing for the long term is important so that you can better weather short-term market ups and downs. Second, by choosing a mutual fund that comprises a range of holdings, you can use diversification to help manage investment risk. You can further diffuse risk exposure by investing in different asset categories such as EDELIVERY DETAILS Log in at franklintempleton.com and click on eDelivery. Shareholders who are registered at franklintempleton.com can receive these reports via email. Not all accounts are eligible for eDelivery. ------------------------------------------------------------ NOT FDIC INSURED | MAY LOSE VALUE | NO BANK GUARANTEE ------------------------------------------------------------ Not part of the annual report | 1 stocks and bonds. Third, it may make sense to follow a regular investment plan, also called dollar cost averaging, investing a certain amount of money monthly or quarterly. Remember, however, to consider your financial ability to continue purchases through times of low price levels or changing economic conditions before committing to such a strategy. Such a plan does not assure a profit and does not protect against loss in a declining market. As always, we encourage you to discuss your goals with your financial advisor who can address concerns about volatility and diversification, periodically review your overall portfolio and help you stay focused on the long term. We firmly believe that most people benefit from professional advice, and that advice is never more valuable than during a volatile market. In the enclosed annual shareholder report for Franklin's AGE High Income Fund, the Fund's portfolio manager discusses market conditions and how they affected investment management decisions and Fund performance during the period under review. You will also find valuable performance data and financial information. Please remember that all securities markets move up and down, as do mutual fund share prices. If you would like more frequent updates, franklintempleton.com provides daily prices, monthly performance figures, portfolio holdings and other information. You can also access your account, buy and sell shares, read timely commentary from portfolio managers, and find helpful financial planning tools. We hope you will take advantage of these online services. As always, we thank you for investing with Franklin Templeton, welcome your questions and comments and look forward to serving your investment needs in the years ahead. Sincerely, /S/ Rupert H. Johnson Rupert H. Johnson, Jr. President and Chief Executive Officer - Investment Management Franklin High Income Trust A NOTE ABOUT DUPLICATE MAILINGS You will receive your Fund's shareholder report every six months. To reduce Fund expenses, we try to identify related shareholders in a household and send only one copy of the report. This process, called "householding," will continue indefinitely unless you instruct us otherwise. If you prefer not to have these documents householded, please call us at 1-800/632-2301. At any time you may view current shareholder reports on our website. THIS LETTER REFLECTS OUR ANALYSIS AND OPINIONS AS OF MAY 31, 2003. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR FUND. STATEMENTS OF FACT HAVE BEEN OBTAINED FROM SOURCES CONSIDERED RELIABLE. 2 | Not part of the annual report Annual Report Franklin's AGE High Income Fund YOUR FUND'S GOALS AND PRIMARY INVESTMENTS: 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 debt securities. [GRAPHIC OMITTED] PORTFOLIO BREAKDOWN Based on Total Net Assets as of 5/31/03 Bonds ........................................... 91.3% Equities ........................................ 6.1% Short-Term Investments and Other Net Assets ................................ 2.6% We are pleased to bring you Franklin's AGE High Income Fund's annual report for the fiscal year ended May 31, 2003. During the 12 months under review, financial market returns were mixed and conditions remained volatile. Fixed income markets generally posted solid performance as interest rates sank to multi-decade lows. Conversely, major equity indexes remained more than 30% below their 2000 peaks. Despite high yield corporate bonds' hybrid nature as one of the most equity-like in the fixed income sector, the high yield bond market strengthened in the face of stock market declines during the year under review. According to the CSFB High Yield Index, although the high yield market posted negative returns during the first half of the reporting period and reached a bottom in October, it then rallied sharply through the end of May. High yield corporate spreads, or differences over Treasury bonds, which measure investors' appetite for speculative corporate credit risk, reflected this trend during the period. While the benchmark 10-year U.S. Treasury THE DOLLAR VALUE, NUMBER OF SHARES OR PRINCIPAL AMOUNT, AND COMPLETE LEGAL TITLES OF ALL PORTFOLIO HOLDINGS ARE LISTED IN THE FUND'S STATEMENT OF INVESTMENTS (SOI). THE SOI BEGINS ON PAGE 18. Annual Report | 3 yield dropped from 5.08% to 3.37% over the past 12 months, high yield spreads over Treasuries began the period at 7.4%, widened to a near-record high of 10.8% in October, only to tighten back to 7.4% by May 31, 2003.1 Within this environment, Franklin's AGE High Income Fund - Class A posted a +10.67% cumulative total return for the 12 months ended May 31, 2003, as shown in the Performance Summary beginning on page 7. In comparison, the Fund's benchmark CSFB High Yield Index returned 13.25% for the year ended May 31, 2003.1 Although the Fund underperformed the benchmark index, it outperformed its peers, as measured by the 8.61% return of the Lipper High Current Yield Average, which comprised 385 high yield bond funds on May 31, 2003.2 The Fund also outpaced the Standard & Poor's 500 Composite Index's (S&P 500's) -8.07% return for the same time.3 Positive supply and demand market forces aided the high yield market's rally. On the demand side, investors poured money into high yield mutual funds at a healthy pace. Based on data from research firm AMG, high yield mutual funds attracted inflows of more than $16 billion during the first five months of 2003 compared with $12 billion for the entire calendar year 2002. On the supply side, new high yield corporate bond issuance remained relatively light throughout most of the 12-month period, but the pace began to accelerate in May. Part of the high yield rally also coincided with an equity market valuation recovery. SECTOR/INDUSTRY DISCUSSIONS WIRELESS - COMMUNICATIONS According to industry trade group Cellular Telecommunications and Internet Association, wireless communication service providers reported continuing subscriber and revenue growth during the period under review. Additionally, average monthly revenue per customer rose in 2002 due to significant usage growth and despite providers offering new, discounted rate plans. Wireless communications ranked among the high yield market's strongest performers over the past 12 months, according to the CSFB High Yield Index. At period-end, we held a relatively high exposure to the wireless communications industry compared with the index. Our holdings in Nextel Communications, AT&T Wireless Group and Crown Castle International bonds rose in value during the period. TOP 10 HOLDINGS 5/31/03 - ------------------------------------------ COMPANY % OF TOTAL SECTOR/INDUSTRY NET ASSETS - -------------------------------------------- Triton PCS Inc. 1.8% COMMUNICATIONS - -------------------------------------------- AES Corp. 1.6% UTILITIES - -------------------------------------------- Nextel Communications Inc. 1.6% COMMUNICATIONS - -------------------------------------------- Allied Waste North America Inc. 1.3% INDUSTRIAL SERVICES - -------------------------------------------- Dynegy Inc. 1.3% UTILITIES - -------------------------------------------- EchoStar DBS Corp. 1.2% CONSUMER SERVICES - -------------------------------------------- Charter Communications Holdings LLC 1.2% CONSUMER SERVICES - -------------------------------------------- Station Casinos Inc. 1.2% CONSUMER SERVICES - -------------------------------------------- DIRECTV Holdings/Finance 1.2% CONSUMER SERVICES - -------------------------------------------- Willis Corroon Corp. 1.2% FINANCE - -------------------------------------------- 1. Source: Credit Suisse First Boston (CSFB). The CSFB High Yield Index is a 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 indexes are unmanaged and include reinvested dividends. One cannot invest directly in an index, nor is an index representative of the Fund's portfolio. 4 |Annual Report DIVIDEND DISTRIBUTIONS 6/1/02-5/31/03 - -------------------------------------------------------------------------------- DIVIDEND PER SHARE ----------------------------------------------------------------- MONTH CLASS A CLASS B CLASS C CLASS R ADVISOR CLASS - -------------------------------------------------------------------------------- June 1.50 cents 1.42 cents 1.42 cents 1.44 cents 1.53 cents - -------------------------------------------------------------------------------- July 1.50 cents 1.42 cents 1.42 cents 1.44 cents 1.52 cents - -------------------------------------------------------------------------------- August 1.50 cents 1.42 cents 1.42 cents 1.44 cents 1.52 cents - -------------------------------------------------------------------------------- September 1.50 cents 1.45 cents 1.45 cents 1.46 cents 1.52 cents - -------------------------------------------------------------------------------- October 1.50 cents 1.45 cents 1.45 cents 1.46 cents 1.52 cents - -------------------------------------------------------------------------------- November 1.50 cents 1.45 cents 1.45 cents 1.46 cents 1.52 cents - -------------------------------------------------------------------------------- December 1.30 cents 1.23 cents 1.23 cents 1.25 cents 1.32 cents - -------------------------------------------------------------------------------- January 1.30 cents 1.23 cents 1.23 cents 1.25 cents 1.32 cents - -------------------------------------------------------------------------------- February 1.30 cents 1.23 cents 1.23 cents 1.25 cents 1.32 cents - -------------------------------------------------------------------------------- March 1.10 cents 1.02 cents 1.02 cents 1.04 cents 1.12 cents - -------------------------------------------------------------------------------- April 1.10 cents 1.02 cents 1.02 cents 1.04 cents 1.12 cents - -------------------------------------------------------------------------------- May 1.10 cents 1.02 cents 1.02 cents 1.04 cents 1.12 cents - -------------------------------------------------------------------------------- TOTAL 16.20 cents 15.36 cents 15.36 cents 15.57 cents 16.45 cents - -------------------------------------------------------------------------------- WHAT IS A MERCHANT POWER PRODUCER? A merchant power producer manufactures power as a commodity, so its income stream depends on the market price. In contrast, traditional power producers generally rely on predetermined rates of return, usually set by a regulatory body, to generate income. PAY TELEVISION - CONSUMER SERVICES During the year under review, the pay television industry's overall performance reflected the high yield market's broader trends but with higher volatility due to the performance of cable television bonds. Adelphia Communications' bankruptcy earlier in 2002 raised fears that other cable providers might also be vulnerable and led to most domestic cable operators' bonds trading lower during the first half of the Fund's fiscal year. Beginning in October, however, valuations reached a bottom as investors appeared more confident that growth in new services -- digital cable and high-speed Internet access -- would allow cable companies to meet their financial requirements. By period-end, the Fund's holdings in CSC Holdings and Charter Communications increased from their October lows. Additionally, the Fund initiated a position in digital broadcast service provider DIRECTV, whose bonds strengthened after investment grade-rated media company News Corp. announced it reached an agreement to acquire a large stake in DIRECTV's parent company, Hughes Electronics. UTILITIES In contrast to its usual classification as a defensive sector with stable cash flows, utilities experienced significant volatility during the reporting period. Following utility deregulation enacted by many states in the mid-1990s, several utility businesses shed their traditional regulated businesses and attempted to become merchant power producers and energy traders. Moreover, acquisitions and other ambitious growth plans stretched many utility companies' balance sheets with substantial amounts of debt. Bond prices generally fell during the Fund's fiscal year as Annual Report| 5 investors feared utilities would default. We selectively added utility sector holdings during the sell-off, buying most bonds at discounts to par value. After many companies refinanced their maturing debt, bond prices recovered. Fund holdings AES, Dynegy and CMS Energy appreciated during the period. HEALTH SERVICES The health care sector faced a number of challenges during the 12 months ended May 31, 2003. Consequently, the sector underperformed the overall high yield market, according to the CSFB High Yield Index. The Fund's overweighted position in health services negatively impacted relative performance. During the period under review, we initiated positions in HealthSouth and Tenet Healthcare, which traded at significant discounts to par value due to fears that Medicare reimbursement rates would decline. While Tenet bonds mostly recovered, HealthSouth's securities fell after disclosure of HealthSouth senior management's fraudulent activities. On the positive side, our Fresenius Medical Care and Iasis Healthcare holdings experienced price appreciation during the period. ELECTRONIC TECHNOLOGY The technology sector also ranked among the strongest performing industries during the reporting period, according to the CSFB High Yield Index. Bond valuations improved from late 2002's depressed levels due to moderately improving economic conditions. Technology companies also reduced inventory levels and preserved cash. The Fund benefited from relatively high exposure to the sector. ON Semiconductor contributed to Fund performance during the period. We thank you for your participation in Franklin's AGE High Income Fund and look forward to serving your future investment needs. [GRAPHIC OMITTED] PICTURE OF CHRISTOPHER J. MOLUMPHY /S/ Christopher J. Molumphy Christopher J. Molumphy, CFA Senior Portfolio Manager Franklin's AGE High Income Fund THIS DISCUSSION REFLECTS OUR ANALYSIS, OPINIONS AND PORTFOLIO HOLDINGS AS OF MAY 31, 2003, THE END OF THE REPORTING PERIOD. OUR STRATEGIES AND THE FUND'S PORTFOLIO COMPOSITION WILL CHANGE DEPENDING ON MARKET AND ECONOMIC CONDITIONS. THESE OPINIONS MAY NOT BE RELIED UPON AS INVESTMENT ADVICE OR AN OFFER FOR A PARTICULAR SECURITY. THE INFORMATION IS NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR THE FUND. STATEMENTS OF FACT ARE FROM SOURCES CONSIDERED RELIABLE, BUT THE ADVISOR MAKES NO REPRESENTATION OR WARRANTY AS TO THEIR COMPLETENESS OR ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS, THESE INSIGHTS MAY HELP YOU UNDERSTAND OUR INVESTMENT MANAGEMENT PHILOSOPHY. 6 |Annual Report Performance Summary as of 5/31/03 Your dividend income will vary depending on dividends or interest paid by securities in the Fund's portfolio, adjusted for operating expenses of each class. Capital gain distributions are net profits realized from the sale of portfolio securities. The performance table and graphs do not reflect any taxes due on Fund dividends, capital gain distributions, if any, or any realized gains on the sale of Fund shares. Total return reflects the Fund's dividend income, capital gain distributions, if any, and any unrealized gains or losses. PRICE AND DISTRIBUTION INFORMATION - -------------------------------------------------------------------------------- CLASS A CHANGE 5/31/03 5/31/02 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.01 $1.88 $1.87 - -------------------------------------------------------------------------------- DISTRIBUTIONS (6/1/02-5/31/03) - -------------------------------------------------------------------------------- Dividend Income $0.1620 - -------------------------------------------------------------------------------- CLASS B CHANGE 5/31/03 5/31/02 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.01 $1.88 $1.87 - -------------------------------------------------------------------------------- DISTRIBUTIONS (6/1/02-5/31/03) - -------------------------------------------------------------------------------- Dividend Income $0.1536 - -------------------------------------------------------------------------------- CLASS C CHANGE 5/31/03 5/31/02 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.01 $1.89 $1.88 - -------------------------------------------------------------------------------- DISTRIBUTIONS (6/1/02-5/31/03) - -------------------------------------------------------------------------------- Dividend Income $0.1536 - -------------------------------------------------------------------------------- CLASS R CHANGE 5/31/03 5/31/02 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.01 $1.89 $1.88 - -------------------------------------------------------------------------------- DISTRIBUTIONS (6/1/02-5/31/03) - -------------------------------------------------------------------------------- Dividend Income $0.1557 - -------------------------------------------------------------------------------- ADVISOR CLASS CHANGE 5/31/03 5/31/02 - -------------------------------------------------------------------------------- Net Asset Value (NAV) +$0.00 $1.88 $1.88 - -------------------------------------------------------------------------------- DISTRIBUTIONS (6/1/02-5/31/03) - -------------------------------------------------------------------------------- Dividend Income $0.1645 - -------------------------------------------------------------------------------- Annual Report | Past performance does not guarantee future results. | 7 Performance Summary (CONTINUED) PERFORMANCE
- ----------------------------------------------------------------------------------------------------- CLASS A 1-YEAR 5-YEAR 10-YEAR - ----------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +10.67% +5.43% +79.02% - ----------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +6.13% +0.20% +5.55% - ----------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,613 $10,103 $17,169 - ----------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (6/30/03) 4 +17.84% +0.84% +5.64% - ----------------------------------------------------------------------------------------------------- Distribution Rate 5 6.73% - ----------------------------------------------------------------------------------------------------- 30-Day Standardized Yield 6 7.14% - ----------------------------------------------------------------------------------------------------- CLASS B 1-YEAR 3-YEAR INCEPTION (1/1/99) - ----------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +10.13% +10.17% +5.46% - ----------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +6.13% +2.51% +0.91% - ----------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,613 $10,772 $10,410 - ----------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (6/30/03) 4 +18.09% +2.53% +1.51% - ----------------------------------------------------------------------------------------------------- Distribution Rate 5 6.51% - ----------------------------------------------------------------------------------------------------- 30-Day Standardized Yield 6 6.93% - ----------------------------------------------------------------------------------------------------- CLASS C 1-YEAR 5-YEAR INCEPTION (5/16/95) - ----------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +10.07% +3.13% +44.30% - ----------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +7.92% +0.42% +4.53% - ----------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,792 $10,210 $14,275 - ----------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (6/30/03) 4 +20.19% +1.06% +4.89% - ----------------------------------------------------------------------------------------------------- Distribution Rate 5 6.41% - ----------------------------------------------------------------------------------------------------- 30-Day Standardized Yield 6 6.87% - ----------------------------------------------------------------------------------------------------- CLASS R 1-YEAR INCEPTION (1/1/02) - ----------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +10.21% +11.88% - ----------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +9.21% +7.63% - ----------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $10,921 $11,090 - ----------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (6/30/03) 4 +21.74% +9.54% - ----------------------------------------------------------------------------------------------------- Distribution Rate 5 6.60% - ----------------------------------------------------------------------------------------------------- 30-Day Standardized Yield 6 7.13% - ----------------------------------------------------------------------------------------------------- ADVISOR CLASS 7 1-YEAR 5-YEAR 10-YEAR - ----------------------------------------------------------------------------------------------------- Cumulative Total Return 1 +10.23% +6.11% +81.09% - ----------------------------------------------------------------------------------------------------- Average Annual Total Return 2 +10.23% +1.19% +6.12% - ----------------------------------------------------------------------------------------------------- Value of $10,000 Investment 3 $11,023 $10,611 $18,109 - ----------------------------------------------------------------------------------------------------- Avg. Ann. Total Return (6/30/03) 4 +23.48% +1.84% +6.23% - ----------------------------------------------------------------------------------------------------- Distribution Rate 5 7.15% - ----------------------------------------------------------------------------------------------------- 30-Day Standardized Yield 6 7.61% - -----------------------------------------------------------------------------------------------------
ONGOING MARKET VOLATILITY CAN SIGNIFICANTLY AFFECT SHORT-TERM PERFORMANCE; MORE RECENT RETURNS MAY DIFFER FROM THOSE SHOWN. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, AND YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. FOR MORE CURRENT PERFORMANCE, SEE "FUNDS AND PERFORMANCE" AT FRANKLINTEMPLETON.COM OR CALL 1-800/342-5236. 8 | Past performance does not guarantee future results. | Annual Report Performance Summary (CONTINUED) 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 interest. It differs from the Fund in composition and does not pay management fees or expenses. One cannot invest directly in an index. CLASS A (6/1/93-5/31/03) [GRAPHIC OMITTED] PLOT POINTS FOLLOW: Franklin's AGE High Income Fund CSFB High Yield Index 8 6/1/93 $9,590 $10,000 6/30/93 $9,803 $10,181 7/31/93 $9,914 $10,287 8/31/93 $9,956 $10,374 9/30/93 $9,998 $10,433 10/31/93 $10,289 $10,624 11/30/93 $10,332 $10,758 12/31/93 $10,494 $10,894 1/31/94 $10,719 $11,088 2/28/94 $10,616 $11,104 3/31/94 $10,145 $10,778 4/30/94 $10,078 $10,633 5/31/94 $10,123 $10,694 6/30/94 $10,131 $10,622 7/31/94 $10,177 $10,672 8/31/94 $10,261 $10,749 9/30/94 $10,308 $10,792 10/31/94 $10,355 $10,800 11/30/94 $10,244 $10,674 12/31/94 $10,332 $10,788 1/31/95 $10,420 $10,901 2/28/95 $10,832 $11,169 3/31/95 $10,922 $11,295 4/30/95 $11,217 $11,546 5/31/95 $11,474 $11,872 6/30/95 $11,566 $11,950 7/31/95 $11,785 $12,135 8/31/95 $11,836 $12,169 9/30/95 $11,930 $12,309 10/31/95 $12,025 $12,446 11/30/95 $12,077 $12,504 12/31/95 $12,261 $12,663 1/31/96 $12,490 $12,904 2/29/96 $12,588 $12,972 3/31/96 $12,508 $12,937 4/30/96 $12,562 $13,007 5/31/96 $12,707 $13,112 6/30/96 $12,717 $13,141 7/31/96 $12,819 $13,259 8/31/96 $13,061 $13,404 9/30/96 $13,352 $13,634 10/31/96 $13,456 $13,749 11/30/96 $13,752 $13,963 12/31/96 $14,002 $14,236 1/31/97 $14,109 $14,340 2/28/97 $14,363 $14,609 3/31/97 $14,029 $14,446 4/30/97 $14,188 $14,574 5/31/97 $14,498 $14,867 6/30/97 $14,759 $15,069 7/31/97 $15,175 $15,389 8/31/97 $15,186 $15,472 9/30/97 $15,454 $15,778 10/31/97 $15,360 $15,777 11/30/97 $15,579 $15,889 12/31/97 $15,695 $16,033 1/31/98 $15,865 $16,306 2/28/98 $16,036 $16,433 3/31/98 $16,208 $16,515 4/30/98 $16,273 $16,639 5/31/98 $16,284 $16,689 6/30/98 $16,295 $16,724 7/31/98 $16,417 $16,841 8/31/98 $15,199 $15,698 9/30/98 $15,267 $15,696 10/31/98 $14,995 $15,384 11/30/98 $15,980 $16,164 12/31/98 $15,933 $16,126 1/31/99 $16,177 $16,278 2/28/99 $16,013 $16,244 3/31/99 $16,202 $16,392 4/30/99 $16,512 $16,754 5/31/99 $16,163 $16,573 6/30/99 $16,175 $16,581 7/31/99 $16,188 $16,589 8/31/99 $15,892 $16,442 9/30/99 $15,718 $16,315 10/31/99 $15,669 $16,235 11/30/99 $15,997 $16,456 12/31/99 $16,010 $16,655 1/31/00 $15,831 $16,589 2/29/00 $15,910 $16,691 3/31/00 $15,594 $16,441 4/30/00 $15,608 $16,416 5/31/00 $15,354 $16,154 6/30/00 $15,772 $16,516 7/31/00 $15,853 $16,671 8/31/00 $16,004 $16,783 9/30/00 $15,740 $16,628 10/31/00 $15,251 $16,111 11/30/00 $14,545 $15,476 12/31/00 $14,831 $15,787 1/31/01 $15,838 $16,733 2/28/01 $15,982 $16,902 3/31/01 $15,542 $16,566 4/30/01 $15,321 $16,393 5/31/01 $15,619 $16,721 6/30/01 $15,167 $16,462 7/31/01 $15,372 $16,638 8/31/01 $15,578 $16,871 9/30/01 $14,394 $15,807 10/31/01 $14,840 $16,167 11/30/01 $15,367 $16,689 12/31/01 $15,264 $16,699 1/31/02 $15,399 $16,854 2/28/02 $15,132 $16,735 3/31/02 $15,515 $17,118 4/30/02 $15,721 $17,390 5/31/02 $15,513 $17,329 6/30/02 $14,384 $16,724 7/31/02 $13,836 $16,246 8/31/02 $13,963 $16,457 9/30/02 $13,749 $16,255 10/31/02 $13,619 $16,156 11/30/02 $14,626 $17,010 12/31/02 $14,739 $17,218 1/31/03 $15,122 $17,686 2/28/03 $15,238 $17,948 3/31/03 $15,788 $18,408 4/30/03 $16,886 $19,346 5/31/03 $17,169 $19,627 CLASS B (1/1/93-5/31/03) [GRAPHIC OMITTED] PLOT POINTS FOLLOW: Franklin's AGE High Income Fund CSFB High Yield Index 1/1/99 $10,000 $10,000 1/31/99 $10,153 $10,094 2/28/99 $10,046 $10,073 3/31/99 $10,123 $10,164 4/30/99 $10,351 $10,389 5/31/99 $10,129 $10,277 6/30/99 $10,133 $10,282 7/31/99 $10,098 $10,287 8/31/99 $9,947 $10,196 9/30/99 $9,834 $10,117 10/31/99 $9,759 $10,068 11/30/99 $9,959 $10,204 12/31/99 $10,003 $10,328 1/31/00 $9,887 $10,287 2/29/00 $9,932 $10,350 3/31/00 $9,691 $10,195 4/30/00 $9,736 $10,180 5/31/00 $9,573 $10,017 6/30/00 $9,829 $10,241 7/31/00 $9,876 $10,338 8/31/00 $9,965 $10,407 9/30/00 $9,797 $10,311 10/31/00 $9,445 $9,990 11/30/00 $9,002 $9,597 12/31/00 $9,175 $9,790 1/31/01 $9,841 $10,376 2/28/01 $9,927 $10,481 3/31/01 $9,650 $10,272 4/30/01 $9,463 $10,166 5/31/01 $9,643 $10,369 6/30/01 $9,405 $10,208 7/31/01 $9,529 $10,317 8/31/01 $9,606 $10,462 9/30/01 $8,916 $9,802 10/31/01 $9,187 $10,025 11/30/01 $9,509 $10,349 12/31/01 $9,441 $10,355 1/31/02 $9,521 $10,451 2/28/02 $9,352 $10,377 3/31/02 $9,585 $10,615 4/30/02 $9,708 $10,784 5/31/02 $9,576 $10,746 6/30/02 $8,875 $10,371 7/31/02 $8,533 $10,074 8/31/02 $8,555 $10,205 9/30/02 $8,473 $10,080 10/31/02 $8,390 $10,018 11/30/02 $9,007 $10,548 12/31/02 $9,019 $10,677 1/31/03 $9,305 $10,967 2/28/03 $9,373 $11,130 3/31/03 $9,706 $11,415 4/30/03 $10,321 $11,997 5/31/03 $10,410 $12,171 Annual Report | Past performance does not guarantee future results. | 9 Performance Summary (CONTINUED) CLASS C (5/16/95-5/31/03) [GRAPHIC OMITTED] PLOT POINTS FOLLOW: Franklin's AGE High Income Fund CSFB High Yield Index 5/16/95 $9,892 $10,000 5/31/95 $9,928 $10,136 6/30/95 $10,004 $10,203 7/31/95 $10,186 $10,362 8/31/95 $10,223 $10,391 9/30/95 $10,297 $10,510 10/31/95 $10,373 $10,627 11/30/95 $10,412 $10,677 12/31/95 $10,565 $10,812 1/31/96 $10,756 $11,018 2/29/96 $10,835 $11,076 3/31/96 $10,760 $11,046 4/30/96 $10,840 $11,106 5/31/96 $10,927 $11,196 6/30/96 $10,930 $11,220 7/31/96 $11,052 $11,321 8/31/96 $11,215 $11,445 9/30/96 $11,500 $11,642 10/31/96 $11,584 $11,739 11/30/96 $11,792 $11,923 12/31/96 $12,001 $12,155 1/31/97 $12,087 $12,244 2/28/97 $12,340 $12,474 3/31/97 $12,006 $12,334 4/30/97 $12,136 $12,444 5/31/97 $12,393 $12,694 6/30/97 $12,611 $12,867 7/31/97 $12,960 $13,140 8/31/97 $13,007 $13,210 9/30/97 $13,230 $13,472 10/31/97 $13,144 $13,471 11/30/97 $13,281 $13,566 12/31/97 $13,419 $13,690 1/31/98 $13,511 $13,923 2/28/98 $13,650 $14,031 3/31/98 $13,836 $14,101 4/30/98 $13,839 $14,207 5/31/98 $13,842 $14,250 6/30/98 $13,844 $14,280 7/31/98 $13,989 $14,380 8/31/98 $12,902 $13,403 9/30/98 $13,001 $13,402 10/31/98 $12,765 $13,135 11/30/98 $13,594 $13,801 12/31/98 $13,549 $13,769 1/31/99 $13,750 $13,899 2/28/99 $13,605 $13,870 3/31/99 $13,708 $13,996 4/30/99 $14,014 $14,305 5/31/99 $13,713 $14,151 6/30/99 $13,718 $14,158 7/31/99 $13,671 $14,165 8/31/99 $13,467 $14,039 9/30/99 $13,315 $13,931 10/31/99 $13,215 $13,862 11/30/99 $13,486 $14,051 12/31/99 $13,545 $14,221 1/31/00 $13,388 $14,164 2/29/00 $13,449 $14,252 3/31/00 $13,123 $14,038 4/30/00 $13,184 $14,017 5/31/00 $12,964 $13,793 6/30/00 $13,310 $14,102 7/31/00 $13,372 $14,234 8/31/00 $13,493 $14,330 9/30/00 $13,268 $14,198 10/31/00 $12,793 $13,756 11/30/00 $12,196 $13,214 12/31/00 $12,430 $13,480 1/31/01 $13,328 $14,287 2/28/01 $13,444 $14,432 3/31/01 $13,070 $14,144 4/30/01 $12,817 $13,997 5/31/01 $13,061 $14,277 6/30/01 $12,740 $14,056 7/31/01 $12,906 $14,206 8/31/01 $13,009 $14,405 9/30/01 $12,079 $13,496 10/31/01 $12,445 $13,804 11/30/01 $12,879 $14,250 12/31/01 $12,787 $14,258 1/31/02 $12,895 $14,391 2/28/02 $12,667 $14,289 3/31/02 $12,981 $14,616 4/30/02 $13,147 $14,848 5/31/02 $12,969 $14,796 6/30/02 $12,025 $14,280 7/31/02 $11,564 $13,872 8/31/02 $11,593 $14,052 9/30/02 $11,482 $13,879 10/31/02 $11,299 $13,794 11/30/02 $12,203 $14,524 12/31/02 $12,219 $14,701 1/31/03 $12,604 $15,101 2/28/03 $12,695 $15,325 3/31/03 $13,144 $15,717 4/30/03 $14,047 $16,519 5/31/03 $14,275 $16,758 AVERAGE ANNUAL TOTAL RETURN - --------------------------------------- CLASS C 5/31/03 - --------------------------------------- 1-Year +7.92% - --------------------------------------- 5-Year +0.42% - --------------------------------------- Since Inception (5/16/95) +4.53% - --------------------------------------- CLASS R (1/1/02-5/31/03) [GRAPHIC OMITTED] PLOT POINTS FOLLOW: Franklin's AGE High Income Fund CSFB High Yield Index 1/1/02 $10,000 $10,000 1/31/02 $10,088 $10,093 2/28/02 $9,910 $10,021 3/31/02 $10,212 $10,251 4/30/02 $10,344 $10,414 5/31/02 $10,205 $10,377 6/30/02 $9,463 $10,015 7/31/02 $9,101 $9,729 8/31/02 $9,126 $9,855 9/30/02 $9,039 $9,734 10/31/02 $8,895 $9,675 11/30/02 $9,607 $10,186 12/31/02 $9,621 $10,311 1/31/03 $9,925 $10,591 2/28/03 $9,998 $10,748 3/31/03 $10,353 $11,023 4/30/03 $11,066 $11,585 5/31/03 $11,090 $11,753 AVERAGE ANNUAL TOTAL RETURN - ---------------------------------------- CLASS R 5/31/03 - ---------------------------------------- 1-Year +9.21% - ---------------------------------------- Since Inception (1/1/02) +7.63% - ---------------------------------------- - ---------------------------------------- 10 | Past performance does not guarantee future results.| Annual Report Performance Summary (CONTINUED) ADVISOR CLASS (6/1/93-5/31/03) [GRAPHIC OMITTED] PLOT POINTS FOLLOW: Franklin's AGE High Income Fund CSFB High Yield Index 6/1/93 $10,000 $10,000 6/30/93 $10,222 $10,181 7/31/93 $10,338 $10,287 8/31/93 $10,381 $10,374 9/30/93 $10,425 $10,433 10/31/93 $10,728 $10,624 11/30/93 $10,773 $10,758 12/31/93 $10,942 $10,894 1/31/94 $11,177 $11,088 2/28/94 $11,069 $11,104 3/31/94 $10,578 $10,778 4/30/94 $10,509 $10,633 5/31/94 $10,556 $10,694 6/30/94 $10,564 $10,622 7/31/94 $10,612 $10,672 8/31/94 $10,700 $10,749 9/30/94 $10,748 $10,792 10/31/94 $10,797 $10,800 11/30/94 $10,682 $10,674 12/31/94 $10,773 $10,788 1/31/95 $10,865 $10,901 2/28/95 $11,294 $11,169 3/31/95 $11,388 $11,295 4/30/95 $11,696 $11,546 5/31/95 $11,964 $11,872 6/30/95 $12,060 $11,950 7/31/95 $12,288 $12,135 8/31/95 $12,342 $12,169 9/30/95 $12,440 $12,309 10/31/95 $12,538 $12,446 11/30/95 $12,593 $12,504 12/31/95 $12,784 $12,663 1/31/96 $13,024 $12,904 2/29/96 $13,126 $12,972 3/31/96 $13,042 $12,937 4/30/96 $13,098 $13,007 5/31/96 $13,250 $13,112 6/30/96 $13,260 $13,141 7/31/96 $13,366 $13,259 8/31/96 $13,619 $13,404 9/30/96 $13,922 $13,634 10/31/96 $14,031 $13,749 11/30/96 $14,340 $13,963 12/31/96 $14,600 $14,236 1/31/97 $14,712 $14,340 2/28/97 $14,978 $14,609 3/31/97 $14,631 $14,446 4/30/97 $14,798 $14,574 5/31/97 $15,123 $14,867 6/30/97 $15,398 $15,069 7/31/97 $15,833 $15,389 8/31/97 $15,846 $15,472 9/30/97 $16,127 $15,778 10/31/97 $16,085 $15,777 11/30/97 $16,261 $15,889 12/31/97 $16,383 $16,033 1/31/98 $16,562 $16,306 2/28/98 $16,742 $16,433 3/31/98 $16,924 $16,515 4/30/98 $16,994 $16,639 5/31/98 $17,007 $16,689 6/30/98 $17,021 $16,724 7/31/98 $17,150 $16,841 8/31/98 $15,879 $15,698 9/30/98 $15,953 $15,696 10/31/98 $15,670 $15,384 11/30/98 $16,701 $16,164 12/31/98 $16,654 $16,126 1/31/99 $16,911 $16,278 2/28/99 $16,802 $16,244 3/31/99 $16,940 $16,392 4/30/99 $17,266 $16,754 5/31/99 $16,903 $16,573 6/30/99 $16,918 $16,581 7/31/99 $16,932 $16,589 8/31/99 $16,625 $16,442 9/30/99 $16,444 $16,315 10/31/99 $16,394 $16,235 11/30/99 $16,740 $16,456 12/31/99 $16,756 $16,655 1/31/00 $16,570 $16,589 2/29/00 $16,721 $16,691 3/31/00 $16,325 $16,441 4/30/00 $16,341 $16,416 5/31/00 $16,077 $16,154 6/30/00 $16,516 $16,516 7/31/00 $16,604 $16,671 8/31/00 $16,764 $16,783 9/30/00 $16,490 $16,628 10/31/00 $15,979 $16,111 11/30/00 $15,242 $15,476 12/31/00 $15,543 $15,787 1/31/01 $16,600 $16,733 2/28/01 $16,829 $16,902 3/31/01 $16,293 $16,566 4/30/01 $16,062 $16,393 5/31/01 $16,376 $16,721 6/30/01 $15,904 $16,462 7/31/01 $16,121 $16,638 8/31/01 $16,339 $16,871 9/30/01 $15,181 $15,807 10/31/01 $15,650 $16,167 11/30/01 $16,123 $16,689 12/31/01 $16,016 $16,699 1/31/02 $16,159 $16,854 2/28/02 $15,880 $16,735 3/31/02 $16,370 $17,118 4/30/02 $16,588 $17,390 5/31/02 $16,372 $17,329 6/30/02 $15,102 $16,724 7/31/02 $14,527 $16,246 8/31/02 $14,663 $16,457 9/30/02 $14,439 $16,255 10/31/02 $14,303 $16,156 11/30/02 $15,455 $17,010 12/31/02 $15,484 $17,218 1/31/03 $15,888 $17,686 2/28/03 $16,106 $17,948 3/31/03 $16,591 $18,408 4/30/03 $17,747 $19,346 5/31/03 $18,109 $19,627 AVERAGE ANNUAL TOTAL RETURN - ------------------------------------------ ADVISOR CLASS 7 5/31/03 - ------------------------------------------ 1-Year +10.23% - ------------------------------------------ 5-Year +1.19% - ------------------------------------------ 10-Year +6.12% - ------------------------------------------ ENDNOTES INTEREST RATE MOVEMENTS MAY AFFECT THE FUND'S SHARE PRICE AND YIELD. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES. THE RISKS ASSOCIATED WITH HIGHER-YIELDING, LOWER-RATED SECURITIES INCLUDE HIGHER RISK OF DEFAULT AND LOSS OF PRINCIPAL. THE FUND'S INVESTMENTS IN FOREIGN COMPANIES, CAN INVOLVE EXPOSURE TO CURRENCY VOLATILITY AND POLITICAL, ECONOMIC AND REGULATORY UNCERTAINTY. THESE AND OTHER RISKS ARE DESCRIBED MORE FULLY IN THE FUND'S PROSPECTUS. 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. CLASS R: No initial sales charge, but subject to 1% CDSC for shares redeemed within 18 months of investment; are available to certain eligible investors as described in the prospectus. These shares have higher annual fees and expenses than Class A shares. ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees; are available to a limited class of investors. 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 any current, applicable, maximum sales charge(s). 3. These figures represent the value of a hypothetical $10,000 investment in the Fund over the periods indicated and include any current, applicable, maximum sales charge(s). 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 Classes B, R and Advisor) per share on 5/31/03. 6. Yield, calculated as required by the SEC, is based on the earnings of the Fund's portfolio for the 30 days ended 5/31/03. 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 +24.03% and +3.41%. 8. Source: Standard & Poor's Micropal. The Credit Suisse First Boston (CSFB) High Yield Index is a trader-priced portfolio constructed to mirror the high yield debt market. Annual Report | Past performance does not guarantee future results. | 11 Franklin High Income Trust FINANCIAL HIGHLIGHTS AGE HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED MAY 31, - ------------------------------------------------------------------------------------------------------------------------------ CLASS A 2003 2002 2001 2000 1999 PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $1.87 $2.09 $2.30 $2.69 $2.98 ------------------------------------------------------------------ Income from investment operations: Net investment income a .................................. .16 .20 .23 .26 .26 Net realized and unrealized gains (losses) ............... .01 (.22) (.19) (.39) (.29) ------------------------------------------------------------------ Total from investment operations .......................... .17 (.02) .04 (.13) (.03) ------------------------------------------------------------------ Less distributions from net investment income ............. (.16) (.20) (.25) (.26) (.26) ------------------------------------------------------------------ Net asset value, end of year .............................. $1.88 $1.87 $2.09 $2.30 $2.69 ================================================================== Total return b ............................................ 10.67% (.68)% 1.73% (5.01)% (.74)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $2,077,768 $2,024,885 $2,222,713 $2,442,432 $3,108,809 Ratios to average net assets: Expenses ................................................. .76% .75% .76% .74% .72% Net investment income .................................... 9.72% 10.27% 10.30% 10.28% 9.40% Portfolio turnover rate ................................... 36.52% 18.56% 21.37% 18.79% 27.55%
aBased on average shares outstanding effective year ended May 31, 2000. bTotal return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 12 | Annual Report Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) AGE HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------ YEAR ENDED MAY 31, - ------------------------------------------------------------------------------------------------------------------------------ CLASS B 2003 2002 2001 2000 1999 C PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $1.87 $2.08 $2.30 $2.68 $2.76 ------------------------------------------------------------------ Income from investment operations: Net investment income a .................................. .16 .19 .21 .24 .11 Net realized and unrealized gains (losses) ............... -- (.21) (.19) (.37) (.08) ------------------------------------------------------------------ Total from investment operations .......................... .16 (.02) .02 (.13) .03 ------------------------------------------------------------------ Less distributions from net investment income ............. (.15) (.19) (.24) (.25) (.11) ------------------------------------------------------------------ Net asset value, end of year .............................. $1.88 $1.87 $2.08 $2.30 $2.68 ================================================================== Total return b ............................................ 10.13% (.70)% .73% (5.49)% 1.29% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $182,494 $153,639 $119,496 $69,565 $26,095 Ratios to average net assets: Expenses ................................................. 1.27% 1.26% 1.27% 1.25% 1.24% d Net investment income .................................... 9.21% 9.75% 9.79% 9.85% 8.41% d Portfolio turnover rate ................................... 36.52% 18.56% 21.37% 18.79% 27.55%
aBased on average shares outstanding effective year ended May 31, 2000. bTotal return does not reflect contingent deferred sales charge, and is not annualized for periods less than one year. cFor the period January 1, 1999 (effective date) to May 31, 1999. dAnnualized Annual Report | 13 Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) AGE HIGH INCOME FUND
- ----------------------------------------------------------------------------------------------------------------------- YEAR ENDED MAY 31, - ----------------------------------------------------------------------------------------------------------------------- CLASS C 2003 2002 2001 2000 1999 PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ........................ $1.88 $2.09 $2.31 $2.69 $2.98 ----------------------------------------------------------- Income from investment operations: Net investment income a .................................. .16 .19 .22 .25 .25 Net realized and unrealized gains (losses) ............... -- (.21) (.20) (.38) (.29) ----------------------------------------------------------- Total from investment operations .......................... .16 (.02) .02 (.13) (.04) ----------------------------------------------------------- Less distributions from net investment income ............. (.15) (.19) (.24) (.25) (.25) ----------------------------------------------------------- Net asset value, end of year .............................. $1.89 $1.88 $2.09 $2.31 $2.69 =========================================================== Total return b ............................................ 10.07% (.71)% .75% (5.46)% (.93)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ........................... $421,795 $383,584 $172,959 $367,151 $487,196 Ratios to average net assets: Expenses ................................................. 1.27% 1.25% 1.27% 1.25% 1.24% Net investment income .................................... 9.21% 9.76% 9.79% 9.76% 8.89% Portfolio turnover rate ................................... 36.52% 18.56% 21.37% 18.79% 27.55%
aBased on average shares outstanding effective year ended May 31, 2000. bTotal return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized for periods less than one year. 14 | Annual Report Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) AGE HIGH INCOME FUND - -------------------------------------------------------------------------------- YEAR ENDED MAY 31, - -------------------------------------------------------------------------------- CLASS R 2003 2002 C PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year .................. $1.88 $1.93 -------------------------- Income from investment operations: Net investment income a ............................ .16 .08 Net realized and unrealized gains (losses) ......... .01 (.05) -------------------------- Total from investment operations .................... .17 .03 -------------------------- Less distributions from net investment income ....... (.16) (.08) -------------------------- Net asset value, end of year ........................ $1.89 $1.88 ========================== Total return b ...................................... 10.21% 1.52% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ..................... $2,574 $713 Ratios to average net assets: Expenses ........................................... 1.12% 1.11% d Net investment income .............................. 9.36% 9.73% d Portfolio turnover rate ............................. 36.52% 18.56% aBased on average shares outstanding. bTotal return does not reflect contingent deferred sales charge, and is not annualized for periods less than one year. cFor the period January 1, 2002 (effective date) to May 31, 2002. dAnnualized Annual Report | 15 Franklin High Income Trust FINANCIAL HIGHLIGHTS (CONTINUED) AGE HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------- YEAR ENDED MAY 31, - ------------------------------------------------------------------------------------------------------------------------- ADVISOR CLASS 2003 2002 2001 2000 1999 PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the year) Net asset value, beginning of year ......................... $1.88 $2.09 $2.30 $2.69 $2.98 ----------------------------------------------------------- Income from investment operations: Net investment income a ................................... .16 .21 .23 .26 .27 Net realized and unrealized gains (losses) ................ -- (.21) (.19) (.38) (.29) ----------------------------------------------------------- Total from investment operations ........................... .16 -- .04 (.12) (.02) ----------------------------------------------------------- Less distributions from net investment income .............. (.16) (.21) (.25) (.27) (.27) ----------------------------------------------------------- Net asset value, end of year ............................... $1.88 $1.88 $2.09 $2.30 $2.69 =========================================================== Total return b ............................................. 10.23% (.03)% 1.86% (4.88)% (.61)% RATIOS/SUPPLEMENTAL DATA Net assets, end of year (000's) ............................ $28,045 $20,758 $22,041 $17,234 $39,354 Ratios to average net assets: Expenses .................................................. .62% .61% .62% .60% .59% Net investment income ..................................... 9.86% 10.42% 10.43% 10.29% 9.52% Portfolio turnover rate .................................... 36.52% 18.56% 21.37% 18.79% 27.55%
aBased on average shares outstanding effective year ended May 31, 2000. bTotal return is not annualized for periods less than one year. 16 | See notes to financial statements. | Annual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003
- ----------------------------------------------------------------------------------------------------------------------------- SHARES/ AGE HIGH INCOME FUND COUNTRY RIGHTS/WARRANTS VALUE - ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, RIGHTS AND WARRANTS 2.7% - ----------------------------------------------------------------------------------------------------------------------------- COMMUNICATIONS 1.7% a Arch Wireless Inc. ............................................ United States 12,772 $ 70,629 a Call-Net Enterprises Inc., B .................................. Canada 254,140 590,876 a ICG Communications Inc. ....................................... United States 81,436 325,744 a ICG Communications Inc., wts., 6/5/07 ......................... United States 13,201 4,950 a ICO Global Communications Holdings Ltd. ....................... United States 2,105,368 1,979,046 a ICO Global Communications Holdings Ltd., wts., 5/16/06 ........ United States 528,825 5,283 a,b International Wireless Communications Holdings Inc. ........... United States 1,760,530 17,600 a Loral Space & Communications Ltd., wts., 12/27/06 ............. United States 155,654 7,783 a Loral Space & Communications Ltd., wts., 1/15/07 .............. United States 35,300 353 a Metrocall Holdings Inc. ....................................... United States 36,431 2,368,015 a Nextel Communications Inc., A ................................. United States 128,674 1,928,823 a NII Holdings Inc., B .......................................... United States 74,573 2,683,882 a NTL Inc. ...................................................... United Kingdom 287,943 7,846,447 a Occidente Y Caribe Celular SA, wts., 144A, 3/15/04 ............ Colombia 152,660 1,527 a Poland Telecom Finance, wts., 144A, 12/01/07 .................. Poland 30,000 -- a Spectrasite Inc. .............................................. United States 584,974 28,897,716 ---------------- 46,728,674 ---------------- CONSUMER NON-DURABLES .2% R.J. Reynolds Tobacco Holdings Inc. ........................... United States 170,000 5,795,300 ---------------- CONSUMER SERVICES a Jack in the Box Inc. .......................................... United States 24,090 506,372 a,b Prandium Inc. ................................................. United States 524,377 319,870 ---------------- 826,242 ---------------- ENERGY MINERALS a Horizon Natural Resources Co. ................................. United States 533,333 533 a McMoRan Exploration Co. ....................................... United States 25,937 329,400 ---------------- 329,933 ---------------- GOVERNMENT BONDS .1% United Mexican States, rts., 6/30/03 .......................... Mexico 3,000,000 1,320,000 ---------------- HEALTH SERVICES .2% a Kindred Healthcare Inc. ....................................... United States 246,736 4,850,830 a Kindred Healthcare Inc., A, wts., 4/20/06 ..................... United States 134,263 510,199 a Kindred Healthcare Inc., B, wts., 4/20/06 ..................... United States 335,658 1,053,966 ---------------- 6,414,995 ---------------- INDUSTRIAL SERVICES a Transocean Inc., wts., 144A, 5/01/09 .......................... United States 11,750 908,275 ----------------
Annual Report | 17 Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- SHARES/ AGE HIGH INCOME FUND COUNTRY RIGHTS/WARRANTS VALUE - ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, RIGHTS AND WARRANTS (CONT.) PROCESS INDUSTRIES .1% Walter Industries Inc. ........................................ United States 189,505 $ 2,236,159 ---------------- PRODUCER MANUFACTURING .1% a Cambridge Industries Liquidating Trust Interest ............... United States 4,853,892 48,539 a Goss Holdings Inc., B ......................................... United States 211,174 -- a,b Harvard Industries Inc. ....................................... United States 793,966 3,970 a,b VS Holdings ................................................... United States 1,685,375 1,264,031 ---------------- 1,316,540 ---------------- RETAIL TRADE .1% a Penn Traffic Co. .............................................. United States 389,598 136,359 a Stage Stores Inc. ............................................. United States 3,989 97,411 a Stage Stores Inc., A, wts., 8/23/06 ........................... United States 25,601 298,252 a Stage Stores Inc., B, wts., 8/23/06 ........................... United States 53,896 503,928 ---------------- 1,035,950 ---------------- TECHNOLOGY SERVICES .2% a,b Anacomp Inc., A ............................................... United States 366,600 6,094,725 ---------------- TOTAL COMMON STOCKS, RIGHTS AND WARRANTS (COST $292,698,282) .. 73,006,793 ---------------- PREFERRED STOCKS 1.8% COMMUNICATIONS a Metrocall Holdings Inc., 15.00%, pfd., A ...................... United States 31,406 328,193 a NTL Europe Inc., 10.00%, pfd., A .............................. United Kingdom 410 1,312 ---------------- 329,505 ---------------- CONSUMER SERVICES .6% Sinclair Capital, 11.625%, pfd. ............................... United States 147,000 15,324,750 ---------------- HEALTH SERVICES 1.2% Fresenius Medical Care Capital Trust II, 7.875%, pfd. ......... Germany 30,600,000 32,053,500 ---------------- PROCESS INDUSTRIES c Asia Pulp & Paper Co. Ltd., 12.00%, pfd. ...................... Indonesia 24,700,000 308,750 ---------------- TOTAL PREFERRED STOCKS (COST $70,062,685) ..................... 48,016,505 ---------------- CONVERTIBLE PREFERRED STOCKS 1.6% CONSUMER DURABLES .9% Ford Motor Co. Capital Trust II, 6.50%, cvt. pfd. ............. United States 550,000 24,623,500 ---------------- UTILITIES .7% CMS Energy Trust I, 7.75%, cvt. pfd. .......................... United States 530,000 18,915,700 ---------------- TOTAL CONVERTIBLE PREFERRED STOCKS (COST $51,782,740) ......... 43,539,200 ---------------- PARTNERSHIP UNIT (COST $348,937) PROCESS INDUSTRIES a Phosphate Resource Partners LP ................................ United States 415,000 705,500 ----------------
18 | Annual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- COMMON STOCKS, RIGHTS AND WARRANTS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- COMMERCIAL SERVICES .4% c AmeriServe Food Distribution Inc., 8.875%, 10/15/06 ........... United States $ 16,150,000 $ 8,075 c AmeriServe Food Distribution Inc., 10.125%, 7/15/07 ........... United States 14,210,000 -- Iron Mountain Inc., senior sub. note, 8.25%, 7/01/11 .......... United States 7,500,000 8,025,000 Iron Mountain Inc., senior sub. note, 8.625%, 4/01/13 ......... United States 1,000,000 1,080,000 c Key3Media Group Inc., senior sub. note, 11.25%, 6/15/11 ....... United States 20,000,000 250,000 ---------------- 9,363,075 ---------------- COMMUNICATIONS 11.3% d American Cellular Corp., senior sub. note, 9.50%, 10/15/09 .... United States 28,400,000 10,792,000 c Asia Global Crossing Ltd., 13.375%, 10/15/10 .................. Bermuda 11,000,000 1,540,000 AT&T Wireless Group, senior note, 7.875%, 3/01/11 ............. United States 27,000,000 32,078,268 Crown Castle International Corp., senior disc. note, zero cpn. to 8/01/04, 11.25% thereafter, 8/01/11 ...................... United States 31,000,000 28,365,000 Dobson/Sygnet Communications Co., senior note, 12.25%, 12/15/08 .................................................... United States 22,250,000 23,251,250 c Iridium LLC/Capital Corp., 10.875%, 7/15/05 ................... Bermuda 17,000,000 1,105,000 Millicom International Cellular SA, 144A, 11.00%, 6/01/06 ..... Luxembourg 23,256,000 21,976,920 Nextel Communications Inc., 9.50%, 2/01/11 .................... United States 5,000,000 5,475,000 Nextel Communications Inc., senior disc. note, 9.75%, 10/31/07 United States 35,500,000 36,653,750 Nextel Partners Inc., senior disc. note, zero cpn. to 2/01/04, 14.00%, thereafter, 2/01/09 ................................. United States 15,600,000 15,873,000 Nextel Partners Inc., senior note, 11.00%, 3/15/10 ............ United States 12,600,000 13,608,000 c Nextlink Communications Inc., 9.45%, 4/15/08 .................. United States 20,250,000 126,563 c Nextlink Communications Inc., senior note, 9.625%, 10/01/07 ... United States 17,350,000 108,438 c Nextlink Communications Inc., senior note, 9.00%, 3/15/08 ..... United States 18,150,000 113,437 c Poland Telecom Finance BV, 14.00%, 12/01/07 ................... Poland 30,000,000 3,000 c RSL Communications PLC, 10.125%, 3/01/08 ...................... United Kingdom 44,500,000 778,750 c RSL Communications PLC, 12.00%, 11/01/08 ...................... United Kingdom 6,250,000 93,750 Rural Cellular Corp., senior sub. note, 9.75%, 1/15/10 ........ United States 8,400,000 6,804,000 Triton PCS Inc., 11.00%, 5/01/08 .............................. United States 25,000,000 26,625,000 Triton PCS Inc., 8.50%, 6/01/13 ............................... United States 15,300,000 15,638,436 Triton PCS Inc., senior sub. note, 9.375%, 2/01/11 ............ United States 6,900,000 6,762,000 US West Communications Inc., 6.875%, 9/15/33 .................. United States 28,300,000 25,045,500 VoiceStream Wireless Corp., senior disc. note, zero cpn. to 11/15/04, 11.875% thereafter, 11/15/09 ...................... United States 19,404,000 18,918,900 c WorldCom Inc., WorldCom Group, senior note, 6.95%, 8/15/06 .... United States 20,000,000 15,600,000 ---------------- 307,335,962 ---------------- CONSUMER DURABLES 1.7% D.R. Horton Inc., senior note, 8.50%, 4/15/12 ................. United States 25,000,000 27,750,000 Sealy Mattress Co., senior disc. note, B, 10.875%, 12/15/07 ... United States 11,000,000 10,780,000 Sealy Mattress Co., senior sub. note, B, 9.875%, 12/15/07 ..... United States 7,800,000 7,488,000 ---------------- 46,018,000 ---------------- CONSUMER NON-DURABLES 2.3% Philip Morris Cos. Inc., 7.75%, 1/15/27 ....................... United States 28,000,000 30,053,352 Revlon Consumer Products Corp., 8.125%, 2/01/06 ............... United States 20,000,000 12,300,000
Annual Report | 19 Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- CONSUMER NON-DURABLES (CONT.) Revlon Consumer Products Corp., senior note, 9.00%, 11/01/06 .. United States $ 5,000,000 $ 3,075,000 Revlon Consumer Products Corp., senior sub. note, 8.625%, 2/01/08 ..................................................... United States 17,000,000 7,735,000 Smithfield Foods Inc., 144A, 7.75%, 5/15/13 ................... United States 9,600,000 9,888,000 c Styling Technology Corp., senior sub. note, 10.875%, 7/01/08 .. United States 22,000,000 93,720 ---------------- 63,145,072 ---------------- CONSUMER SERVICES 25.4% c Adelphia Communications Corp., senior note, 10.875%, 10/01/10 . United States 30,000,000 16,800,000 c Adelphia Communications Corp., senior note, 10.25%, 6/15/11 ... United States 20,000,000 11,400,000 Argosy Gaming Co., senior sub. note, 9.00%, 9/01/11 ........... United States 8,300,000 8,964,000 Aztar Corp., senior sub. note, 8.875%, 5/15/07 ................ United States 19,000,000 19,855,000 c Callahan Nordrhein-Westfalen, senior disc. note, zero cpn. to 7/15/05, 16.00% thereafter, 07/15/10 ........................ Germany 38,000,000 950,000 CanWest Media Inc., senior note, 144A, 7.625%, 4/15/13 ........ Canada 3,500,000 3,692,500 CanWest Media Inc., senior sub. note, 10.625%, 5/15/11 ........ Canada 15,600,000 17,706,000 Chancellor Media Corp., senior note, 8.00%, 11/01/08 .......... United States 23,500,000 27,553,750 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 4/01/04, 9.92% thereafter, 4/01/11 ....................... United States 41,000,000 25,625,000 Charter Communications Holdings LLC, senior disc. note, zero cpn. to 1/15/06, 13.50% thereafter, 1/15/11 ..................... United States 15,500,000 7,517,500 Choctaw Resort Development Enterprise, senior note, 9.25%, 4/01/09 ..................................................... United States 11,500,000 12,391,250 CKE Restaurants Inc., senior sub. note, 9.125%, 5/01/09 ....... United States 20,200,000 18,887,000 CSC Holdings Inc., senior deb., 7.625%, 7/15/18 ............... United States 25,000,000 25,375,000 Dex Media East LLC, 12.125%, 11/15/12 ......................... United States 20,000,000 23,500,000 Diamond Holdings PLC, senior note, 9.125%, 2/01/08 ............ United Kingdom 10,600,000 9,540,000 DIRECTV Holdings/Finance, senior note, 144A, 8.375%, 3/15/13 .. United States 29,200,000 32,485,000 EchoStar DBS Corp., senior note, 10.375%, 10/01/07 ............ United States 30,000,000 33,262,500 Granite Broadcasting Corp., senior sub. note, 10.375%, 5/15/05 United States 6,494,000 6,494,000 HMH Properties Inc., senior secured note, B, 7.875%, 8/01/08 .. United States 23,000,000 23,086,250 Horseshoe Gaming Holding Corp., senior sub. note, 8.625%, 5/15/09 ..................................................... United States 30,200,000 32,163,000 Host Marriott LP, senior note, 9.50%, 1/15/07 ................. United States 7,000,000 7,455,000 Lin Television Corp., senior sub. note, 144A, 6.50%, 5/15/13 .. United States 6,600,000 6,633,000 Mandalay Resort Group, senior note, 9.50%, 8/01/08 ............ United States 5,900,000 6,637,500 Mandalay Resort Group, senior sub note, 10.25%, 8/01/07 ....... United States 14,600,000 16,133,000 Meristar Hospitality Corp., senior note, 9.00%, 1/15/08 ....... United States 16,500,000 15,675,000 Meristar Hospitality Corp., senior note, 10.50%, 6/15/09 ...... United States 10,700,000 10,459,250 Park Place Entertainment Corp., senior sub. note, 7.875%, 3/15/10 United States 25,000,000 26,218,750 Quebecor Media Inc., senior disc. note, zero cpn. to 7/15/06, 13.75% thereafter, 7/15/11 .................................. Canada 31,500,000 25,200,000 Royal Caribbean Cruises Ltd., 7.25%, 8/15/06 .................. United States 4,500,000 4,500,000 Royal Caribbean Cruises Ltd., senior deb., 7.25%, 3/15/18 ..... United States 14,400,000 12,852,000 Royal Caribbean Cruises Ltd., senior note, 8.00%, 5/15/10 ..... United States 4,200,000 4,221,000 Sinclair Broadcast Group Inc., senior sub. note, 144A, 8.00%, 3/15/12 ..................................................... United States 9,000,000 9,573,750
20 | Annual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- CONSUMER SERVICES (CONT.) Six Flags Inc., senior note, 9.75%, 6/15/07 ................... United States $ 22,500,000 $ 22,668,750 Six Flags Inc., senior note, 144A, 9.75%, 4/15/13 ............. United States 8,000,000 8,060,000 Station Casinos Inc., senior note, 8.375%, 2/15/08 ............ United States 15,000,000 16,200,000 Station Casinos Inc., senior sub. note, 9.875%, 7/01/10 ....... United States 15,000,000 16,537,500 Sun International Hotels, senior sub. note, 8.875%, 8/15/11 ... United States 11,300,000 12,119,250 Telewest Communications PLC, senior disc. note, zero cpn. to 4/15/04, 9.25% thereafter, 4/15/09 ....................... United Kingdom 2,250,000 596,250 Telewest Communications PLC, senior disc. note, zero cpn. to 2/01/05, 11.375% thereafter, 2/01/10 ..................... United Kingdom 28,000,000 6,720,000 c Telewest Communications PLC, senior note, 11.25%, 11/01/08 .... United Kingdom 4,000,000 1,200,000 Universal City Development, senior note, 144A, 11.75%, 4/01/10 United States 15,000,000 16,050,000 Venetian Casino/LV Sands, 11.00%, 6/15/10 ..................... United States 24,800,000 27,249,000 Vertis Inc., senior note, 10.875%, 6/15/09 .................... United States 18,200,000 17,654,000 Vivendi Universal, senior note, 144A, 9.25%, 4/15/10 .......... France 12,100,000 13,809,125 Yell Finance BV, senior disc. note, zero cpn. to 8/01/06, 13.50% thereafter, 8/01/11 ......................................... United Kingdom 19,250,000 15,640,625 Yell Finance BV, senior note, 10.75%, 8/01/11 ................. United Kingdom 10,000,000 11,200,000 ---------------- 688,510,500 ---------------- ELECTRONIC TECHNOLOGY 4.0% Alliant Techsystems Inc., senior sub. note, 8.50%, 5/15/11 .... United States 6,900,000 7,503,750 Amkor Technologies Inc., senior note, 144A, 7.75%, 5/15/13 .... United States 28,000,000 26,705,000 Fairchild Semiconductor Corp., senior sub. note, 10.50%, 2/01/09 United States 15,400,000 17,248,000 Flextronics International Ltd., 144A, 6.50%, 5/15/13 .......... United States 18,000,000 17,595,000 Flextronics International Ltd., senior sub. note, 9.875%, 7/01/10 Singapore 5,300,000 5,856,500 ON Semiconductor Corp., 13.00%, 5/15/08 ....................... United States 12,500,000 12,156,250 SCG Holding and Semiconductor Co., senior sub. note, 12.00%, 8/01/09 ..................................................... United States 9,951,000 8,159,820 Solectron Corp., senior note, 9.625%, 2/15/09 ................. United States 12,100,000 13,068,000 ---------------- 108,292,320 ---------------- ENERGY MINERALS .7% Mission Resources Corp., senior sub. note, C, 10.875%, 4/01/07 United States 5,000,000 3,000,000 Peabody Energy Corp., senior note, 144A, 6.875%, 3/15/13 ...... United States 15,900,000 16,695,000 ---------------- 19,695,000 ---------------- FINANCE 2.4% Americredit Corp., senior note, 9.25%, 5/01/09 ................ United States 15,000,000 13,275,000 Ventas Realty LP Capital Corp., senior note, 8.75%, 5/01/09 ... United States 7,500,000 8,100,000 Western Financial Bank-FSB, sub. deb., 9.625%, 5/15/12 ........ United States 12,400,000 12,958,000 Willis Corroon Corp., senior sub. note, 9.00%, 2/01/09 ........ United Kingdom 30,000,000 32,250,000 ---------------- 66,583,000 ---------------- GOVERNMENT BONDS .5% ESCOM E168, 11.00%, 6/01/08 ................................... South Africa 108,800,000 ZAR 13,942,131 ----------------
Annual Report | 21 Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- HEALTH SERVICES 5.2% Alliance Imaging Inc., senior sub. note, 10.375%, 4/15/11 ..... United States $ 9,000,000 $ 8,955,000 d HealthSouth Corp., 7.625%, 6/01/12 ............................ United States 27,000,000 18,360,000 Iasis Healthcare Corp., senior sub. note, 13.00%, 10/15/09 .... United States 16,500,000 18,480,000 Magellan Health Services Inc., senior note, 144A, 9.375%, 11/15/07 .................................................... United States 8,400,000 8,148,000 c Magellan Health Services Inc., senior sub. note, 9.00%, 2/15/08 United States 20,000,000 7,100,000 Pacificare Health Systems Inc., senior note, 10.75%, 6/01/09 .. United States 24,400,000 26,962,000 Tenet Healthcare Corp., senior note, 6.875%, 11/15/31 ......... United States 25,000,000 23,750,000 United Surgical Partners, senior sub. note, 10.00%, 12/15/11 .. United States 27,000,000 29,295,000 ---------------- 141,050,000 ---------------- INDUSTRIAL SERVICES 4.7% Allied Waste North America Inc., senior note, 7.875%, 4/15/13 . United States 21,600,000 21,924,000 Allied Waste North America Inc., senior note, B, 7.875%, 1/01/09 ..................................................... United States 2,400,000 2,448,000 Allied Waste North America Inc., senior sub. note, B, 10.00%, 8/01/09 ..................................................... United States 10,000,000 10,562,500 Gulfterra Energy Partners, senior sub. note, 144A, 10.625%, 12/01/12 .................................................... United States 4,700,000 5,428,500 Gulfterra Energy Partners, senior sub. note, LP, B, 8.50%, 6/01/11 ............................................. United States 11,800,000 12,626,000 Hanover Equipment Trust 01, A, 8.50%, 9/01/08 ................. United States 16,000,000 16,400,000 Hanover Equipment Trust 01, senior secured note, 144A, B, 8.75%, 9/01/11 ..................................................... United States 2,500,000 2,537,500 Key Energy Services Inc., senior sub. note, 14.00%, 1/15/09 ... United States 20,520,000 23,238,900 c Safety Kleen Services, 9.25%, 6/01/08 ......................... United States 10,000,000 50,000 Universal Compression Inc., senior note, 144A, 7.25%, 5/15/10 . United States 7,100,000 7,277,500 URS Corp., senior sub. note, 12.25%, 5/01/09 .................. United States 26,200,000 24,497,000 ---------------- 126,989,900 ---------------- NON-ENERGY MINERALS .6% Century Aluminum Co., first mortgage, 11.75%, 4/15/08 ......... United States 9,900,000 10,345,500 Louisiana Pacific Corp., senior sub. note, 10.875%, 11/15/08 .. United States 4,500,000 5,051,250 ---------------- 15,396,750 ---------------- PROCESS INDUSTRIES 12.1% Avecia Group PLC, senior note, 11.00%, 7/01/09 ................ United Kingdom 33,000,000 29,205,000 Bear Island Paper Co. LLC, senior note, B, 10.00%, 12/01/07 ... United States 11,700,000 10,003,500 Buckeye Technologies Inc., senior sub. note, 8.50%, 12/15/05 .. United States 8,900,000 8,722,000 Equistar Chemicals LP, senior note, 8.75%, 2/15/09 ............ United States 20,000,000 19,100,000 Equistar Chemicals LP, senior note, 144A, 10.625%, 5/01/11 ..................................................... United States 4,400,000 4,488,000 FiberMark Inc., senior note, 10.75%, 4/15/11 .................. United States 17,000,000 17,255,000 Four M Corp., senior note, B, 12.00%, 6/01/06 ................. United States 7,400,000 7,585,000 Georgia-Pacific Corp., 144A, 9.375%, 2/01/13 .................. United States 19,800,000 21,087,000 Georgia-Pacific Corp., senior note, 144A, 8.00%, 1/15/14 ...... United States 8,000,000 7,960,000
22 | Annual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- PROCESS INDUSTRIES (CONT.) Graham Packaging Co., senior disc. note, B, 10.75%, 1/15/09 ... United States $ 5,600,000 $ 5,740,000 Graham Packaging Co., senior sub. note, 144A, 8.75%, 1/15/08 .. United States 11,300,000 11,187,000 Graham Packaging Co., senior sub. note, B, 8.75%, 1/15/08 ..... United States 9,000,000 8,910,000 Huntsman ICI Chemicals, senior disc. note, zero cpn., 12/31/09 United States 76,130,000 29,310,050 Jefferson Smurfit Corp., senior notes, 144A, 7.50%, 6/01/13 ... United States 10,800,000 10,881,000 Lyondell Chemicals Co., 144A, 10.50%, 6/01/13 ................. United States 17,400,000 17,356,500 MDP Acquisitions PLC, senior note, 9.625%, 10/01/12 ........... Irish Republic 18,600,000 20,111,250 OM Group Inc., senior sub. note, 9.25%, 12/15/11 .............. United States 5,400,000 4,725,000 Owens-Illinois Inc., senior note, 7.80%, 5/15/18 .............. United States 29,000,000 26,535,000 c Polysindo International Finance Co., BV, secured note, 9.375%, 7/30/07 ............................................. Indonesia 27,750,000 1,179,375 c Pindo Deli Finance Mauritius Ltd., 11.75%, 10/01/17 ........... Indonesia 30,900,000 8,420,250 Riverwood International Co., senior note, 10.625%, 8/01/07 .... United States 23,000,000 24,063,750 Stone Container Corp., senior note, 8.375%, 7/01/12 ........... United States 15,400,000 16,208,500 Terra Industries Inc., senior note, B, 10.50%, 6/15/05 ........ United States 15,000,000 15,000,000 c Tjiwi Kimia FN Mauritius, senior note, 10.00%, 8/01/04 ........ Indonesia 11,000,000 3,437,500 ---------------- 328,470,675 ---------------- PRODUCER MANUFACTURING 7.2% Airxcel Inc., senior sub. note, B, 11.00%, 11/15/07 ........... United States 13,500,000 11,137,500 Arvinmeritor, 8.75%, 3/01/12 .................................. United States 10,100,000 11,059,500 Cincinnati Milacron Inc., 8.375%, 3/15/04 ..................... United States 10,000,000 9,450,000 Dana Corp., 9.00%, 8/15/11 .................................... United States 20,500,000 21,525,000 c Goss Graphic Systems Inc., 12.25%, 11/19/05 ................... United States 9,053,899 -- HLI Operating Co. Inc., senior note, 144A, 10.50%, 6/15/10 .... United States 25,000,000 25,750,000 Legrand SA, senior note, 144A, 10.50%, 2/15/13 ................ France 20,700,000 22,770,000 NMHG Holding Co., 10.00%, 5/15/09 ............................. United States 7,400,000 7,992,000 Nortek Inc., senior note, B, 9.125%, 9/01/07 .................. United States 19,200,000 20,064,000 Nortek Inc., senior note, B, 8.875%, 8/01/08 .................. United States 8,000,000 8,340,000 Rexnord Corp., senior sub. note, 144A, 10.125%, 12/15/12 ...... United States 4,400,000 4,818,000 Tenneco Automotive Inc., senior sub. note, 11.625%, 10/15/09 .. United States 8,400,000 7,476,000 Terex Corp., senior sub. note, 8.875%, 4/01/08 ................ United States 25,250,000 25,945,000 TRW Automotive Inc., senior note, 144A, 9.375%, 2/15/13 ....... United States 13,500,000 14,141,250 TRW Automotive Inc., senior note, 144A, 11.00%, 2/15/13 ....... United States 4,300,000 4,504,250 ---------------- 194,972,500 ---------------- RETAIL TRADE 2.0% Office Depot Inc., senior sub. note, 10.00%, 7/15/08 .......... United States 22,000,000 25,850,000 Rite Aid Corp., 7.70%, 2/15/27 ................................ United States 5,000,000 4,025,000 Rite Aid Corp., 144A, 6.125%, 12/15/08 ........................ United States 26,900,000 23,537,500 ---------------- 53,412,500 ----------------
Annual Report | 23 Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- TECHNOLOGY SERVICES .1% c Psinet Inc., 11.00%, 8/01/09 .................................. United States $ 18,750,000 $ 1,312,500 ---------------- TRANSPORTATION 3.1% CP Ships Ltd., senior note, 10.375%, 7/15/12 .................. United States 20,000,000 22,400,000 Great Lakes Dredge & Dock Corp., senior sub. note, 11.25%, 8/15/08 ..................................................... United States 8,550,000 9,105,750 Laidlaw International Inc., 144A, senior note, 10.75%, 6/15/11 United States 19,800,000 20,295,000 Ultrapetrol Ltd., first mortgage, 10.50%, 4/01/08 ............. United States 34,000,000 28,220,000 c United Air Lines Inc., S.F., pass-through equipment trust, B-2, 9.06%, 9/26/14 .............................................. United States 20,422,000 4,962,852 ---------------- 84,983,602 ---------------- UTILITIES 6.6% AES Corp., senior note, 9.375%, 9/15/10 ....................... United States 20,000,000 19,000,000 AES Corp., 144A, 9.00%, 5/15/15 ............................... United States 24,700,000 25,317,500 Aquila Inc., 144A, 14.875%, 7/01/12 ........................... United States 30,000,000 31,050,000 Calpine Corp., senior note, 8.625%, 8/15/10 ................... United States 23,700,000 16,175,250 Calpine Corp., senior note, 8.50%, 2/15/11 .................... United States 15,000,000 10,275,000 Dynegy Inc., senior note, 8.75%, 2/15/12 ...................... United States 39,000,000 34,515,000 Edison Mission, 9.875%, 4/15/11 ............................... United States 20,000,000 17,400,000 ESI Tractebel Acquisition Corp., secured note, 7.99%, 12/30/11 United States 7,652,000 7,460,700 Midland Cogeneration Venture, S.F., senior lease obligation, A, 11.75%, 7/23/05 ............................................. United States 4,500,000 4,882,500 Midland Cogeneration Venture, S.F., senior lease obligation, B, 13.25%, 7/23/06 ............................................. United States 11,500,000 13,052,500 ---------------- 179,128,450 ---------------- TOTAL BONDS (COST $2,775,369,178) ............................. 2,448,601,937 ---------------- CONVERTIBLE BONDS 1.0% COMMUNICATIONS .2% Millicom International Cellular SA, cvt., 2.00%, 6/01/06 ...... Luxembourg 2,638,000 4,893,490 ---------------- ELECTRONIC TECHNOLOGY .8% Nortel Networks Corp., cvt., 4.25%, 9/01/08 ................... United States 26,700,000 23,028,747 ---------------- TOTAL CONVERTIBLE BONDS (COST $23,892,480) .................... 27,922,237 ---------------- TOTAL LONG TERM INVESTMENTS (COST $3,214,154,302) ............. 2,641,792,172 ----------------
24 | Annual Report Franklin High Income Trust STATEMENT OF INVESTMENTS, MAY 31, 2003 (CONTINUED)
- ----------------------------------------------------------------------------------------------------------------------------- AGE HIGH INCOME FUND COUNTRY SHARES VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) - ----------------------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENT (COST $79,744,726) 2.9% - ----------------------------------------------------------------------------------------------------------------------------- f Franklin Institutional Fiduciary Trust Money Market Portfolio . United States 79,744,726 $ 79,744,726 ---------------- TOTAL INVESTMENTS (COST $3,293,899,028) 100.3% ................ 2,721,536,898 OTHER ASSETS, LESS LIABILITIES (.3)% .......................... (8,861,404) ---------------- NET ASSETS 100.0% ............................................. $ 2,712,675,494 ================
CURRENCY ABBREVIATIONS | ZAR - South African Rand aNon-income producing bSee Note 7 regarding holdings of 5% voting securities. cSee Note 6 regarding defaulted securities. dThe fund discontinues accruing income on securities trading flat. See Note 6. eThe principal amount is stated in U.S. dollars unless otherwise indicated. fSee Note 8 regarding investments in the Franklin Institutional Fiduciary Trust Money Market Portfolio. Annual Report | See notes to financial statements. | 25 Franklin High Income Trust FINANCIAL STATEMENTS STATEMENT OF ASSETS AND LIABILITIES May 31, 2003 ---------------- AGE HIGH INCOME FUND ---------------- Assets: Investments in securities: Cost-Unaffiliated issuers ............... $3,228,208,995 Cost-Non-controlled affiliated issuers .. 65,690,033 ================ Value-Unaffiliated issuers .............. 2,713,836,702 Value-Non-controlled affiliated issuers . 7,700,196 Receivables: Capital shares sold ..................... 19,683,657 Dividends and interest .................. 52,667,818 ---------------- Total assets ........................ 2,793,888,373 ---------------- Liabilities: Payables: Investment securities purchased ......... 67,683,942 Funds advanced by custodian ............. 1,336,500 Capital shares redeemed ................. 8,785,305 Affiliates .............................. 1,814,185 Shareholders ............................ 1,207,953 Other liabilities ........................ 384,994 ---------------- Total liabilities ................... 81,212,879 Net assets, at value ............... $2,712,675,494 ================ Net assets consist of: Undistributed net investment income ...... $ (13,652,623) Net unrealized appreciation (depreciation) (572,350,135) Accumulated net realized gain (loss) ..... (797,164,590) Capital shares ........................... 4,095,842,842 ---------------- Net assets, at value ............... $2,712,675,494 ================ 26 | See notes to financial statements. | Annual Report Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF ASSETS AND LIABILITIES (CONTINUED) May 31, 2003 ---------------- AGE HIGH INCOME FUND ---------------- CLASS A: Net assets, at value ......................................... $ 2,077,768,170 ================ Shares outstanding ........................................... 1,105,022,877 ================ Net asset value per share a .................................. $1.88 ================ Maximum offering price per share (net asset value per share (DIVIDE) 95.75%) ........................... $1.96 ================ CLASS B: Net assets, at value ......................................... $ 182,493,895 ================ Shares outstanding ........................................... 97,239,098 ================ Net asset value and maximum offering price per share a ....... $1.88 ================ CLASS C: Net assets, at value ......................................... $ 421,794,826 ================ Shares outstanding ........................................... 223,454,794 ================ Net asset value per share a .................................. $1.89 ================ Maximum offering price per share (net asset value per share (DIVIDE) 99%) .................................... $1.91 ================ CLASS R: Net assets, at value ......................................... $ 2,573,740 ================ Shares outstanding ........................................... 1,362,947 ================ Net asset value and maximum offering price per share a ....... $1.89 ================ ADVISOR CLASS: Net assets, at value ......................................... $ 28,044,863 ================ Shares outstanding ........................................... 14,888,921 ================ Net asset value and maximum offering price per share ......... $1.88 ================ aRedemption price is equal to net asset value less any applicable contingent deferred sales charge. Annual Report | See notes to financial statements. | 27 Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENT OF OPERATIONS for the year ended May 31, 2003
---------------- AGE HIGH INCOME FUND ---------------- Investment income: Dividends .............................................................. $ 7,085,163 Interest ............................................................... 236,853,980 -------------- Total investment income ........................................... 243,939,143 -------------- Expenses: Management fees (Note 3) ............................................... 10,477,552 Distribution fees (Note 3) Class A ............................................................... 2,585,519 Class B ............................................................... 953,299 Class C ............................................................... 2,262,507 Class R ............................................................... 6,012 Transfer agent fees (Note 3) ........................................... 3,338,759 Custodian fees ......................................................... 30,397 Reports to shareholders ................................................ 184,085 Registration and filing fees ........................................... 160,044 Professional fees ...................................................... 110,063 Trustees' fees and expenses ............................................ 65,467 Other .................................................................. 123,249 -------------- Total expenses .................................................... 20,296,953 Net investment income ............................................ 223,642,190 -------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ........................................................... (382,666,868) Foreign currency transactions ......................................... 126,169 -------------- Net realized gain (loss) (382,540,699) Net unrealized appreciation (depreciation) on: Investments ........................................................... 401,998,159 Translation of assets and liabilities denominated in foreign currencies (136,943) -------------- Net unrealized appreciation (depreciation) ....................... 401,861,216 Net realized and unrealized gain (loss) ................................. 19,320,517 -------------- Net increase (decrease) in net assets resulting from operations ......... $ 242,962,707 ==============
28 | See notes to financial statements. | Annual Report Franklin High Income Trust FINANCIAL STATEMENTS (CONTINUED) STATEMENTS OF CHANGES IN NET ASSETS for the years ended May 31, 2003 and 2002
------------------------------------- AGE HIGH INCOME FUND 2003 2002 ------------------------------------- Increase (decrease) in net assets: Operations: Net investment income ................................................................. $ 223,642,190 $ 263,030,315 Net realized gain (loss) from investments and foreign currency transactions ........... (382,540,699) (221,455,685) Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ....................................... 401,861,216 (57,850,303) -------------------------------------- Net increase (decrease) in net assets resulting from operations .................. 242,962,707 (16,275,673) Distributions to shareholders from net investment income: Class A .............................................................................. (172,572,772) (215,925,864) Class B .............................................................................. (13,148,730) (12,964,082) Class C .............................................................................. (31,012,176) (35,816,653) Class R .............................................................................. (94,422) (7,376) Advisor Class ........................................................................ (1,853,546) (2,318,477) -------------------------------------- Total distributions to shareholders .................................................... (218,681,646) (267,032,452) Capital share transactions: (Note 2) Class A .............................................................................. 36,043,245 29,994,862 Class B .............................................................................. 25,837,243 48,084,597 Class C .............................................................................. 34,414,454 60,697,180 Class R .............................................................................. 1,684,466 719,615 Advisor Class ........................................................................ 6,835,852 1,101,492 -------------------------------------- Total capital share transactions ....................................................... 104,815,260 140,597,746 Net increase (decrease) in net assets ............................................ 129,096,321 (142,710,379) Net assets: Beginning of year ...................................................................... 2,583,579,173 2,726,289,552 -------------------------------------- End of year ............................................................................ $2,712,675,494 $2,583,579,173 -------------------------------------- Undistributed net investment income included in net assets: End of year ............................................................................ $ (13,652,623) $ (21,337,084) ======================================
Annual Report | See notes to financial statements. | 29 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS AGE HIGH INCOME FUND 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 last reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Trustees. B. FOREIGN CURRENCY TRANSLATION Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. C. SECURITIES PURCHASED ON A WHEN-ISSUED OR DELAYED DELIVERY BASIS The Fund may purchase securities on a when-issued or delayed delivery basis, with payment and delivery scheduled for a future date. These transactions are subject to market fluctuations and are subject to the risk that the value at delivery may be more or less than the trade date purchase price. Although the Fund will generally purchase these securities with the intention of holding the securities, it may sell the securities before the settlement date. Sufficient assets have been segregated for these securities. D. FOREIGN CURRENCY CONTRACTS When the Fund purchases or sells foreign securities it may enter into foreign exchange contracts to minimize foreign exchange risk from the trade date to the settlement date of the transactions. A 30 | Annual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) AGE HIGH INCOME FUND 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) D. FOREIGN CURRENCY CONTRACTS (CONTINUED) foreign exchange contract is an agreement between two parties to exchange different currencies at an agreed upon exchange rate on a specified date. Realized and unrealized gains and losses are included in the Statement of Operations. The risks of these contracts include movement in the values of the foreign currencies relative to the U.S. dollar and the possible inability of the counterparties to fulfill their obligations under the contracts. E. 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. F. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Discounts and premiums on securities purchased are amortized over the lives of the respective securities. Dividend income and distributions to shareholders are recorded on the ex-dividend date. 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. G. 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. H. REDEMPTION FEES 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. I. GUARANTEES AND INDEMNIFICATIONS Under the Fund's organizational documents, its officers and trustees are indemnified against certain liability arising out of the performance of their duties to the Fund. Additionally, in the normal course of business the Fund enters into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote. Annual Report | 31 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) AGE HIGH INCOME FUND 2. SHARES OF BENEFICIAL INTEREST The Fund offers five classes of shares: Class A, Class B, Class C, Class R and Advisor Class. Each class of shares differs by its initial sales load, contingent deferred sales charges, distribution fees, voting rights on matters affecting a single class and its exchange privilege. At May 31, 2003, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
-------------------------------------------------------------------- YEAR ENDED MAY 31, 2003 2002 A SHARES AMOUNT SHARES AMOUNT -------------------------------------------------------------------- CLASS A SHARES: Shares sold .................... 339,768,176 $ 574,959,419 260,530,690 $ 501,286,257 Shares issued in reinvestment of distributions .............. 49,056,818 82,427,355 48,089,727 93,093,373 Shares redeemed ................(365,400,435) (621,343,529) (292,096,037) (564,384,768) --------------------------------------------------------------------- Net increase (decrease) ........ 23,424,559 $ 36,043,245 16,524,380 $ 29,994,862 ===================================================================== CLASS B SHARES: Shares sold .................... 31,059,685 $ 52,959,665 35,455,588 $ 68,509,409 Shares issued in reinvestment of distributions .............. 3,552,930 5,966,812 2,698,019 5,202,795 Shares redeemed ................ (19,584,485) (33,089,234) (13,291,822) (25,627,607) --------------------------------------------------------------------- Net increase (decrease) ........ 15,028,130 $ 25,837,243 24,861,785 $ 48,084,597 ===================================================================== CLASS C SHARES: Shares sold .................... 67,000,204 $ 115,487,657 70,486,785 $ 136,735,758 Shares issued in reinvestment of distributions .............. 10,329,695 17,445,571 9,243,621 17,942,995 Shares redeemed ................ (58,030,600) (98,518,774) (48,534,370) (93,981,573) --------------------------------------------------------------------- Net increase (decrease) ........ 19,299,299 $ 34,414,454 31,196,036 $ 60,697,180 ===================================================================== CLASS R SHARES: Shares sold .................... 1,346,141 $ 2,309,346 375,811 $ 712,648 Shares issued in reinvestment of distributions .............. 51,910 88,307 3,666 6,968 Shares redeemed ................ (414,580) (713,187) (1) (1) --------------------------------------------------------------------- Net increase (decrease) ........ 983,471 $ 1,684,466 379,476 $ 719,615 ===================================================================== ADVISOR CLASS SHARES: Shares sold .................... 12,167,987 $ 20,886,444 5,043,071 $ 9,750,299 Shares issued in reinvestment of distributions .............. 693,153 1,170,567 710,160 1,375,938 Shares redeemed ................ (9,041,524) (15,221,159) (5,232,996) (10,024,745) --------------------------------------------------------------------- Net increase (decrease) ........ 3,819,616 $ 6,835,852 520,235 $ 1,101,492 =====================================================================
aFor the period January 1, 2002 (effective date) to May 31, 2002 for Class R shares. 32 | Annual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) AGE HIGH INCOME FUND 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 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%, .65% and .50% per year of its average daily net assets of Class A, Class B, Class C and Class R, 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 year of $1,603,747 and $702,615, respectively. The Fund paid transfer agent fees of $3,338,759, of which $2,482,320 was paid to Investor Services. 4. INCOME TAXES At May 31, 2003, the Fund had tax basis capital losses of $547,277,307 which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 2009 ........................................... $ 126,000,271 2010 ........................................... 147,493,159 2011 ........................................... 273,783,877 ------------- $ 547,277,307 ============= Annual Report | 33 Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) AGE HIGH INCOME FUND 4. INCOME TAXES (CONTINUED) On May 31, 2003, the Fund had expired capital loss carryovers of $4,606,276 which were reclassified to paid-in capital. At May 31, 2003, the Fund had deferred capital losses occurring subsequent to October 31, 2002 of $249,887,283. For tax purposes, such losses will be reflected in the year ending May 31, 2004. At May 31, 2003, the cost of investments, net unrealized appreciation (depreciation), undistributed ordinary income and undistributed long term capital gains for income tax purposes were as follows: Costs of investments ............................ $ 3,294,248,890 =============== Unrealized appreciation ......................... $ 179,851,163 Unrealized depreciation ......................... (752,563,155) --------------- Net unrealized appreciation/depreciation ........ $ (572,711,992) =============== Undistributed ordinary income ................... $ 2,250,719 Undistributed long term capital gains ........... -- --------------- Distributable earnings .......................... $ 2,250,719 =============== The tax character of distributions paid during the years ended May 31, 2003 and 2002, was as follows: ------------------------------- 2003 2002 ------------------------------- Distributions paid from ordinary income ........ $218,681,646 $267,032,452 Net investment income and net realized gains and losses differ for financial statement and tax purposes primarily due to differing treatments of defaulted securities, foreign currency transactions and bond discounts and premiums. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the year ended May 31, 2003 aggregated $886,914,525 and $812,232,508, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 89.0% 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. 34 | Annual Report Franklin High Income Trust NOTES TO FINANCIAL STATEMENTS (CONTINUED) AGE HIGH INCOME FUND 6. CREDIT RISK AND DEFAULTED SECURITIES (CONTINUED) The Fund held defaulted and/or other securities for which the income has been deemed uncollectible. The Fund discontinues accruing income on these securities and provides an estimate for losses on interest receivable. At May 31, 2003, the value of these securities was $106,093,960 representing 3.9% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. 7. HOLDING OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES The Investment Company Act of 1940 defines "affiliated companies" to include investments in portfolio companies in which a fund owns 5% or more of the outstanding voting securities. Investments in "affiliated companies" for the Fund at May 31, 2003 were as shown below.
- ------------------------------------------------------------------------------------------------------------------ NUMBER OF NUMBER OF SHARES HELD SHARES HELD REALIZED AT BEGINNING GROSS GROSS AT END VALUE AT DIVIDEND CAPITAL NAME OF ISSUER OF YEAR ADDITIONS REDUCTIONS OF YEAR END OF YEAR INCOME GAIN (LOSS) - ------------------------------------------------------------------------------------------------------------------ Anacomp Inc., A 366,600 -- -- 366,600 $6,094,725 -- -- Harvard Industries Inc. 793,966 -- -- 793,966 3,970 -- -- International Wireless Communications Holdings Inc. 1,759,743 787 -- 1,760,530 17,600 -- -- Prandium Inc. -- 524,377 -- 524,377 319,870 -- -- VS Holdings 1,685,375 -- -- 1,685,375 1,264,031 -- -- ---------------------------------- TOTAL NON-CONTROLLED AFFILIATED ISSUERS $7,700,196 -- -- ==================================
8. INVESTMENTS IN THE FRANKLIN INSTITUTIONAL FIDUCIARY TRUST MONEY MARKET PORTFOLIO The Fund may invest in the Franklin Institutional Fiduciary Trust Money Market Portfolio (the Sweep Money Fund), an open-end investment company managed by Advisers. Management fees paid by the Fund are reduced on assets invested in the Sweep Money Fund, in an amount not to exceed the management fees paid by the Sweep Money Fund. The Fund earned $1,036,896 of dividend income from investment in the Sweep Money Fund for the year ended May 31, 2003. 9. OTHER CONSIDERATIONS Advisers, as the Fund's Manager, may serve as a member of various bondholders' steering committees, on credit committees, or may represent the Fund in certain corporate restructuring negotiations. Currently the Manager serves in one or more of these capacities for Adelphia Communications Corp., American Cellular Corp., Key3Media Group Inc., and Magellan Health Services 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. Annual Report | 35 Franklin High Income Trust INDEPENDENT AUDITORS' REPORT AGE HIGH INCOME FUND 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 AGE High Income Fund (the "Fund") (constituting the Franklin High Income Trust) at May 31, 2003, 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, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP San Francisco, California July 2, 2003 36 | Annual Report Franklin High Income Trust TAX DESIGNATION (UNAUDITED) AGE HIGH INCOME FUND Under Section 854(b)(2) of the Internal Revenue Code (Code), the Fund hereby designates up to a maximum of $1,987,620 as qualified dividends for purposes of the maximum rate under Section 1(h)(11) of the Code for the fiscal year ended May 31, 2003. In January 2004, shareholders will receive Form 1099-DIV which will include their share of qualified dividends distributed during the calendar year 2003. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual income tax returns. Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates 2.64% of the ordinary income dividends as income qualifying for the dividends received deduction for corporations for the fiscal year ended May 31, 2003. Annual Report | 37 Board Members and Officers The name, age and address of the officers and board members, as well as their affiliations, positions held with the Trust, principal occupations during the past five years and number of portfolios overseen in the Franklin Templeton Investments fund complex are shown below. Each board member will serve until that person's successor is elected and qualified. INDEPENDENT BOARD MEMBERS
- ---------------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------------------------------------------------------------------------------------------------------------- FRANK H. ABBOTT, III (82) Trustee Since 1982 105 None One Franklin Parkway San Mateo, CA 94403-1906 - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Director, Abbott Corporation (an investment company); and formerly, Director, MotherLode Gold Mines Consolidated (gold mining) (until 1996) and Vacu-Dry Co. (food processing) (until 1996). - ---------------------------------------------------------------------------------------------------------------------------------- ROBERT F. CARLSON (75) Trustee Since 1982 46 None One Franklin Parkway San Mateo, CA 94403-1906 - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and past President, Board of Administration, California Public Employees Retirement Systems (CALPERS); and formerly, member and Chairman of the Board, Sutter Community Hospitals; member, Corporate Board, Blue Shield of California; and Chief Counsel, California Department of Transportation. - ---------------------------------------------------------------------------------------------------------------------------------- S. JOSEPH FORTUNATO (70) Trustee Since 1992 133 None One Franklin Parkway San Mateo, CA 94403-1906 - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Attorney; and formerly, member of the law firm of Pitney, Hardin, Kipp & Szuch. - ---------------------------------------------------------------------------------------------------------------------------------- FRANK W.T. LAHAYE (74) Trustee Since 1998 105 Director, The California Center One Franklin Parkway for Land Recycling (redevelopment). San Mateo, CA 94403-1906 - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: General Partner, Las Olas L.P. (Asset Management); and formerly, Chairman, Peregrine Venture Management Company (venture capital). - ----------------------------------------------------------------------------------------------------------------------------------
INTERESTED BOARD MEMBERS AND OFFICERS - ---------------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ---------------------------------------------------------------------------------------------------------------------------------- **HARMON E. BURNS (58) Trustee and Trustee since 31 None One Franklin Parkway Vice President 1993 and Vice San Mateo, CA 94403-1906 President since 1985 - ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Executive Vice President, Franklin Advisers, Inc.; Director, Franklin Investment Advisory Services, Inc.; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------
38 | Annual Report
- ---------------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------------------------------------------------------------------------------------------------------------- **RUPERT H. JOHNSON, JR. (62) Trustee, Trustee since 115 None One Franklin Parkway President and 1989, President San Mateo, CA 94403-1906 Chief Executive since 1989, and Officer - and Chief Investment Executive Officer Management - Investment Management since 2002 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Member - Office of the Chairman and Director, Franklin Resources, Inc.; Vice President and Director, Franklin Templeton Distributors, Inc.; Director, Franklin Advisers, Inc. and Franklin Investment Advisory Services, Inc.; Senior Vice President, Franklin Advisory Services, LLC; officer and/or director or trustee, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 48 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------- MARTIN L. FLANAGAN (42) Vice President Since 1995 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President and Chief Financial Officer, Franklin Resources, Inc.; Senior Vice President and Chief Financial Officer, Franklin Mutual Advisers, LLC; Executive Vice President, Chief Financial Officer and Director, Templeton Worldwide, Inc.; Executive Vice President and Chief Operating Officer, Templeton Investment Counsel, LLC; President and Director, Franklin Advisers, Inc.; Executive Vice President, Franklin Investment Advisory Services, Inc. and Franklin Templeton Investor Services, LLC; Chief Financial Officer, Franklin Advisory Services, LLC; Chairman, Franklin Templeton Services, LLC; and officer and/or director of some of the other subsidiaries of Franklin Resources, Inc. and of 49 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------- JIMMY D. GAMBILL (55) Senior Vice Since 2002 Not Applicable None 500 East Broward Blvd. President and Suite 2100 Chief Executive Fort Lauderdale, FL 33394-3091 Officer - Finance and Administration - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: President, Franklin Templeton Services, LLC; Senior Vice President, Templeton Worldwide, Inc.; and officer of 51 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------- DAVID P. GOSS (55) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Associate General Counsel, Franklin Resources, Inc.; officer and director of one of the subsidiaries of Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and formerly, President, Chief Executive Officer and Director, Property Resources Equity Trust (until 1999) and Franklin Select Realty Trust (until 2000). - -----------------------------------------------------------------------------------------------------------------------------------
Annual Report | 39
- ---------------------------------------------------------------------------------------------------------------------------------- NUMBER OF PORTFOLIOS IN LENGTH OF FUND COMPLEX OVERSEEN NAME, AGE AND ADDRESS POSITION TIME SERVED BY BOARD MEMBER* OTHER DIRECTORSHIPS HELD - ----------------------------------------------------------------------------------------------------------------------------------- BARBARA J. GREEN (55) Vice President Since 2000 Not Applicable None One Franklin Parkway San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice President and Deputy General Counsel, Franklin Resources, Inc.; Senior Vice President, Templeton Worldwide, Inc.; officer of one of the other subsidiaries of Franklin Resources, Inc. and of 51 of the investment companies in Franklin Templeton Investments; and formerly, Deputy Director, Division of Investment Management, Executive Assistant and Senior Advisor to the Chairman, Counselor to the Chairman, Special Counsel and Attorney Fellow, U.S. Securities and Exchange Commission (1986-1995); Attorney, Rogers & Wells (until 1986); and Judicial Clerk, U.S. District Court (District of Massachusetts) (until 1979). - ----------------------------------------------------------------------------------------------------------------------------------- MICHAEL O. MAGDOL (65) Vice President Since 2002 Not Applicable Director, FTI Banque, Arch Chemicals, 600 Fifth Avenue - AML Inc. and Lingnan Foundation. Rockefeller Center Compliance New York, NY 10048-0772 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Vice Chairman, Chief Banking Officer and Director, Fiduciary Trust Company International; officer and/or director, as the case may be, of some of the other subsidiaries of Franklin Resources, Inc.; and officer of 47 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------- KIMBERLEY H. MONASTERIO (39) Treasurer and Treasurer since Not Applicable None One Franklin Parkway Chief Financial 2000 and Chief San Mateo, CA 94403-1906 Officer Financial Officer since 2002 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Senior Vice President, Franklin Templeton Services, LLC; and officer of 51 of the investment companies in Franklin Templeton Investments. - ----------------------------------------------------------------------------------------------------------------------------------- MURRAY L. SIMPSON (65) Vice President Since 2000 Not Applicable None One Franklin Parkway and Secretary San Mateo, CA 94403-1906 - ----------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL OCCUPATION DURING PAST 5 YEARS: Executive Vice President and General Counsel, Franklin Resources, Inc.; officer and/or director of some of the subsidiaries of Franklin Resources, Inc.; officer of 51 of the investment companies in Franklin Templeton Investments; and formerly, Chief Executive Officer and Managing Director, Templeton Franklin Investment Services (Asia) Limited (until 2000); and Director, Templeton Asset Management Ltd. (until 1999). - -----------------------------------------------------------------------------------------------------------------------------------
*We base the number of portfolios on each separate series of the U.S. registered investment companies within the Franklin Templeton Investments fund complex. These portfolios have a common investment adviser or affiliated investment advisers. ** Rupert H. Johnson, Jr. is considered an interested person of the Trust under the federal securities laws due to his position as an officer and director and major shareholder of Franklin Resources Inc., which is the parent company of the Trust's adviser and distributor. Harmon E. Burns is considered an interested person of the Trust under the federal securities laws due to his position as officer and director of Franklin Resources, Inc. THE STATEMENT OF ADDITIONAL INFORMATION (SAI) INCLUDES ADDITIONAL INFORMATION ABOUT THE BOARD MEMBERS AND IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST. SHAREHOLDERS MAY CALL 1-800/DIAL BEN (1-800/342-5236) TO REQUEST THE SAI. 40 | Annual Report LITERATURE REQUEST For a brochure and prospectus, which contains more complete information, including charges and expenses, call Franklin Templeton Investments at 1-800/DIAL BEN(R) (1-800/342-5236). Please read the prospectus carefully before investing or sending money. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be determined by the presence of a regular beeping tone. FRANKLIN TEMPLETON INVESTMENTS INTERNATIONAL Mutual European Fund Templeton Developing Markets Trust Templeton Foreign Fund Templeton Foreign Smaller Companies Fund Templeton International (Ex EM) Fund GLOBAL Franklin Global Aggressive Growth Fund Franklin Global Growth Fund Mutual Discovery Fund Templeton Capital Accumulator Fund Templeton Global Long-Short Fund Templeton Global Opportunities Trust Templeton Global Smaller Companies Fund Templeton Growth Fund Templeton World Fund GROWTH Franklin Aggressive Growth Fund Franklin Capital Growth Fund Franklin Flex Cap Growth Fund 1 Franklin Small-Mid Cap Growth Fund Franklin Small Cap Growth Fund II 2 VALUE Franklin Balance Sheet Investment Fund 3 Franklin Equity Income Fund Franklin Large Cap Value Fund Franklin MicroCap Value Fund 4 Franklin Small Cap Value Fund Mutual Beacon Fund Mutual Qualified Fund Mutual Shares Fund BLEND Franklin Blue Chip Fund Franklin Convertible Securities Fund Franklin Growth Fund Franklin Rising Dividends Fund Franklin U.S. Long-Short Fund 5 SECTOR Franklin Biotechnology Discovery Fund Franklin DynaTech Fund Franklin Global Communications Fund Franklin Global Health Care Fund Franklin Gold and Precious Metals Fund Franklin Natural Resources Fund Franklin Real Estate Securities Fund Franklin Utilities Fund Franklin Technology Fund Mutual Financial Services Fund ASSET ALLOCATION Franklin Templeton Conservative Target Fund Franklin Templeton Growth Target Fund Franklin Templeton Moderate Target Fund INCOME Franklin Adjustable U.S. Government Securities Fund 6 Franklin's AGE High Income Fund Franklin Federal Money Fund 6,7 Franklin Floating Rate Daily Access Fund Franklin Floating Rate Trust 8 Franklin Income Fund Franklin Money Fund 6,7 Franklin Short-Intermediate U.S. Government Securities Fund 6 Franklin Strategic Income Fund Franklin Strategic Mortgage Portfolio Franklin Templeton Hard Currency Fund Franklin Total Return Fund Franklin U.S. Government Securities Fund 6 Templeton Global Bond Fund TAX-FREE INCOME 9 Double Tax-Free Income Fund Federal Intermediate-Term Tax-Free Income Fund Federal Tax-Free Income Fund High Yield Tax-Free Income Fund Insured Tax-Free Income Fund 10 Tax-Exempt Money Fund 6, 7 STATE-SPECIFIC TAX-FREE INCOME 9 Alabama Arizona California 11 Colorado Connecticut Florida 11 Georgia Kentucky Louisiana Maryland Massachusetts 10 Michigan 10 Minnesota 10 Missouri New Jersey New York 11 North Carolina Ohio 10 Oregon Pennsylvania Tennessee Virginia VARIABLE INSURANCE PRODUCTS FUNDS Franklin Templeton Variable Insurance Products Trust 12 1. Formerly Franklin California Growth Fund. Effective 9/1/02, the fund's name changed and its investment criteria was modified. The fund's investment goal remained the same. 2. The fund is closed to new investors. Existing shareholders can continue adding to their accounts. 3. The fund is only open to existing shareholders as well as select retirement plans. 4. Effective June 30, 2003, the fund reopened to all new investors. 5. Upon reaching approximately $350 million in assets, the fund will close to all investors. 6. An investment in the fund is neither insured nor guaranteed by the U.S. government or by any other entity or institution. 7. No assurance exists that the fund's $1.00 per share price will be maintained. It is possible to lose money by investing in the fund. 8. The fund is a continuously offered, closed-end fund. Shares may be purchased daily; there is no daily redemption. However, each quarter, pending board approval, the fund will authorize the repurchase of 5%-25% of the outstanding number of shares. Investors may tender all or a portion of their shares during the tender period. 9. For investors subject to the alternative minimum tax, a small portion of these dividends may be taxable. Distributions of capital gains are generally taxable. 10. Portfolio of insured municipal securities. 11. These funds are available in two or more variations, including long-term portfolios, portfolios of insured securities, a high-yield portfolio (CA) and intermediate-term and money market portfolios (CA and NY). 12. The funds of the Franklin Templeton Variable Insurance Products Trust are generally available only through insurance company variable contracts. 06/03 Not part of the annual report [LOGO OMITTED] FRANKLINTEMPLETON(R) INVESTMENTS One Franklin Parkway San Mateo, CA 94403-1906 WANT TO RECEIVE THIS DOCUMENT FASTER VIA EMAIL? Eligible shareholders can sign up for eDelivery at franklintempleton.com. See inside for details. ANNUAL REPORT AND SHAREHOLDER LETTER FRANKLIN'S AGE HIGH INCOME FUND INVESTMENT MANAGER Franklin Advisers, Inc. DISTRIBUTOR Franklin Templeton Distributors, Inc. 1-800/DIAL BEN(R) franklintempleton.com SHAREHOLDER SERVICES 1-800/632-2301 This report must be preceded or accompanied by the current Franklin's AGE High Income Fund prospectus, which contains more complete information including charges and expenses. To ensure the highest quality of service, telephone calls to or from our service departments may be monitored, recorded and accessed. These calls can be identified by the presence of a regular beeping tone. 105 A2003 07/03 ITEM 2. CODE OF ETHICS. N/A ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. N/A ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. N/A ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. N/A ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. N/A ITEM 9. CONTROLS AND PROCEDURES. (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Registrant's filings under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. Such information is accumulated and communicated to the Registrant's management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. The Registrant's management, including the principal executive officer and the principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Within 90 days prior to the filing date of this Shareholder Report on Form N-CSR, the Registrant had carried out an evaluation, under the supervision and with the participation of the Registrant's management, including the Registrant's principal executive officer and the Registrant's principal financial officer, of the effectiveness of the design and operation of the Registrant's disclosure controls and procedures. Based on such evaluation, the Registrant's principal executive officer and principal financial officer concluded that the Registrant's disclosure controls and procedures are effective. (B) CHANGES IN INTERNAL CONTROLS. There have been no significant changes in the Registrant's internal controls or in other factors that could significantly affect the internal controls subsequent to the date of their evaluation in connection with the preparation of this Shareholder Report on Form N-CSR. ITEM 10. EXHIBITS. (A) N/A (B)(1) CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER (B)(2) CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 OF JIMMY D. GAMBILL, CHIEF EXECUTIVE OFFICER - FINANCE AND ADMINISTRATION, AND KIMBERLEY H. MONASTERIO, CHIEF FINANCIAL OFFICER SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN HIGH INCOME TRUST By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date July 31, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/Jimmy D. Gambill Chief Executive Officer - Finance and Administration Date July 31, 2003 By /s/Kimberley H. Monasterio Chief Financial Officer Date July 31, 2003 EX-99.CERT 3 fhitjimg302.txt EXHIBIT (B)(1) CERTIFICATIONS I, Jimmy D. Gambill, certify that: 1. I have reviewed this report on Form N-CSR of Franklin High Income Trust ("Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions, with regard to significant deficiencies and material weaknesses. July 7, 2003 /S/JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration I, Kimberley H. Monasterio, certify that: 1. I have reviewed this report on Form N-CSR of Franklin High Income Trust ("Registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-2(c) under the Investment Company Act) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this report (the "Evaluation Date"); and c) presented in this report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize, and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions, with regard to significant deficiencies and material weaknesses. July 7, 2003 /S/KIMBERLEY H. MONASTERIO Treasurer and Chief Financial Officer EX-99.906CERT 4 fhitjimg906.txt EXHIBIT (B)(2) CERTIFICATIONS CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Jimmy D. Gambill, Chief Executive Officer of the Franklin High Income Trust (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 5/31/03 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: July 7, 2003 \S\JIMMY D. GAMBILL Chief Executive Officer - Finance and Administration A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURUSANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Kimberley H. Monasterio, Chief Financial Officer of the Franklin High Income Trust (the "Registrant"), certify, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: 1. The periodic report on Form N-CSR of the Registrant for the period ended 5/31/03 (the "Form N-CSR") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Dated: July 7, 2003 \S\KIMBERLEY H. MONASTERIO Treasurer and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Registrant and will be retained by Registrant and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----