N-Q 1 nqfhitpe083114.htm nqfhitpe083114.htm - Generated by SEC Publisher for SEC Filing

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

 

FORM N-Q

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

 

                  Investment Company Act file number 811-01608

 

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)

 

Craig S. Tyle, 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: 8/31/14

 

 

Item 1. Schedule of Investments.

 

 

 

Franklin High Income Trust        
 
Statement of Investments, August 31, 2014 (unaudited)      
 
 
  Franklin High Income Fund Country Shares/Warrants/Units   Value
  Common Stocks and Other Equity Interests 0.8%        
  Consumer Services 0.0%†        
a,b Station Casinos Inc., wts., 6/17/18 United States 136,789 $ 180,561
  Diversified Financials 0.6%        
  iShares iBoxx High Yield Corporate Bond ETF United States 500,000   47,120,000
  Materials 0.1%        
  NewPage Holdings Inc. United States 60,000   5,610,000
  Transportation 0.1%        
a CEVA Holdings LLC United Kingdom 3,364   4,037,064
  Total Common Stocks and Other Equity Interests (Cost $62,876,927)       56,947,625
  Convertible Preferred Stocks 0.1%        
  Transportation 0.1%        
a CEVA Holdings LLC, cvt. pfd., A-1 United Kingdom 134   207,700
a CEVA Holdings LLC, cvt. pfd., A-2 United Kingdom 7,283   8,739,144
  Total Convertible Preferred Stocks (Cost $11,036,794)       8,946,844
  Preferred Stocks (Cost $8,655,000) 0.1%        
  Diversified Financials 0.1%        
  GMAC Capital Trust I, 8.125%, pfd. United States 346,200   9,305,856
      Principal Amount*    
  Corporate Bonds 91.7%        
  Automobiles & Components 0.9%        
  The Goodyear Tire & Rubber Co., senior note,        
  8.25%, 8/15/20 United States 15,000,000   16,387,500
  6.50%, 3/01/21 United States 25,200,000   27,153,000
c International Automotive Components Group SA, senior secured note, 144A, 9.125%,        
  6/01/18 United States 20,000,000   21,375,000
          64,915,500
  Banks 4.4%        
d Bank of America Corp., M, junior sub. bond, 8.125% to 5/15/18, FRN thereafter,        
  Perpetual United States 60,000,000   66,918,480
  CIT Group Inc., senior note,        
  5.25%, 3/15/18 United States 9,000,000   9,630,000
  5.375%, 5/15/20 United States 21,550,000   23,408,687
  5.00%, 8/15/22 United States 33,650,000   35,626,937
  c144A, 6.625%, 4/01/18 United States 6,925,000   7,747,344
d Citigroup Inc., M, junior sub. bond, 6.30% to 5/15/24, FRN thereafter, Perpetual United States 47,600,000   48,640,822
d JPMorgan Chase & Co., junior sub. bond,        
  5.00% to 7/30/19, FRN thereafter, Perpetual United States 10,400,000   10,381,686
  6.00% to 8/01/23, FRN thereafter, Perpetual United States 46,700,000   48,124,350
  Royal Bank of Scotland Group PLC, sub. note,        
  6.125%, 12/15/22 United Kingdom 40,000,000   43,825,000
  5.125%, 5/28/24 United Kingdom 13,900,000   14,212,750
          308,516,056
  Capital Goods 2.5%        
c Abengoa Finance SAU, senior note, 144A,        
  8.875%, 11/01/17 Spain 32,500,000   36,298,437
  7.75%, 2/01/20 Spain 12,200,000   13,359,000
c CBC Ammo LLC/CBC FinCo Inc., senior note, 144A, 7.25%, 11/15/21 Brazil 20,000,000   20,025,000
  DigitalGlobe Inc., senior note, 5.25%, 2/01/21 United States 25,765,000   25,636,175
  Meritor Inc., senior note, 6.75%, 6/15/21 United States 1,300,000   1,381,250
  Navistar International Corp., senior note, 8.25%, 11/01/21 United States 15,000,000   15,618,750
  Terex Corp., senior note, 6.00%, 5/15/21 United States 18,400,000   19,596,000
c TransDigm Inc.,        
  senior sub. bond, 144A, 6.50%, 7/15/24 United States 9,500,000   9,749,375
  senior sub. note, 144A, 6.00%, 7/15/22 United States 9,400,000   9,576,250

 

Quarterly Statement of Investments. | See Notes to Statement of Investments.

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
 
c Zachry Holdings Inc., senior note, 144A, 7.50%, 2/01/20 United States 23,525,000 24,877,688
        176,117,925
  Commercial & Professional Services 0.9%      
c Algeco Scotsman Global Finance PLC, senior secured note, first lien, 144A, 8.50%,      
  10/15/18 United Kingdom 36,600,000 38,109,750
b,e Goss Graphic Systems Inc., senior sub. note, 12.25%, 11/19/05 United States 9,053,899 905
  United Rentals North America Inc., senior bond, 5.75%, 11/15/24 United States 20,000,000 21,000,000
        59,110,655
  Consumer Durables & Apparel 3.3%      
  D.R. Horton Inc., senior note, 3.75%, 3/01/19 United States 24,300,000 24,421,500
  KB Home,      
  senior bond, 7.50%, 9/15/22 United States 35,600,000 38,893,000
  senior note, 4.75%, 5/15/19 United States 11,000,000 11,027,500
  senior note, 7.00%, 12/15/21 United States 13,900,000 15,046,750
  M/I Homes Inc., senior note, 8.625%, 11/15/18 United States 5,500,000 5,805,938
  Shea Homes LP/Funding Corp., senior secured note, 8.625%, 5/15/19 United States 3,000,000 3,255,000
  Springs Industries Inc., secured note, 6.25%, 6/01/21 United States 2,800,000 2,828,000
  Standard Pacific Corp., senior note, 6.25%, 12/15/21 United States 23,700,000 25,240,500
c Taylor Morrison Communities Inc./Monarch Communities Inc., senior note, 144A,      
  7.75%, 4/15/20 United States 9,870,000 10,733,625
  5.25%, 4/15/21 United States 15,500,000 15,732,500
  5.625%, 3/01/24 United States 25,000,000 25,000,000
  Toll Brothers Finance Corp., senior bond, 5.625%, 1/15/24 United States 22,400,000 23,912,000
  Visant Corp., senior note, 10.00%, 10/01/17 United States 28,900,000 26,949,250
        228,845,563
  Consumer Services 2.2%      
c 24 Hour Holdings III LLC, senior note, 144A, 8.00%, 6/01/22 United States 28,800,000 28,080,000
  Caesars Entertainment Operating Co. Inc., senior secured note,      
  11.25%, 6/01/17 United States 40,000,000 33,100,000
  first lien, 9.00%, 2/15/20 United States 16,400,000 13,232,750
  first lien, 9.00%, 2/15/20 United States 5,000,000 4,025,000
c,e Fontainebleau Las Vegas, senior secured note, first lien, 144A, 11.00%, 6/15/15 United States 20,000,000 250,000
  MGM Resorts International, senior note,      
  6.625%, 7/15/15 United States 15,000,000 15,675,000
  6.875%, 4/01/16 United States 10,000,000 10,775,000
  6.75%, 10/01/20 United States 9,200,000 10,212,000
  6.625%, 12/15/21 United States 12,950,000 14,471,625
  7.75%, 3/15/22 United States 5,000,000 5,862,500
  Pinnacle Entertainment Inc.,      
  senior note, 6.375%, 8/01/21 United States 14,100,000 14,699,250
  senior sub. note, 7.75%, 4/01/22 United States 3,650,000 3,960,250
        154,343,375
  Diversified Financials 3.6%      
  Ally Financial Inc., senior note,      
  5.50%, 2/15/17 United States 15,000,000 16,040,625
  7.50%, 9/15/20 United States 31,700,000 38,040,000
  E*TRADE Financial Corp., senior note, 6.375%, 11/15/19 United States 22,500,000 24,243,750
  General Motors Financial Co. Inc.,      
  senior bond, 4.25%, 5/15/23 United States 11,200,000 11,466,000
  senior note, 3.25%, 5/15/18 United States 5,800,000 5,858,000
  GMAC Inc., sub. note, 8.00%, 12/31/18 United States 10,000,000 11,718,750
c Neuberger Berman Group LLC/Finance Corp., senior note, 144A,      
  5.625%, 3/15/20 United States 6,700,000 7,085,250
  5.875%, 3/15/22 United States 15,000,000 16,162,500
c Nuveen Investments Inc., senior note, 144A,      
  9.125%, 10/15/17 United States 10,000,000 10,780,000
  9.50%, 10/15/20 United States 20,000,000 23,446,800
  SLM Corp., senior note,      
  8.45%, 6/15/18 United States 33,000,000 38,484,600
  5.50%, 1/15/19 United States 42,200,000 44,943,000

 

 

Franklin High Income Trust

Statement of Investments, August 31, 2014 (unaudited) (continued)

4.875%, 6/17/19 United States 4,000,000 4,196,000
      252,465,275
Energy 25.7%      
Access Midstream Partner LP/ACMP Finance Corp., senior note, 4.875%, 5/15/23 United States 10,000,000 10,575,000
c Alpha Natural Resources Inc., second lien, 144A, 7.50%, 8/01/20 United States 25,000,000 24,187,500
c American Energy-Permian Basin LLC/AEPB Finance Corp., senior note, 144A,      
7.125%, 11/01/20 United States 10,000,000 9,750,000
7.375%, 11/01/21 United States 16,600,000 16,268,000
Atlas Energy Holdings Operating Co. LLC/Atlas Resource Finance Corp., senior note,      
9.25%, 8/15/21 United States 15,000,000 15,862,500
c144A, 7.75%, 1/15/21 United States 11,100,000 11,377,500
BreitBurn Energy Partners LP/BreitBurn Finance Corp., senior bond, 7.875%, 4/15/22 United States 45,000,000 47,925,000
Carrizo Oil & Gas Inc., senior note,      
8.625%, 10/15/18 United States 24,200,000 25,425,125
7.50%, 9/15/20 United States 7,600,000 8,170,000
CGG SA, senior note,      
7.75%, 5/15/17 France 2,281,000 2,315,215
6.50%, 6/01/21 France 30,000,000 27,900,000
c144A, 6.875%, 1/15/22 France 23,000,000 21,850,000
Chaparral Energy Inc., senior note,      
9.875%, 10/01/20 United States 15,000,000 16,762,500
8.25%, 9/01/21 United States 10,000,000 10,837,500
7.625%, 11/15/22 United States 6,700,000 7,227,625
CHC Helicopter SA,      
senior note, 9.375%, 6/01/21 Canada 11,300,000 12,656,000
senior secured note, first lien, 9.25%, 10/15/20 Canada 40,500,000 44,271,562
Chesapeake Energy Corp., senior note,      
6.625%, 8/15/20 United States 45,000,000 52,087,500
4.875%, 4/15/22 United States 10,000,000 10,512,000
5.75%, 3/15/23 United States 12,700,000 14,239,875
Clayton Williams Energy Inc., senior note, 7.75%, 4/01/19 United States 38,100,000 40,386,000
c Compressco Partners LP/Finance Corp., senior note, 144A, 7.25%, 8/15/22 United States 12,900,000 13,061,250
CONSOL Energy Inc., senior note,      
8.25%, 4/01/20 United States 25,000,000 26,718,750
6.375%, 3/01/21 United States 3,400,000 3,621,000
c144A, 5.875%, 4/15/22 United States 20,900,000 21,918,875
c Drill Rigs Holdings Inc., secured note, 144A, 6.50%, 10/01/17 United States 36,700,000 37,984,500
El Paso Corp., senior note, 7.00%, 6/15/17 United States 10,000,000 11,350,000
Energy Transfer Equity LP,      
senior bond, 5.875%, 1/15/24 United States 21,800,000 23,135,250
senior note, 7.50%, 10/15/20 United States 45,000,000 52,312,500
Energy XXI Gulf Coast Inc., senior note,      
9.25%, 12/15/17 United States 28,000,000 29,820,000
7.50%, 12/15/21 United States 8,200,000 8,733,000
c144A, 6.875%, 3/15/24 United States 3,400,000 3,468,000
c EnQuest PLC, senior note, 144A, 7.00%, 4/15/22 United Kingdom 24,000,000 24,165,000
EPL Oil & Gas Inc., senior note, 8.25%, 2/15/18 United States 20,000,000 21,300,000
c Expro Finance Luxembourg, senior secured note, 144A, 8.50%, 12/15/16 United Kingdom 30,000,000 31,275,000
Goodrich Petroleum Corp., senior note, 8.875%, 3/15/19 United States 35,000,000 36,925,000
Halcon Resources Corp., senior note,      
9.75%, 7/15/20 United States 20,000,000 21,650,000
8.875%, 5/15/21 United States 20,000,000 21,150,000
9.25%, 2/15/22 United States 10,000,000 10,787,500
c Kinder Morgan Finance Co. LLC, senior secured note, 144A, 6.00%, 1/15/18 United States 30,000,000 33,562,500
c Kinder Morgan Inc.,      
senior secured bond, first lien, 144A, 5.625%, 11/15/23 United States 25,000,000 27,687,500
senior secured note, 144A, 5.00%, 2/15/21 United States 4,700,000 5,052,500
Kodiak Oil & Gas Corp., senior note,      
8.125%, 12/01/19 United States 10,000,000 11,050,000
5.50%, 1/15/21 United States 9,900,000 10,494,000
Linn Energy LLC/Finance Corp., senior note,      
6.50%, 5/15/19 United States 5,000,000 5,171,875
6.25%, 11/01/19 United States 25,000,000 25,937,500
8.625%, 4/15/20 United States 15,000,000 16,087,500
7.75%, 2/01/21 United States 12,000,000 12,840,000

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
  Martin Midstream Partners LP/Martin Midstream Finance Corp., senior note, 7.25%,      
  2/15/21 United States 30,000,000 31,050,000
  Memorial Production Partners LP/Memorial Production Finance Corp., senior note,      
  7.625%, 5/01/21 United States 37,500,000 39,093,750
  c144A, 6.875%, 8/01/22 United States 14,000,000 13,868,750
c Memorial Resource Development Corp., senior note, 144A, 5.875%, 7/01/22 United States 19,900,000 20,248,250
  Midstates Petroleum Co. Inc./LLC, senior note, 9.25%, 6/01/21 United States 26,500,000 28,818,750
c Murray Energy Corp., senior secured note, 144A, 8.625%, 6/15/21 United States 18,100,000 19,276,500
  Oasis Petroleum Inc., senior note, 6.875%, 3/15/22 United States 20,000,000 21,950,000
c Ocean Rig UDW Inc., senior note, 144A, 7.25%, 4/01/19 United States 25,000,000 25,000,000
  Offshore Group Investment Ltd.,      
  senior bond, first lien, 7.125%, 4/01/23 United States 15,100,000 15,062,250
  senior secured note, first lien, 7.50%, 11/01/19 United States 35,000,000 35,896,875
  PBF Holding Co. LLC, first lien, 8.25%, 2/15/20 United States 25,000,000 27,062,500
  Peabody Energy Corp., senior note,      
  7.375%, 11/01/16 United States 6,900,000 7,495,125
  6.00%, 11/15/18 United States 15,000,000 15,525,000
  6.50%, 9/15/20 United States 12,500,000 12,640,625
  6.25%, 11/15/21 United States 30,000,000 30,000,000
  Penn Virginia Corp., senior note, 8.50%, 5/01/20 United States 21,300,000 23,536,500
  Penn Virginia Resource Partners LP/Penn Virginia Resource Finance Corp., senior      
  note,      
  8.375%, 6/01/20 United States 13,644,000 15,247,170
  6.50%, 5/15/21 United States 10,000,000 10,825,000
  QEP Resources Inc., senior note,      
  5.375%, 10/01/22 United States 25,000,000 25,718,750
  5.25%, 5/01/23 United States 10,000,000 10,175,000
  QR Energy LP/QRE Finance Corp. LLC, senior note, 9.25%, 8/01/20 United States 35,000,000 40,162,500
  Quicksilver Resources Inc.,      
  c,fsecured note, second lien, 144A, FRN, 7.00%, 6/21/19 United States 30,000,000 28,875,000
  senior note, 9.125%, 8/15/19 United States 10,000,000 8,400,000
  Regency Energy Partners LP/Regency Energy Finance Corp., senior note,      
  5.00%, 10/01/22 United States 1,600,000 1,656,000
  c144A, 8.375%, 6/01/19 United States 40,000,000 43,200,000
  Sabine Pass Liquefaction LLC,      
  first lien, 5.625%, 2/01/21 United States 40,000,000 42,400,000
  first lien, 5.625%, 4/15/23 United States 13,300,000 13,898,500
  cfirst lien, 144A, 6.25%, 3/15/22 United States 5,000,000 5,431,250
  csenior secured note, first lien, 144A, 5.75%, 5/15/24 United States 3,300,000 3,436,125
  Samson Investment Co., senior note, 9.75%, 2/15/20 United States 50,000,000 51,250,000
  Sanchez Energy Corp., senior note,      
  7.75%, 6/15/21 United States 25,000,000 27,875,000
  c144A, 6.125%, 1/15/23 United States 11,100,000 11,516,250
c Triangle USA Petroleum Corp., senior note, 144A, 6.75%, 7/15/22 United States 9,600,000 9,864,000
  Vanguard Natural Resources LLC/Finance Corp., senior note, 7.875%, 4/01/20 United States 20,000,000 21,350,000
  W&T Offshore Inc., senior note, 8.50%, 6/15/19 United States 42,000,000 45,150,000
  WPX Energy Inc., senior note, 6.00%, 1/15/22 United States 35,000,000 37,712,500
        1,798,513,322
  Food, Beverage & Tobacco 2.7%      
  Del Monte Corp., senior note, 7.625%, 2/15/19 United States 20,000,000 20,675,000
c Dole Food Co. Inc., senior secured note, 144A, 7.25%, 5/01/19 United States 30,300,000 30,565,125
c JBS USA LLC/Finance Inc.,      
  senior bond, 144A, 5.875%, 7/15/24 United States 17,100,000 17,185,500
  senior note, 144A, 8.25%, 2/01/20 United States 32,400,000 35,040,600
  senior note, 144A, 7.25%, 6/01/21 United States 14,900,000 15,980,250
  Post Holdings Inc., senior note,      
  7.375%, 2/15/22 United States 22,000,000 23,155,000
  c144A, 6.75%, 12/01/21 United States 25,600,000 26,144,000
  c144A, 6.00%, 12/15/22 United States 5,400,000 5,325,750
c Smithfield Foods Inc., senior note, 144A,      
  5.25%, 8/01/18 United States 7,300,000 7,623,938

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
 
  5.875%, 8/01/21 United States 8,450,000 9,067,906
        190,763,069
  Health Care Equipment & Services 5.9%      
  Alere Inc.,      
  senior note, 7.25%, 7/01/18 United States 37,000,000 39,220,000
  senior sub. note, 6.50%, 6/15/20 United States 8,930,000 9,075,113
c AmSurg Corp., senior note, 144A, 5.625%, 7/15/22 United States 9,800,000 10,069,500
  Aviv Healthcare Properties LP/Aviv Healthcare Capital Corp., senior note,      
  7.75%, 2/15/19 United States 20,000,000 21,225,000
  6.00%, 10/15/21 United States 9,000,000 9,528,750
  CHS/Community Health Systems Inc.,      
  senior note, 8.00%, 11/15/19 United States 32,500,000 35,425,000
  senior note, 7.125%, 7/15/20 United States 13,300,000 14,413,875
  csenior note, 144A, 5.125%, 8/01/21 United States 4,100,000 4,223,000
  csenior note, 144A, 6.875%, 2/01/22 United States 4,600,000 4,910,500
  senior secured note, 5.125%, 8/15/18 United States 12,700,000 13,239,750
  DaVita HealthCare Partners Inc.,      
  senior bond, 5.125%, 7/15/24 United States 17,800,000 18,089,250
  senior note, 5.75%, 8/15/22 United States 19,300,000 20,651,000
c Emergency Medical Services Corp., senior note, 144A, 5.125%, 7/01/22 United States 12,700,000 12,858,750
  ExamWorks Group Inc., senior note, 9.00%, 7/15/19 United States 15,000,000 16,275,000
  HCA Inc.,      
  senior note, 8.00%, 10/01/18 United States 5,000,000 5,862,500
  senior note, 7.50%, 2/15/22 United States 8,100,000 9,456,750
  senior note, 5.875%, 5/01/23 United States 50,000,000 53,375,000
  senior secured bond, 7.25%, 9/15/20 United States 4,300,000 4,579,500
  senior secured note, 5.875%, 3/15/22 United States 30,000,000 32,700,000
  senior secured note, first lien, 5.00%, 3/15/24 United States 22,900,000 23,386,625
  Tenet Healthcare Corp.,      
  first lien, 6.00%, 10/01/20 United States 6,700,000 7,286,250
  senior note, 8.125%, 4/01/22 United States 30,000,000 34,612,500
  csenior note, 144A, 5.00%, 3/01/19 United States 10,700,000 10,860,500
        411,324,113
  Materials 9.4%      
c Albea Beauty Holdings SA, first lien, 144A, 8.375%, 11/01/19 France 8,000,000 8,760,000
  ArcelorMittal, senior note, 6.00%, 3/01/21 Luxembourg 46,800,000 50,577,696
c Ardagh Packaging Finance PLC, senior note, 144A, 9.125%, 10/15/20 Luxembourg 6,100,000 6,725,250
c Ardagh Packaging Finance PLC/Ardagh MP Holdings USA Inc.,      
  senior note, 144A, 6.25%, 1/31/19 Luxembourg 4,100,000 4,151,250
  senior note, 144A, 9.125%, 10/15/20 Luxembourg 5,000,000 5,475,000
  senior note, 144A, 7.00%, 11/15/20 Luxembourg 2,647,059 2,713,235
  senior note, 144A, 6.75%, 1/31/21 Luxembourg 4,500,000 4,626,563
  senior note, 144A, 6.00%, 6/30/21 Luxembourg 7,000,000 6,986,875
  fsenior secured note, 144A, FRN, 3.232%, 12/15/19 Luxembourg 22,800,000 22,743,000
c Barminco Finance Pty. Ltd., senior note, 144A, 9.00%, 6/01/18 Australia 31,000,000 28,229,375
c Cemex Finance LLC, senior secured note, 144A,      
  9.375%, 10/12/22 Mexico 7,100,000 8,413,500
  6.00%, 4/01/24 Mexico 15,800,000 16,471,500
c Cemex SAB de CV,      
  secured note, 144A, 5.875%, 3/25/19 Mexico 2,200,000 2,311,375
  senior secured note, 144A, 9.00%, 1/11/18 Mexico 40,000,000 42,725,000
c Eldorado Gold Corp., senior note, 144A, 6.125%, 12/15/20 Canada 45,000,000 46,687,500
c Essar Steel Minnesota LLC, senior secured note, 144A, 11.50%, 5/15/20 United States 19,300,000 19,854,875
c First Quantum Minerals Ltd., senior note, 144A,      
  6.75%, 2/15/20 Canada 30,000,000 31,275,000
  7.00%, 2/15/21 Canada 39,882,000 42,075,510
c FMG Resources (August 2006) Pty. Ltd., senior note, 144A,      
  6.00%, 4/01/17 Australia 5,000,000 5,228,125
  6.875%, 2/01/18 Australia 25,000,000 26,351,500
  8.25%, 11/01/19 Australia 25,000,000 27,468,750
  6.875%, 4/01/22 Australia 5,000,000 5,465,625
c Ineos Finance PLC, senior secured note, 144A,      
  8.375%, 2/15/19 Switzerland 5,000,000 5,440,625
  7.50%, 5/01/20 Switzerland 8,600,000 9,314,875

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
c Ineos Group Holdings SA, senior note, 144A,      
  6.125%, 8/15/18 Switzerland 22,100,000 22,901,125
  5.875%, 2/15/19 Switzerland 20,000,000 20,512,500
  LSB Industries Inc., senior secured note, first lien, 7.75%, 8/01/19 United States 20,000,000 21,950,000
  Novelis Inc., senior note, 8.75%, 12/15/20 Canada 20,000,000 22,225,000
c Rain CII Carbon LLC/CII Carbon Corp., second lien, 144A, 8.25%, 1/15/21 United States 19,700,000 20,783,500
  Reynolds Group Issuer Inc./LLC/SA,      
  first lien, 5.75%, 10/15/20 United States 23,600,000 24,780,000
  senior note, 8.50%, 5/15/18 United States 20,000,000 20,950,000
  senior note, 9.00%, 4/15/19 United States 2,300,000 2,426,500
  senior note, 9.875%, 8/15/19 United States 7,500,000 8,353,125
  senior note, 8.25%, 2/15/21 United States 20,000,000 21,925,000
  Reynolds Group Issuer Inc./LLCA, senior secured note, 7.875%, 8/15/19 United States 5,000,000 5,437,500
c Sealed Air Corp., senior note, 144A,      
  8.125%, 9/15/19 United States 9,100,000 9,987,250
  6.50%, 12/01/20 United States 8,900,000 9,834,500
c U.S. Coatings Acquisition Inc./Flash Dutch 2 BV, senior note, 144A, 7.375%, 5/01/21 United States 12,750,000 13,961,250
        656,099,254
  Media 8.7%      
  Cablevision Systems Corp., senior note, 8.625%, 9/15/17 United States 15,000,000 17,137,500
  CCO Holdings LLC/CCO Holdings Capital Corp.,      
  senior bond, 5.25%, 9/30/22 United States 25,000,000 25,468,750
  senior bond, 5.125%, 2/15/23 United States 15,000,000 14,981,250
  senior note, 6.50%, 4/30/21 United States 10,000,000 10,662,500
  Clear Channel Communications Inc., senior secured bond, first lien, 9.00%, 3/01/21 United States 43,800,000 45,606,750
  Clear Channel Worldwide Holdings Inc.,      
  senior note, 6.50%, 11/15/22 United States 6,500,000 6,987,500
  senior note, 6.50%, 11/15/22 United States 3,500,000 3,745,000
  senior sub. note, 7.625%, 3/15/20 United States 25,000,000 26,875,000
  senior sub. note, 7.625%, 3/15/20 United States 1,650,000 1,769,625
  CSC Holdings LLC,      
  senior bond, 7.625%, 7/15/18 United States 5,000,000 5,731,250
  senior note, 6.75%, 11/15/21 United States 25,000,000 27,593,750
  csenior note, 144A, 5.25%, 6/01/24 United States 25,000,000 24,812,500
  DISH DBS Corp.,      
  senior bond, 5.00%, 3/15/23 United States 5,000,000 4,987,500
  senior note, 7.125%, 2/01/16 United States 15,000,000 16,050,000
  senior note, 6.75%, 6/01/21 United States 5,000,000 5,606,000
  senior note, 5.875%, 7/15/22 United States 30,000,000 31,911,000
  Gannett Co. Inc.,      
  csenior bond, 144A, 6.375%, 10/15/23 United States 27,600,000 29,394,000
  senior note, 5.125%, 7/15/20 United States 17,800,000 18,289,500
  csenior note, 144A, 5.125%, 10/15/19 United States 19,400,000 19,933,500
c Live Nation Entertainment Inc., senior note, 144A,      
  7.00%, 9/01/20 United States 7,100,000 7,685,750
  5.375%, 6/15/22 United States 8,600,000 8,836,500
c Lynx I Corp., first lien, 144A, 5.375%, 4/15/21 United Kingdom 13,400,000 14,003,000
c The Nielsen Co. (Luxembourg) S.A.R.L., senior note, 144A, 5.50%, 10/01/21 United States 10,000,000 10,381,250
c Nielsen Finance LLC/Co., senior note, 144A, 5.00%, 4/15/22 United States 37,300,000 37,836,187
c Radio One Inc., senior sub. note, 144A, 9.25%, 2/15/20 United States 14,025,000 14,656,125
c Sirius XM Radio Inc., senior bond, 144A, 6.00%, 7/15/24 United States 34,200,000 35,653,500
c Univision Communications Inc.,      
  senior secured bond, 144A, 6.75%, 9/15/22 United States 21,544,000 23,752,260
  senior secured note, 144A, 6.875%, 5/15/19 United States 10,000,000 10,625,000
  senior secured note, 144A, 5.125%, 5/15/23 United States 8,000,000 8,420,000
c UPCB Finance III Ltd., senior secured note, 144A, 6.625%, 7/01/20 Netherlands 30,000,000 31,875,000
c UPCB Finance VI Ltd., senior secured note, 144A, 6.875%, 1/15/22 Netherlands 4,700,000 5,111,250
c Videotron Ltd., senior bond, 144A, 5.375%, 6/15/24 Canada 14,800,000 15,133,000
c Virgin Media Finance PLC, senior bond, 144A, 6.375%, 4/15/23 United Kingdom 1,500,000 1,605,000
c Virgin Media Secured Finance PLC, senior secured bond, first lien, 144A, 5.50%,      
  1/15/25 United Kingdom 28,400,000 29,305,250

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
 
c VTR Finance BV, senior secured note, 144A, 6.875%, 1/15/24 Chile 17,000,000 18,275,000
        610,696,947
  Pharmaceuticals, Biotechnology & Life Sciences 2.9%      
c Grifols Worldwide Operations Ltd., senior note, 144A, 5.25%, 4/01/22 United States 16,300,000 16,789,000
c inVentiv Health Inc., senior secured note, 144A, 9.00%, 1/15/18 United States 18,075,000 18,978,750
c,g Jaguar Holding Co. I, senior note, 144A, PIK, 9.375%, 10/15/17 United States 47,990,000 49,489,688
c Jaguar Holding Co. II/Merger Sub Inc., senior note, 144A, 9.50%, 12/01/19 United States 9,200,000 10,039,500
  Par Pharmaceutical Cos. Inc., senior note, 7.375%, 10/15/20 United States 26,000,000 27,690,000
c Valeant Pharmaceuticals International Inc., senior note, 144A,      
  7.50%, 7/15/21 United States 15,400,000 16,843,750
  5.625%, 12/01/21 United States 15,000,000 15,281,250
c VPI Escrow Corp., senior note, 144A, 6.375%, 10/15/20 United States 42,600,000 44,730,000
        199,841,938
  Real Estate 0.2%      
  Crown Castle International Corp., senior bond, 5.25%, 1/15/23 United States 15,400,000 15,982,274
  Retailing 0.2%      
c New Look Bondco I PLC, secured note, 144A, 8.375%, 5/14/18 United Kingdom 15,400,000 16,420,250
  Semiconductors & Semiconductor Equipment 0.3%      
  Freescale Semiconductor Inc., senior note, 8.05%, 2/01/20 United States 15,604,000 16,852,320
  Software & Services 3.1%      
c BMC Software Finance Inc., senior note, 144A, 8.125%, 7/15/21 United States 45,000,000 45,675,000
  Equinix Inc.,      
  senior bond, 5.375%, 4/01/23 United States 37,000,000 37,925,000
  senior note, 4.875%, 4/01/20 United States 10,000,000 10,250,000
  First Data Corp.,      
  senior bond, 12.625%, 1/15/21 United States 30,000,000 36,750,000
  senior note, 11.25%, 1/15/21 United States 9,676,000 11,272,540
  csenior secured bond, 144A, 8.25%, 1/15/21 United States 37,000,000 40,515,000
c,g Infor Software Parent LLC/Inc., senior note, 144A, PIK, 7.125%, 5/01/21 United States 12,500,000 12,781,250
  Sterling International Inc., senior note, 11.00%, 10/01/19 United States 19,075,000 20,410,250
        215,579,040
  Technology Hardware & Equipment 1.5%      
c Alcatel-Lucent USA Inc., senior note, 144A, 6.75%, 11/15/20 France 42,200,000 44,837,500
c Blackboard Inc., senior note, 144A, 7.75%, 11/15/19 United States 15,500,000 15,926,250
c,g CommScope Holdings Co. Inc., senior note, 144A, PIK, 6.625%, 6/01/20 United States 11,200,000 12,012,000
c CommScope Inc.,      
  senior bond, 144A, 5.50%, 6/15/24 United States 7,000,000 7,157,500
  senior note, 144A, 5.00%, 6/15/21 United States 7,000,000 7,140,000
  Lucent Technologies Inc., 6.45%, 3/15/29 France 15,000,000 14,737,500
        101,810,750
  Telecommunication Services 8.3%      
c Altice SA, senior secured note, 144A, 7.75%, 5/15/22 Luxembourg 11,200,000 11,963,000
  CenturyLink Inc.,      
  senior bond, 6.75%, 12/01/23 United States 6,300,000 6,996,937
  senior note, 5.80%, 3/15/22 United States 30,000,000 31,800,000
c Digicel Group Ltd., senior note, 144A, 8.25%, 9/30/20 Bermuda 25,000,000 27,062,500
c Digicel Ltd., senior note, 144A, 6.00%, 4/15/21 Bermuda 24,400,000 25,193,000
c eAccess Ltd., senior note, 144A, 8.25%, 4/01/18 Japan 21,800,000 23,448,625
  Frontier Communications Corp.,      
  senior bond, 7.625%, 4/15/24 United States 10,000,000 10,675,000
  senior note, 8.75%, 4/15/22 United States 10,000,000 11,700,000
  senior note, 7.125%, 1/15/23 United States 10,000,000 10,600,000
  senior note, 7.875%, 1/15/27 United States 23,000,000 23,920,000
  Intelsat Jackson Holdings SA,      
  senior bond, 6.625%, 12/15/22 Luxembourg 20,000,000 21,000,000
  senior bond, 5.50%, 8/01/23 Luxembourg 15,000,000 14,981,250
  senior note, 7.25%, 10/15/20 Luxembourg 15,000,000 16,087,500
  senior note, 7.50%, 4/01/21 Luxembourg 35,000,000 38,018,750
c Millicom International Cellular SA, senior note, 144A, 6.625%, 10/15/21 Luxembourg 29,200,000 31,864,500
b,e RSL Communications PLC,      
  senior discount note, 10.125%, 3/01/08 United Kingdom 44,500,000 489,500
  senior note, 12.00%, 11/01/08 United Kingdom 6,250,000 87,500

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
c Sprint Corp.,      
  senior bond, 144A, 7.125%, 6/15/24 United States 10,900,000 11,158,875
  senior note, 144A, 7.875%, 9/15/23 United States 4,700,000 5,052,500
  Sprint Nextel Corp., senior note,      
  8.375%, 8/15/17 United States 35,000,000 40,031,250
  6.00%, 11/15/22 United States 7,500,000 7,518,750
  c144A, 9.00%, 11/15/18 United States 60,000,000 71,475,000
  c144A, 7.00%, 3/01/20 United States 9,800,000 10,976,000
  T-Mobile USA Inc.,      
  senior bond, 6.50%, 1/15/24 United States 7,400,000 7,714,500
  senior note, 6.542%, 4/28/20 United States 11,700,000 12,328,875
  senior note, 6.633%, 4/28/21 United States 9,000,000 9,506,250
  senior note, 6.125%, 1/15/22 United States 4,200,000 4,368,000
  senior note, 6.731%, 4/28/22 United States 9,000,000 9,528,750
c Wind Acquisition Finance SA,      
  senior note, 144A, 7.375%, 4/23/21 Italy 65,000,000 68,900,000
  senior secured note, first lien, 144A, 4.75%, 7/15/20 Italy 15,000,000 15,121,875
        579,568,687
  Transportation 2.2%      
c Florida East Coast Holdings Corp.,      
  secured note, first lien, 144A, 6.75%, 5/01/19 United States 17,400,000 18,400,500
  senior note, 144A, 9.75%, 5/01/20 United States 9,300,000 9,881,250
  Hertz Corp., senior note,      
  7.50%, 10/15/18 United States 15,000,000 15,693,750
  6.75%, 4/15/19 United States 26,800,000 28,240,500
  5.875%, 10/15/20 United States 10,000,000 10,337,500
  6.25%, 10/15/22 United States 10,000,000 10,475,000
  Marquette Transportation Co. Inc./Finance Corp., senior secured note, 10.875%,      
  1/15/17 United States 20,000,000 21,075,000
c Stena AB, senior bond, 144A, 7.00%, 2/01/24 Sweden 18,800,000 19,975,000
c Stena International SA, secured bond, 144A, 5.75%, 3/01/24 Sweden 20,000,000 20,575,000
        154,653,500
  Utilities 2.8%      
  Calpine Corp.,      
  senior bond, 5.75%, 1/15/25 United States 15,400,000 15,573,250
  senior note, 5.375%, 1/15/23 United States 18,300,000 18,505,875
  csenior secured bond, first lien, 144A, 5.875%, 1/15/24 United States 14,100,000 15,157,500
  csenior secured note, 144A, 7.875%, 1/15/23 United States 7,960,000 8,875,400
  csenior secured note, first lien, 144A, 6.00%, 1/15/22 United States 3,600,000 3,897,000
c InterGen NV, secured bond, 144A, 7.00%, 6/30/23 Netherlands 40,000,000 40,800,000
c NGL Energy Partners LP/NGL Energy Finance Corp., senior note, 144A, 5.125%,      
  7/15/19 United States 9,800,000 9,947,000
c NRG Yield Operating LLC, senior bond, 144A, 5.375%, 8/15/24 United States 22,900,000 23,758,750
c,e Texas Competitive Electric Holdings Co. LLC/Texas Competitive Electric Holdings      
  Finance Inc., senior secured note, 144A, 11.50%, 10/01/14 United States 50,000,000 43,750,000
c Viridian Group FundCo II, senior note, 144A, 11.125%, 4/01/17 United Kingdom 12,600,000 13,804,875
        194,069,650
  Total Corporate Bonds (Cost $6,132,382,913)     6,406,489,463
f Senior Floating Rate Interests 1.0%      
  Capital Goods 0.2%      
  Navistar Inc., Tranche B Term Loan, 5.75%, 8/17/17 United States 11,747,428 11,862,353
  Household & Personal Products 0.6%      
  Sun Products Corp., Tranche B Term Loan, 5.50%, 3/23/20 United States 41,649,071 40,121,925
  Utilities 0.2%      
e Texas Competitive Electric Holdings Co. LLC, 2017 Term Loan, 6.75%, 10/10/17 United States 19,083,845 14,801,907
  Total Senior Floating Rate Interests (Cost $69,499,437)     66,786,185
      Shares  
  Litigation Trusts (Cost $—) 0.0%      
a,b NewPage Corp., Litigation Trust United States 30,000,000 —

 

 

Franklin High Income Trust      
 
Statement of Investments, August 31, 2014 (unaudited) (continued)    
  Total Investments before Short Term Investments (Cost $6,284,451,071)     6,548,475,973
  Short Term Investments (Cost $325,373,582) 4.7%      
  Money Market Funds 4.7%      
  a,h Institutional Fiduciary Trust Money Market Portfolio United States 325,373,582 325,373,582
  Total Investments (Cost $6,609,824,653) 98.4%     6,873,849,555
  Other Assets, less Liabilities 1.6%     113,911,769
  Net Assets 100.0%   $ 6,987,761,324
 
 
 
† Rounds to less than 0.1% of net assets.      
* The principal amount is stated in U.S. dollars unless otherwise indicated.      
a Non-income producing.      
b Security has been deemed illiquid because it may not be able to be sold within seven days. At August 31, 2014, the aggregate value of these securities was $758,466,
  representing 0.01% of net assets.      
c Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be sold in transactions exempt from registration only to qualified institutional buyers
  or in a public offering registered under the Securities Act of 1933. These securities have been deemed liquid under guidelines approved by the Trust's Board of Trustees. At
  August 31, 2014, the aggregate value of these securities was $2,700,991,431, representing 38.65% of net assets.    
d Perpetual security with no stated maturity date.      
e Defaulted security or security for which income has been deemed uncollectible.      
f The coupon rate shown represents the rate at period end.      
g Income may be received in additional securities and/or cash.      
h Institutional Fiduciary Trust Money Market Portfolio is an affiliated open-end management investment company.    

 

 

Franklin High Income Trust                                
Statement of Investments, August 31, 2014 (unaudited) (continued)                
At August 31, 2014, the Fund had the following forward exchange contracts outstanding. See Note 3.                
 
Forward Exchange Contracts                                    
                                            Contract                          Settlement         Unrealized   Unrealized  
Currency Counterpartya Type Quantity     Amount   Date         Appreciation   Depreciation  
Euro     DBAB Buy 4,700,000 $   6,437,825     12/17/14 $   - $ (257,995 )
Euro     DBAB Sell 4,700,000     6,448,400     12/17/14     268,570   -  
Euro     DBAB Buy 2,575,000     3,527,235     2/09/15     -   (140,141 )
Euro     DBAB Sell 2,575,000     3,551,337     2/09/15     164,243   -  
Unrealized appreciation (depreciation)                           432,813   (398,136 )
Net unrealized appreciation (depreciation)                     $     34,677      
a May be comprised of multiple contracts with the same counterparty, currency and settlement date.                      
 
At August 31, 2014, the Fund had the following credit default swap contracts outstanding. See Note 3.                
 
Credit Default Swap Contracts                                    
          Periodic         Upfront                      
      Counterpartya / Notional              Payment Expiration          Premiums Unrealized                    Unrealized     Market      
Description Exchange Amountb Rate   Date     Paid (Received)                          Appreciation                                    Depreciation     Value Ratingc  
OTC Sw aps                                      
Contracts to Sell Protectiond                                    
Traded Index                                      
 
CDX.NA.HY.22 FBCO 49,500,000 5.00 % 6/20/19 $ 4,364,533 $ 133,836 $ -   $ 4,498,369       Non  
                                      Investment  
                                      Grade  
  Net unrealized appreciation (depreciation)             $ 133,836                
 
a Posting of collateral is required by either the Fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable  
counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty  
and the type of the agreement. At August 31, 2014, no collateral had been exchanged with the counterparties.            
b In U.S. dollars unless otherwise indicated. For contracts to sell protection, the notional amount is equal to the maximum potential      
amount of the future payments and no recourse provisions have been entered into in association with the contracts.      
c Based on Standard and Poor's (S&P) Rating for single name swaps and internal ratings for index swaps. Internal ratings based      
on mapping into equivalent ratings from external vendors.                                
d The fund enters contracts to sell protection to create a long credit position. Performance triggers include default,            
bankruptcy or restructuring for single name swaps and failure to pay or bankruptcy of the underlying securities for traded index swaps.    
 
ABBREVIATIONS                                      
Counterparty                                      
 
DBAB - Deutsche Bank AG                                    
FBCO - Credit Suisse Group AG                                    
 
Selected Portfolio                                    
 
ETF - Exchange Traded Fund                                    
FRN - Floating Rate Note                                    
PIK - Payment-In-Kind                                    

 

 

Franklin High Income Trust

Notes to Statement of Investments (unaudited)

1. ORGANIZATION

Franklin High Income Trust (Trust) is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company, consisting of one fund, the Franklin High Income Fund (Fund), and applies the specialized accounting and reporting guidance in U.S. Generally Accepted Accounting Principles.

2. FINANCIAL INSTRUMENT VALUATION

The Fund’s investments in financial instruments are carried at fair value daily. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The Fund calculates the net asset value per share at the close of the New York Stock Exchange (NYSE), generally at 4 p.m. Eastern time (NYSE close) on each day the NYSE is open for trading. Under compliance policies and procedures approved by the Trust's Board of Trustees (the Board), the Fund’s administrator has responsibility for oversight of valuation, including leading the cross-functional Valuation and Liquidity Oversight Committee (VLOC). The VLOC provides administration and oversight of the Fund's valuation policies and procedures, which are approved annually by the Board. Among other things, these procedures allow the Fund to utilize independent pricing services, quotations from securities and financial instrument dealers, and other market sources to determine fair value.

Equity securities and exchange traded funds listed on an exchange or on the NASDAQ National Market System are valued at the last quoted sale price or the official closing price of the day, respectively. Foreign equity securities are valued as of the close of trading on the foreign stock exchange on which the security is primarily traded or as of the NYSE close, whichever is earlier. The value is then converted into its U.S. dollar equivalent at the foreign exchange rate in effect at the NYSE close on the day that the value of the security is determined. Over-the-counter (OTC) securities are valued within the range of the most recent quoted bid and ask prices. Securities that trade in multiple markets or on multiple exchanges are valued according to the broadest and most representative market. Certain equity securities are valued based upon fundamental characteristics or relationships to similar securities. Investments in open-end mutual funds are valued at the closing net asset value.

Debt securities generally trade in the OTC market rather than on a securities exchange. The Fund's pricing services use multiple valuation techniques to determine fair value. In instances where sufficient market activity exists, the pricing services may utilize a market-based approach through which quotes from market makers are used to determine fair value. In instances where sufficient market activity may not exist or is limited, the pricing services also utilize proprietary valuation models which may consider market characteristics such as benchmark yield curves, credit spreads, estimated default rates, anticipated market interest rate volatility, coupon rates, anticipated timing of principal repayments, underlying collateral, and other unique security features in order to estimate the relevant cash flows, which are then discounted to calculate the fair value. Securities denominated in a foreign currency are converted into their U.S. dollar equivalent at the foreign exchange rate in effect at the NYSE close on the date that the values of the foreign debt securities are determined.

 

Certain derivative financial instruments (derivatives) trade in the OTC market. The Fund’s pricing services use various techniques including industry standard option pricing models and proprietary discounted cash flow models to determine the fair value of those instruments. The Fund’s net benefit or obligation under the derivative contract, as measured by the fair value of the contract, is included in net assets.

The Fund has procedures to determine the fair value of financial instruments for which market prices are not reliable or readily available. Under these procedures, the VLOC convenes on a regular basis to review such financial instruments and considers a number of factors, including significant unobservable valuation inputs, when arriving at fair value. The VLOC primarily employs a market-based approach which may use related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. An income-based valuation approach may also be used in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Due to the inherent uncertainty of valuations of such investments, the fair values may differ significantly from the values that would have been used had an active market existed. The VLOC employs various methods for calibrating these valuation approaches including a regular review of key inputs and assumptions, transactional back-testing or disposition analysis, and reviews of any related market activity.

Trading in securities on foreign securities stock exchanges and OTC markets may be completed before the daily NYSE close. In addition, trading in certain foreign markets may not take place on every NYSE business day. Occasionally, events occur between the time at which trading in a foreign security is completed and the close of the NYSE that might call into question the reliability of the value of a portfolio security held by the Fund. As a result, differences may arise between the value of the Fund’s portfolio securities as determined at the foreign market close and the latest indications of value at the close of the NYSE. In order to minimize the potential for these differences, the VLOC monitors price movements following the close of trading in foreign stock markets through a series of country specific market proxies (such as baskets of American Depositary Receipts, futures contracts and exchange traded funds). These price movements are measured against established trigger thresholds for each specific market proxy to assist in determining if an event has occurred that may call into question the reliability of the values of the foreign securities held by the Fund. If such an event occurs, the securities may be valued using fair value procedures, which may include the use of independent pricing services.

Also, when the last day of the reporting period is a non-business day, certain foreign markets may be open on those days that the NYSE is closed, which could result in differences between the value of the Fund’s portfolio securities on the last business day and the last calendar day of the reporting period. Any significant security valuation changes due to an open foreign market are adjusted and reflected by the Fund for financial reporting purposes.

3. DERIVATIVE FINANCIAL INSTRUMENTS

The Fund invested in derivatives in order to manage risk or gain exposure to various other investments or markets. Derivatives are financial contracts based on an underlying or notional amount, require no initial investment or an initial net investment that is smaller than would normally be required to have a similar response to changes in market factors, and require or permit net settlement. Derivatives contain various risks including the potential inability of the counterparty to fulfill their obligations under the terms of the contract, the potential for an illiquid secondary market, and/or the potential for market movements.

Derivative counterparty credit risk is managed through a formal evaluation of the creditworthiness of all potential counterparties. The Fund attempts to reduce its exposure to counterparty credit risk on OTC derivatives, whenever

 

possible, by entering into International Swaps and Derivatives Association (ISDA) master agreements with certain counterparties. These agreements contain various provisions, including but not limited to collateral requirements, events of default, or early termination. Termination events applicable to the counterparty include certain deteriorations in the credit quality of the counterparty. Termination events applicable to the Fund include failure of the Fund to maintain certain net asset levels and/or limit the decline in net assets over various periods of time. In the event of default or early termination, the ISDA master agreement gives the non-defaulting party the right to net and close-out all transactions traded, whether or not arising under the ISDA agreement, to one net amount payable by one counterparty to the other. Early termination by the counterparty may result in an immediate payment by the Fund of any net liability owed to that counterparty under the ISDA agreement.

Collateral requirements differ by type of derivative. Collateral terms are contract specific for OTC derivatives. For OTC derivatives traded under an ISDA master agreement, posting of collateral is required by either the fund or the applicable counterparty if the total net exposure of all OTC derivatives with the applicable counterparty exceeds the minimum transfer amount, which typically ranges from $100,000 to $250,000, and can vary depending on the counterparty and the type of the agreement. Generally, collateral is determined at the close of fund business each day and any additional collateral required due to changes in derivative values may be delivered by the fund or the counterparty within a few business days. Collateral pledged and/or received by the fund, if any, is held in segregated accounts with the fund’s custodian/counterparty broker and can be in the form of cash and/or securities. Unrestricted cash may be invested according to the Fund’s investment objectives.

The Fund entered into OTC forward exchange contracts primarily to manage and/or gain exposure to certain foreign currencies. A forward exchange contract is an agreement between the Fund and a counterparty to buy or sell a foreign currency for a specific exchange rate on a future date.

The Fund entered into credit default swap contracts primarily to manage and/or gain exposure to credit risk. A credit default swap is an agreement between the Fund and a counterparty whereby the buyer of the contract receives credit protection and the seller of the contract guarantees the credit worthiness of a referenced debt obligation. These agreements may be privately negotiated in the over-the-counter market (“OTC credit default swaps”) or may be executed in a multilateral trade facility platform, such as a registered exchange (“centrally cleared credit default swaps”). The underlying referenced debt obligation may be a single issuer of corporate or sovereign debt, a credit index, or a tranche of a credit index. In the event of a default of the underlying referenced debt obligation, the buyer is entitled to receive the notional amount of the credit default swap contract from the seller in exchange for the referenced debt obligation, a net settlement amount equal to the notional amount of the credit default swap less the recovery value of the referenced debt obligation, or other agreed upon amount. For centrally cleared credit default swaps, required initial margins are pledged by the Fund, and the daily change in fair value is accounted for as a variation margin payable or receivable. Over the term of the contract, the buyer pays the seller a periodic stream of payments, provided that no event of default has occurred. Such periodic payments are accrued daily as an unrealized appreciation or depreciation until the payments are made, at which time they are realized. Payments received or paid to initiate a credit default swap contract represent compensating factors between stated terms of the credit default swap agreement and prevailing market conditions (credit spreads and other relevant factors). These upfront payments are amortized over the term of the contract as a realized gain or loss.

4. INCOME TAXES

At August 31, 2014, the cost of investments and net unrealized appreciation (depreciation) for income tax purposes were as follows:

 

Cost of investments $ 6,622,640,659  
 
Unrealized appreciation $ 347,505,838  
Unrealized depreciation   (96,296,942 )
Net unrealized appreciation (depreciation) $ 251,208,896  
 
5. FAIR VALUE MEASUREMENTS      

 

The Fund follows a fair value hierarchy that distinguishes between market data obtained from independent sources (observable inputs) and the Fund’s own market assumptions (unobservable inputs). These inputs are used in determining the value of the Fund’s financial instruments and are summarized in the following fair value hierarchy:

  • Level 1 – quoted prices in active markets for identical financial instruments
  • Level 2 – other significant observable inputs (including quoted prices for similar financial instruments, interest rates, prepayment speed, credit risk, etc.)
  • Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of financial instruments)

The input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level.

For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing the transfers as of the date of the underlying event which caused the movement.

A summary of inputs used as of August 31, 2014, in valuing the Fund’s assets and liabilities carried at fair value, is as follows:

    Level 1   Level 2   Level 3   Total
Assets:                
Investments in Securities:                
Equity Investments:a                
Consumer Services $ - $ - $ 180,561 $ 180,561
Materials   -   5,610,000   -   5,610,000
Transportation   -   12,983,908   -   12,983,908
Other Equity Investmentsb   56,425,856   -   -   56,425,856
Corporate Bonds   -   6,405,661,558   827,905   6,406,489,463
Senior Floating Rate Interests   -   66,786,185   -   66,786,185
Litigation Trusts   -   -   - c   -
Short Term Investments   325,373,582   -   -   325,373,582
Total Investments in Securities $ 381,799,438 $ 6,491,041,651 $ 1,008,466 $ 6,873,849,555
 
Other Financial Instruments                
Forw ard Exchange Contracts $ - $ 432,813 $ - $ 432,813
Sw ap Contracts   -   133,836   -   133,836
Total Other Financial Instruments $ - $ 566,649 $ - $ 566,649
 
Liabilities:                
Other Financial Instruments                
Forw ard Exchange Contracts $ - $ 398,136 $ - $ 398,136
 
 
aIncludes common, preferred, convertible preferred stocks as w ell as other equity investments.        
bFor detailed categories, see the accompanying Statement of Investments.            
cIncludes securities determined to have no value at August 31, 2014.            

 

 

A reconciliation of assets in which Level 3 inputs are used in determining fair value is presented when there are significant Level 3 financial instruments at the end of the period.

6. NEW ACCOUNTING PRONOUNCEMENTS

In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-11, Transfers and Servicing (Topic 860), Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The ASU changes the accounting for certain repurchase agreements and expands disclosure requirements related to repurchase agreements, securities lending, repurchase-to-maturity and similar transactions. The ASU is effective for interim and annual reporting periods beginning after December 15, 2014. Management is currently evaluating the impact, if any, of applying this provision.

7. SUBSEQUENT EVENTS

The Fund has evaluated subsequent events through the issuance of the Statement of Investments and determined that no events have occurred that require disclosure.

For additional information on the Fund's significant accounting policies, please refer to the Fund's most recent semiannual or annual shareholder report.

 

 

 

Item 2. 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 Quarterly Schedule of Portfolio Holdings on Form N-Q, 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 changes in the Registrant’s internal controls or in other factors that could materially affect the internal controls over financial reporting subsequent to the date of their evaluation in connection with the preparation of this Quarterly Schedule of Portfolio Holdings on Form N-Q.

 

Item 3. Exhibits.

 

(a) Certification pursuant to Section 30a-2 under the Investment Company Act of 1940 of Laura F. Fergerson, Chief Executive Officer - Finance and Administration, and Gaston Gardey, Chief Financial Officer and Chief Accounting 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/ Laura F. Fergerson

      Laura F. Fergerson

      Chief Executive Officer –

       Finance and Administration

Date  October 24, 2014

 

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/ Laura F. Fergerson

      Laura F. Fergerson

      Chief Executive Officer –

       Finance and Administration

Date  October 24, 2014

 

 

By /s/ Gaston Gardey

      Gaston Gardey

      Chief Financial Officer and

       Chief Accounting Officer

Date  October 24, 2014