-----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, ASj31PCYsmMtcxiEtivGwYAE23ty2nJB3YAzidoJyXqz6WO9xLNN103+uhwHhXiJ +Vt0IBtq/30cCOOqHfeY6g== 0000002768-99-000006.txt : 19990211 0000002768-99-000006.hdr.sgml : 19990211 ACCESSION NUMBER: 0000002768-99-000006 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990210 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN HIGH INCOME TRUST CENTRAL INDEX KEY: 0000002768 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 941693697 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01608 FILM NUMBER: 99526622 BUSINESS ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 BUSINESS PHONE: 4153122000 MAIL ADDRESS: STREET 1: 777 MARINERS ISLAND BLVD CITY: SAN MATEO STATE: CA ZIP: 94404 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-30D 1 SEMI ANNUAL REPORT FRANKLIN'S AGE HIGH INCOME FUND November 30, 1998 [PICTURE OF BUILDINGS] [FRANKLIN TEMPLETON LOGO] [50 YEAR SEAL] Thank you for investing with Franklin Templeton. We encourage our investors to maintain a long-term perspective and remember that all securities markets move both up and down, as do mutual fund share prices. We appreciate your past support and look forward to serving your investment needs in the years ahead. SHAREHOLDER LETTER Dear Shareholder: This semiannual report for Franklin's AGE High Income Fund covers the period ended November 30, 1998. A TALE OF TWO ECONOMIES During the six months under review, the U.S. economy began to appear like a tale of two economies -- a healthy and expanding domestic sector contrasted with a fragile and ailing export-oriented sector. Despite momentary dips in leading economic indicators, the gross domestic product grew at a 3.9% annualized rate in the third quarter of 1998, masking much of the underlying divergence. Consumer spending remained robust and the housing market regained its momentum, after ebbing slightly in September. Consumer confidence rose in November, after tumbling in October, signaling that consumers remained guardedly optimistic about the economy, the stock market and their jobs. Housing starts, which fell 2.6% in September, rose an unexpectedly strong 7.3% in October, the biggest gain in 13 months. At the same time, existing home sales also showed surprising strength, registering 2.1% growth for the month. Retail sales bounced back in October as well, increasing a respectable 1.0%, compared with September's 0.3% increase. Meanwhile, exports were hit hard by the emerging market turmoil that prevailed for much of the reporting period, hampering the U.S. manufacturing sector and producing record trade deficits. The National Association of Purchasing Managers Index in November indicated that manufacturing activity CONTENTS Shareholder Letter ...................................................... 1 Manager's Discussion .................................................... 5 Performance Summary ..................................................... 10 Financial Highlights & Statement of Investments ......................... 12 Financial Statements .................................................... 23 Notes to Financial Statements ........................................... 26 [FUND CATEGORY PYRAMID] declined for the fourth time in the past six months. Durable goods orders, which include orders for cars, appliances and other heavy machinery, fell 2.2% in October, the first decrease in five months. The third quarter trade deficit, $44.5 billion, was the largest on record, and the 1998 trade deficit, $123 billion, was 50.5% above 1997's imbalance as of September 30, 1998. Because of the problems in the world markets, many financial institutions curtailed their lending, creating a "credit crunch." Beginning with the Russian debt crisis and culminating with the emergency bail-out of a major hedge fund, capital worldwide became less available, adversely affecting many companies. Taking note of these factors, the Federal Reserve Board's (the Fed's) monetary policy panel, the Federal Open Market Committee, cut the federal funds target rate three times by 0.25%, to 4.75%, in an effort to stimulate growth. The Fed's moves attempted to prevent a recession by providing liquidity to the financial system and making it easier for major corporations to obtain favorable lending from banks. The bond and stock markets reacted to the Fed's loosening of monetary policy in two opposite ways. After the 30-year U.S. Treasury bond reached a record-low yield of 4.70% on October 5, 1998, the U.S. bond market quickly lost ground as investors became less enthusiastic about committing capital to fixed-income markets. On November 30, 1998, the yield on the 30-year Treasury bond stood at 5.08%, 0.38% higher than the yield on October 5, 1998. The stock market was a different story. After losing more than 20% of their value in the third quarter correction, many stocks rebounded strongly. On November 23, 1998, the Dow Jones(R) Industrial Average reached an all-time high of 9374.27, with many other indices registering record highs as well. 2 STAYING ON COURSE In times like these, it's easy to understand why people can become emotional about their investments. That's why we believe investors should call their investment representatives, and plan to cover three points in their conversations. One, review their current financial plans, recalling their goals and why they made their investment choices in the first place. Two, discuss the value of diversification, which can help reduce the risk that any one type of security will have a negative impact on an overall portfolio, and check if their investments are still properly diversified. As shown during the reporting period, the bond and stock markets often behave differently. In each of the five years since 1973 that stocks posted negative annual returns, bonds posted positive returns.* Three, review their investment timeframe to help put recent market declines into perspective and avoid turning what could be only a temporary paper loss into a permanent one. Maintaining a long-term outlook is one of the keys to weathering market volatility. An important component of a long-term approach is setting up a regular investment plan. Investing on a scheduled basis, regardless of market directions, can help investors take advantage of market downturns when prices are low, and benefit from any market rallies. We encourage you to contact your investment representative to discuss setting up a regular investment plan. While investment success is the primary objective of investment planning, one important by-product of a good plan can be peace of mind. - -------------------------------------------------------------------------------- "While investment success is the primary objective of investment planning, one important by-product of a good plan can be peace of mind." - -------------------------------------------------------------------------------- *Source: For bond market statistics based on the Lehman Brothers Government/ Corporate Bond Index -- Lehman Brothers; for stock measured by the S&P 500 Index - -- Standard & Poor's(R). 3 Our investment philosophy remains disciplined and focused, as we strive to offer our shareholders high, current income. The outlook for the high yield bond market should remain positive, given the relatively stable U.S. economy, low inflation environment, budget surplus, strong dollar, and the economic and market uncertainty facing many of the world's regions. High yield bonds continue to be an attractive investment component for those who are willing to accept the risks associated with these securities. As always, we appreciate your support, welcome your questions and comments and look forward to serving your investment needs in the years ahead. Sincerely, /s/ Rupert H. Johnson, Jr. Rupert H. Johnson, Jr. President Franklin's AGE High Income Fund 4 MANAGERS' DISCUSSION - -------------------------------------------------------------------------------- Your Fund's Goal: Franklin's AGE High Income Fund seeks to provide investors with high, current income, with a secondary objective of principal appreciation. The fund invests in a diversified portfolio consisting primarily of high yield, lower-rated corporate bonds. - -------------------------------------------------------------------------------- OVERVIEW The six months under review proved extremely challenging for high yield securities. Deteriorating global markets, spurred on by crises in Asia and Russia, as well as the anticipation of a U.S. economic slowdown, affected domestic market asset prices that had managed to remain insulated for much of the last year. Additionally, many fixed-income sectors suffered from forced securities liquidations by hedge funds and financial institutions. Unfortunately, the recent volatility negatively impacted the fund's performance. Franklin's AGE High Income Fund's Class I shares generated a cumulative total return of -1.87% for the six-month period ended November 30, 1998. However, the fund outperformed its benchmark, the CS First Boston High Yield Index, which returned -3.15% for the same period.* Also, the high yield market exhibited significant stability and strength over the last month of the reporting period, a trend which we believe shows no signs of diminishing over the near term. We have always maintained a long-term perspective when *Index is unmanaged and includes reinvested dividends. One cannot invest directly in an index. You will find a complete listing of the fund's portfolio holdings, including dollar value and number of shares or principal amount, beginning on page 15 of this report. 5 managing the fund, and we encourage shareholders to view their investments in a similar manner. As you can see from the table on page 11, the fund's Class I shares delivered a +155.89% cumulative total return for the 10 years ended November 30, 1998. FUND COMPOSITION Based on Total Net Assets 11/30/98 [PIE CHART] Bonds ......................................................... 90.8% Equities ...................................................... 3.7% Short-Term Obligations & Other Net Assets ..................... 5.5%
PORTFOLIO UPDATE WIRELESS COMMUNICATION During the reporting period, the wireless sector benefited from strong industry growth and increased market penetration, as industry revenues grew despite increased pricing pressures. Although highly competitive, the market for wireless services provided attractive opportunities for companies with sound, aggressive business plans. In general, we focused on lower-cost operators who successfully expanded their networks to offer customers better coverage. On the cellular side, our holdings in Sprint Spectrum, Nextel Communications, Inc. and Microcell Telecommunication benefited the fund. Over the reporting period, Nextel continued its rapid network expansion, boasting the highest average revenue per unit (ARPU) in the industry. Microcell, a leading Canadian cellular provider, added subscribers at a healthy pace. Sprint Corp. increased its minority stake into a controlling ownership position in Sprint Spectrum, commercially known as Sprint PCS -- a positive development for the bonds. In the paging sector, Paging Network, Inc. (PageNet), the leading paging service provider, benefited from improving industry pricing and its low cost structure. Metrocall, Inc., another noteworthy paging sector holding, successfully increased its business through strategic acquisitions. TELECOMMUNICATION In the telecommunication sector, key trends such as consolidation, global deregulation and the rise of data services continue to impact the industry. The European Union's formation 6 has hastened the pace of falling regulatory barriers between member nations and has accelerated the rate of systems convergence. Additionally, "silicon economics" drove data services growth, as the increasing need for Internet traffic, client-server networks and computer-to-computer communication caused the number of users to increase dramatically. Seeking to take advantage of these trends, we looked for companies with their own networks, strong management teams and good access to capital markets. Among the competitive local exchange carriers (CLECs), we focused on diversified services providers, which generally have the ability to cross-sell higher margin products and reduce customer turnover rates. Among the Internet service providers (ISPs), we concentrated on companies that have been successful in scaling their networks and capturing market share. Specifically, we focused on companies like Nextlink Communications, Inc., due to its healthy capitalization, strong management team and dramatically accelerated network expansion schedule. Level 3 Communications, Inc., another noteworthy holding, provides terrestrial (land-based) service and is in the process of building a state-of-the-art global network. Level 3 has a dynamic, experienced management team that, we believe, should position the company to be one of the premier 21st century telecommunications providers. INDUSTRIAL During the reporting period, we maintained our strategy of looking for noncyclical companies that provide some defense against economic fluctuations, as well as consolidators that enjoy a higher degree of pricing power. In particular, Allied Waste Industries, Inc.'s successful acquisition strategy - --focusing on the consolidation and integration of other waste management companies -- bolstered its performance. As of the end of the reporting period, Allied announced a tender offer for TOP TEN HOLDINGS 11/30/98
COMPANY % OF TOTAL (Industry) NET ASSETS - ------------------------------------------------------------------- CSC Holdings, Inc. 1.51% (Consumer Services) Nextel Communications, Inc. 1.42% (Utilities) HMH Properties, Inc. 1.31% (Finance) Allied Waste Industries, Inc. 1.28% (Process Industries) Comcast Corp. 1.15% (Consumer Services) Anchor Glass Container 1.14% (Process Industries) Rogers Cantel Mobile Communications, Inc. 1.12% (Utilities) Revlon Consumer Products Corp. 1.12% (Consumer Durables) Regal Cinemas, Inc. 1.12% (Consumer Services) P&L Coal Holdings Corp. 1.10% (Energy Minerals)
7 the fund's bonds that should provide a healthy gain. International Comfort Products, a leader in the heating-ventilation-air conditioning (HVAC) industry, performed well due to effective cost-cutting measures, increased market penetration and leadership by a capable management team. Another portfolio holding, Laidlaw Environmental Services (LES, Inc.), benefited from environmental services sector consolidation, and has become one of the leading price-setters in the environmental treatment business. CABLE TELEVISION The cable industry's more defensive nature relative to other high yield sectors positions it to stand up relatively well in a slowing economic environment. Over the reporting period, the cable sector significantly outperformed the overall high yield market. In general, we focused on companies that pursued sound acquisition strategies, as well as those that have been upgrading their plants and networks to provide new services to their customers. Cable companies' expansion into new services such as digital television, cable modems and, potentially telephony, will allow them to gain new revenue sources and contribute to more robust industry growth. Of our domestic holdings, Cablevision Systems (CSC Holdings, Inc.) exemplifies the above trends, and its securities exhibited strong relative performance during the period. Also, we added to our position in TeleWest Communications, Plc., a large U.K. cable provider, which increased its cable and telephone subscription base while realizing synergies from recent acquisitions. MEDIA The media sector outperformed the high yield market over the reporting period, and the fund benefited from solid individual holdings in this category. In general, we maintained our focus on the industry's larger consolidators, with particular interest in companies that have lower cost structures. Outdoor Systems, 8 Inc., the largest American outdoor advertiser, performed well due to strong demand for billboard space and more effective, lower-cost vinyl technology. Regal Cinemas, Inc., the largest U.S. motion picture theater operator by screen count, also benefited the portfolio due to strong box office sales and the successful expansion of its new megaplex theater chain. LOOKING FORWARD Recent economic data suggest benign inflation, relatively stable to declining interest rates and positive, but slowing, domestic growth. Although recent turmoil in global financial markets may impact the high yield market in the short term, we believe that recent volatility should not significantly affect asset class fundamentals over the long term. Consequently, we remain optimistic regarding the high yield market, in general, and Franklin's AGE High Income Fund, in particular, and believe that there will continue to be attractive opportunities in high yield corporate bonds over the short to intermediate term. Please remember, this discussion reflects our views, opinions and portfolio holdings as of November 30, 1998, the end of the reporting period. However, market and economic conditions are changing constantly, which can be expected to affect our strategies and the fund's portfolio composition. Although historical performance is no guarantee of future results, these insights may help you understand our investment and management philosophy. Sincerely, /s/ Christopher J. Molumphy Christopher J. Molumphy Senior Portfolio Manager Franklin's AGE High Income Fund 9 - -------------------------------------------------------------------------------- CLASS I: Subject to the current, maximum 4.25% initial sales charge. Prior to July 1, 1994, fund shares were offered at a lower initial sales charge; thus actual returns will differ. Effective May 1, 1994, the fund eliminated the sales charge on reinvested dividends and implemented a Rule 12b-1 plan, which affects subsequent performance. CLASS II: Subject to 1% initial sales charge and 1% contingent deferred sales charge for shares redeemed within 18 months of investment. These shares have higher annual fees and expenses than Class I shares. ADVISOR CLASS: No initial sales charge or Rule 12b-1 fees and are available to a limited class of investors. - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY AS OF 11/30/98 Distributions will vary based on earnings of the fund's portfolio and any profits realized from the sale of the portfolio's securities. Past distributions are not indicative of future trends. All total returns include reinvested distributions at net asset value. PRICE AND DISTRIBUTION INFORMATION (6/1/98-11/30/98)
CLASS I CHANGE 11/30/98 5/31/98 - ----------------------------------------------------------------------- Net Asset Value -$0.19 $2.79 $2.98 DISTRIBUTIONS --------------------------------------- Dividend Income $0.132 CLASS II CHANGE 11/30/98 5/31/98 - ----------------------------------------------------------------------- Net Asset Value -$0.18 $2.80 $2.98 DISTRIBUTIONS --------------------------------------- Dividend Income $0.1243 ADVISOR CLASS CHANGE 11/30/98 5/31/98 - ----------------------------------------------------------------------- Net Asset Value -$0.19 $2.79 $2.98 DISTRIBUTIONS --------------------------------------- Dividend Income $0.1339
Past performance is not predictive of future results. 10 PERFORMANCE
INCEPTION CLASS I 1-YEAR 5-YEAR 10-YEAR (12/31/69) - ------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +2.57% +54.67% +155.89% +1,039.77% Average Annual Total Return(2) -1.72% +8.16% +9.37% +8.61% Value of $10,000 Investment(3) $9,828 $14,801 $24,486 $109,042 Distribution Rate(4) 9.07% 30-Day Standardized Yield(5) 9.33%
11/30/94 11/30/95 11/30/96 11/30/97 11/30/98 - ------------------------------------------------------------------------------------------------- One-Year Total Return(6) -0.85% +17.89% +13.87% +13.29% +2.57%
INCEPTION CLASS II 1-YEAR 3-YEAR (5/16/95) - ----------------------------------------------------------------------------- Cumulative Total Return(1) +2.36% +30.56% +37.42% Average Annual Total Return(2) +0.41% +8.90% +9.05% Value of $10,000 Investment(3) $10,041 $12,916 $13,594 Distribution Rate(4) 8.82% 30-Day Standardized Yield(5) 9.12%
11/30/96 11/30/97 11/30/98 - ----------------------------------------------------------------------------- One-Year Total Return(6) 13.25% 12.63% 2.36%
INCEPTION ADVISOR CLASS(7) 1-YEAR 5-YEAR 10-YEAR (12/31/69) - ------------------------------------------------------------------------------------------------- Cumulative Total Return(1) +2.70% +55.02% +156.48% +1,042.40% Average Annual Total Return(2) +2.70% +9.16% +9.88% +8.79% Value of $10,000 Investment(3) $10,270 $15,502 $25,648 $114,240 Distribution Rate(4) 9.59% 30-Day Standardized Yield(5) 9.86%
11/30/94 11/30/95 11/30/96 11/30/97 11/30/98 - ------------------------------------------------------------------------------------------------- One-Year Total Return(6) -0.85% +17.89% +13.87% +13.40% +2.70%
Past performance is not predictive of future results. (1) Cumulative total return represents the change in value of an investment over the periods indicated and does not include sales charges. (2) Average annual total return represents the average annual change in value of an investment over the periods indicated and includes the current, applicable, maximum sales charge(s) for that class. (3) These figures represent the value of a hypothetical $10,000 investment in the fund over the periods indicated and include the current, applicable, maximum sales charge(s) for that class. (4) Distribution rate is based on an annualization of the respective class's November monthly dividend and the maximum offering price (net asset value price for Advisor Class) per share on November 30, 1998. (5) Yield, calculated as required by the SEC, is based on the earnings of the fund's portfolio for the 30 days ended November 30, 1998. The fund's high distribution rate and yield reflect the higher credit risk associated with certain lower-rated securities in the fund's portfolio and, in some cases, the lower market prices for these instruments. (6) One-year total return represents the change in value of an investment over the one-year periods ended on the dates indicated and does not include sales charges. (7) On January 2, 1997, the fund began selling Advisor Class shares to certain eligible investors as described in the prospectus. This share class does not have sales charges or a Rule 12b-1 plan. Performance quotations have been calculated as follows: (a) For periods prior to January 2, 1997, figures reflect the fund's Class I performance, excluding the effect of the Class I sales charge, but including the effect of Rule 12b-1 fees and other Class I expenses; and (b) for periods after January 1, 1997, figures reflect actual Advisor Class performance, including the deduction of all fees and expenses applicable to Advisor Class shares. Since January 2, 1997 (commencement of sales), the cumulative total return of Advisor Class shares was 14.78%. - -------------------------------------------------------------------------------- Bond prices, and thus the fund's share price, generally move in the opposite direction from interest rates. Since markets can go down as well as up, investment return and principal value will fluctuate with market conditions, and you may have a gain or loss when you sell your shares. - -------------------------------------------------------------------------------- 11 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights
CLASS I ---------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30,1998 ---------------------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995 1994 ---------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........ $ 2.98 $ 2.90 $ 2.79 $ 2.77 $ 2.70 $ 2.81 ---------------------------------------------------------------------------------- Income from investment operations: Net investment income ...................... .13 .26 .26 .25 .26 .27 Net realized and unrealized gains (losses) . (.19) .08 .11 .03 .07 (.11) ---------------------------------------------------------------------------------- Total from investment operations ............ (.06) .34 .37 .28 .33 .16 ---------------------------------------------------------------------------------- Less distributions from net investment income (.13) (.26) (.26) (.26) (.26) (.27) ---------------------------------------------------------------------------------- Net asset value, end of period .............. $ 2.79 $ 2.98 $ 2.90 $ 2.79 $ 2.77 $ 2.70 ================================================================================== Total return** .............................. (1.87%) 12.32% 14.09% 10.75% 13.34% 5.19% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ........... $3,224,922 $3,236,134 $2,638,914 $2,183,738 $1,908,853 $1,817,481 Ratios to average net assets: Expenses ................................... .72%* .70% .71% .70% .66% .59% Net investment income ...................... 9.38%* 9.04% 9.31% 9.07% 9.71% 9.61% Portfolio turnover rate ..................... 9.65% 29.69% 20.01% 19.87% 28.56% 42.32%
*Annualized. **Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized. Prior to May 1, 1994, dividends from net investment income were reinvested at the offering price. 12 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
CLASS II ---------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30,1998 ------------------------------------------------- (UNAUDITED) 1998 1997 1996 1995(1) ---------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period .......... $ 2.98 $ 2.90 $ 2.79 $ 2.77 $ 2.76 ---------------------------------------------------------------------- Income from investment operations: Net investment income ........................ .12 .25 .25 .25 -- Net realized and unrealized gains (losses) ... (.18) .08 .11 .02 .01 ---------------------------------------------------------------------- Total from investment operations .............. (.06) .33 .36 .27 .01 ---------------------------------------------------------------------- Less distributions from net investment income . (.12) (.25) (.25) (.25) -- ---------------------------------------------------------------------- Net asset value, end of period ................ $ 2.80 $ 2.98 $ 2.90 $ 2.79 $ 2.77 ====================================================================== Total return** ................................ (1.79%) 11.69% 13.41% 10.06% .36% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ............. $ 467,505 $ 394,612 $ 151,073 $ 46,064 $ 713 Ratios to average net assets: Expenses ..................................... 1.24%* 1.23% 1.25% 1.25% 1.14%* Net investment income ........................ 8.88%* 8.51% 8.75% 8.50% 6.91%* Portfolio turnover rate ....................... 9.65% 29.69% 20.01% 19.87% 28.56%
*Annualized. **Total return does not reflect sales commissions or the contingent deferred sales charge, and is not annualized. (1) For the period May 16, 1995 (effective date) to May 31, 1995. 13 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Highlights (continued)
ADVISOR CLASS ------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30,1998 ----------------------------------- (UNAUDITED) 1998 1997(2) ------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (for a share outstanding throughout the period) Net asset value, beginning of period ........ $ 2.98 $ 2.90 $ 2.90 ------------------------------------------------------------- Income from investment operations: Net investment income ...................... .13 .27 .12 Net realized and unrealized gains (losses) . (.19) .08 (.01) ------------------------------------------------------------- Total from investment operations ............ (.06) .35 .11 ------------------------------------------------------------- Less distributions from net investment income (.13) (.27) (.11) ------------------------------------------------------------- Net asset value, end of period .............. $ 2.79 $ 2.98 $ 2.90 ============================================================= Total return** .............................. (1.80%) 12.46% 3.94% RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000's) ........... $ 33,391 $ 28,026 $ 6,224 Ratios to average net assets: Expenses ................................... .60%* .58% .61%* Net investment income ...................... 9.50%* 9.17% 9.25%* Portfolio turnover rate ..................... 9.65% 29.69% 20.01%
*Annualized. **Total return is not annualized. (2) For the period January 2, 1997 (effective date) to May 31, 1997. See notes to financial statements. 14 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED)
SHARES VALUE - -------------------------------------------------------------------------------------------------- COMMON STOCKS, WARRANTS & RIGHTS 1.0% (a) Advantica Restaurant Group, Inc. ........................ 612,439 $ 3,942,576 (a) Darling International, Inc. ............................. 504,447 1,670,980 (a) Foodmaker, Inc. ......................................... 24,090 466,744 (a) Fred Meyer, Inc. ........................................ 94,870 4,826,511 (a) Gaylord Container Corp., wts. ........................... 232,762 1,251,096 (a) Gulf States Steel, wts. ................................. 27,800 27,800 (a) International Wireless Communication Holding, wts. ...... 36,400 182 (a) Kendall International, Inc., rts. ....................... 5,896 1,918,613 (a) Loral Orion Network Systems, wts. ....................... 35,300 307,615 (a) McMoRan Exploration Co. ................................. 25,937 414,992 (a) Nextel Communications, Inc., wts. ....................... 27,250 273 (a) Nextel International, Inc., wts. ........................ 28,500 142,500 (a) Occidente y Caribe Celular, 144A, wts. (Colombia) ....... 152,660 2,595,220 (a) Penn Traffic Co. ........................................ 39,757 84,484 (a) Poland Telecom Finance, wts. ............................ 30,000 120,000 RJR Nabisco Holdings Corp. .............................. 510,000 14,694,375 (a) Specialty Foods Corp., 144A ............................. 97,500 683 United Mexican States, rts. ............................. 3,000 -- (a) Walter Industries, Inc., Class A ........................ 189,505 2,712,290 (a) Wireless One, Inc., wts. ................................ 35,000 -- ----------- TOTAL COMMON STOCKS, WARRANTS & RIGHTS (COST $45,125,691) 35,176,934 ----------- PREFERRED STOCKS 2.7% Asia Pulp & Paper Co., Ltd., 12.00%, pfd. ............... 24,700,000 15,067,000 (d) CMS Energy Corp., 7.75%, cvt. pfd. ...................... 530,000 29,415,000 (a) CSC Holdings, Inc., Series M, PIK, 11.125%, 4/01/03 ..... 238,843 26,989,258 Fresenius Medical Care AG, 9.00%, pfd. (Germany) ........ 13,100 13,755,000 Sinclair Capital, 11.625%, pfd. ......................... 147,000 15,967,875 ----------- TOTAL PREFERRED STOCKS (COST $96,899,994) ............... 101,194,133 ----------- PARTNERSHIP UNITS .1% Phosphate Resource Partners L.P. (COST $3,639,277) ...... 415,000 4,150,000
PRINCIPAL AMOUNT* ------- BONDS 90.8% COMMERCIAL SERVICES 4.7% American Commercial Lines L.L.C., 144A, 10.25%, 6/30/08 ............. $22,700,000 23,267,500 Ameriserv Food Dist., Inc., senior sub. notes, 8.875%, 10/15/06 ..... 11,350,000 10,839,250 Ameriserv Food Dist., Inc., senior sub. notes, 10.125%, 7/15/07 ..... 21,500,000 19,242,500 Beatrice Foods, sub. notes, 1.00%, 11/19/26 ......................... 4,567,000 822,060 Big Flower Press Holding, Inc., senior sub. notes, 8.875%, 7/01/07 .. 12,100,000 12,281,500 Intertek Finance, Plc., senior sub. notes, Series B, 10.25%, 11/01/06 9,400,000 9,447,000 Iron Mountain, Inc., senior sub. notes, 8.75%, 9/30/09 .............. 16,650,000 17,149,500 Lamar Advertising Co., senior sub. notes, 9.625%, 12/01/06 .......... 20,000,000 21,800,000
15 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ---------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) COMMERCIAL SERVICES (CONT.) Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 ....................... $ 34,750,000 $ 37,008,750 Tembec Finance Corp., senior notes, 9.875%, 9/30/05 ............................. 20,000,000 21,500,000 ------------- 173,358,060 ------------- CONSUMER DURABLES 1.6% AMF Bowling Worldwide, Inc., senior disc. notes, Series B, zero coupon to 3/15/01, 12.25% thereafter, 3/15/06 .................................................... 9,951,000 6,119,865 Revlon Consumer Products Corp., senior sub. notes, 8.625%, 2/01/08 .............. 42,000,000 41,685,000 Sealy Mattress Corp., senior disc. notes, Series B, zero coupon to 12/15/02, 10.875% thereafter, 12/15/07 .................................................. 10,200,000 6,120,000 Sealy Mattress Corp., senior sub. notes, Series B, 9.875%, 12/15/07 ............. 6,800,000 6,477,000 ------------- 60,401,865 ------------- CONSUMER NON-DURABLES 3.5% Agrilink Foods, Inc., senior sub. notes, 144A 11.875%, 11/01/08 ................. 30,000,000 31,200,000 Delta Beverage Group, senior notes, 9.75%, 12/15/03 ............................. 2,800,000 2,954,000 Hartmarx Corp., senior sub. notes, 10.875%, 1/15/02 ............................. 15,000,000 15,075,000 International Home Foods, senior sub. notes, 10.375%, 11/01/06 .................. 11,200,000 12,180,000 RJR Nabisco, Inc., senior notes, 9.25%, 8/15/13 ................................. 20,000,000 19,759,640 Specialty Foods Corp., senior notes, Series B, 144A, 10.25%, 8/15/01 ............ 19,000,000 16,435,000 Specialty Retailers, Inc., senior notes, Series B, 8.50%, 7/15/05 ............... 7,250,000 6,706,250 Specialty Retailers, Inc., senior sub. notes, 9.00%, 7/15/07 .................... 5,000,000 4,425,000 Styling Technology Corp., senior sub. notes, 10.875%, 7/01/08 ................... 22,000,000 20,680,000 ------------- 129,414,890 ------------- CONSUMER SERVICES 17.1% Advantica Restaurant Group, Inc., senior notes, 11.25%, 1/15/08 ................. 13,896,030 14,069,730 American Media Operation, senior sub. notes, 11.625%, 11/15/04 .................. 8,700,000 8,743,500 Ascent Entertainment Group, senior disc. notes, zero coupon to 12/15/02, 11.875% thereafter, 12/15/04 ................................................... 19,500,000 11,602,500 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ................................ 19,900,000 22,188,500 Benedek Broadcasting, senior notes, 11.875%, 3/01/05 ............................ 7,000,000 7,665,000 Benedek Communications, senior disc. notes, zero coupon to 5/15/01, 13.25% thereafter, 5/15/06 .......................................................... 24,500,000 17,272,500 Century Communications Corp., senior disc. notes, Series B, zero coupon, 1/15/08 39,800,000 20,049,250 Chancellor Media Corp., senior notes, 144A, 8.00%, 11/01/08 ..................... 23,500,000 24,028,750 Chancellor Media Corp., senior sub. notes, Series B, 8.75%, 6/15/07 ............. 15,000,000 15,450,000 Chancellor Media Corp., senior sub. notes, 144A, 9.00%, 10/01/08 ................ 8,400,000 8,883,000 Circus Circus Enterprises, Inc., senior sub. notes, 9.25%, 12/01/05 ............. 8,000,000 8,280,000 Comcast Corp., senior sub. deb., 9.50%, 1/15/08 ................................. 15,000,000 15,862,500 CSC Holdings, Inc., senior sub. deb., 10.50%, 5/15/16 ........................... 20,000,000 23,500,000 CSC Holdings, Inc., senior sub. deb., 9.875%, 4/01/23 ........................... 5,000,000 5,600,000 Diamond Cable Communications, Plc., senior disc. notes, zero coupon to 12/15/99, 11.75% thereafter, 12/15/05 ................................................... 18,850,000 15,739,750 Diamond Cable Communications, Plc., senior disc. notes, zero coupon to 2/15/02, 10.75% thereafter, 2/15/07 .................................................... 7,850,000 5,652,000 Diamond Holdings, Plc., senior notes, 9.125%, 2/01/08 ........................... 10,600,000 10,626,500 EZ Communications, Inc., senior sub. notes, 9.75%, 12/01/05 ..................... 17,500,000 18,900,000
16 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) CONSUMER SERVICES (CONT.) Family Restaurants, Inc., senior notes, 9.75%, 2/01/02 ................................... $ 10,850,000 $ 6,510,000 Fox Family Worldwide, Inc., senior disc. notes, zero coupon to 11/01/02, 10.25% thereafter, 11/01/07 ............................................................ 6,450,000 4,353,750 Fox Family Worldwide, Inc., senior notes, 9.25%, 11/01/07 ................................ 10,000,000 10,100,000 Fox/Liberty Networks L.L.C., senior disc. notes, zero coupon to 8/15/02, 9.75% thereafter, 8/15/07 .................................................................... 22,650,000 16,194,750 Fox/Liberty Networks L.L.C., senior notes, 8.875%, 8/15/07 ............................... 15,000,000 15,450,000 Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 5/15/05 ................ 7,100,000 7,295,250 Helicon Group L.P. Corp., S.F., senior secured notes, 9.00% coupon to 11/01/96, 11.00% thereafter, 11/01/03 ............................................................ 10,000,000 10,400,000 Hollinger International, Inc., senior sub. notes, 9.25%, 2/01/06 ......................... 6,400,000 6,816,000 Hollinger International, Inc., senior sub. notes, 9.25%, 3/15/07 ......................... 12,800,000 13,632,000 Jacor Communications Co., senior sub. notes, 9.75%, 12/15/06 ............................. 6,400,000 7,104,000 John Q. Hammons Hotels, Inc., first mortgage, 8.875%, 2/15/04 ............................ 20,000,000 18,600,000 John Q. Hammons Hotels, Inc., first mortgage, 9.75%, 10/01/05 ............................ 4,500,000 4,275,000 LIN Holdings Corp. senior disc. notes, zero coupon to 3/01/03, 10.00% thereafter, 3/01/08 .................................................................... 21,000,000 14,595,000 LIN Television Corp., senior sub. notes, 8.375%, 3/01/08 ................................. 19,000,000 19,095,000 Players International, Inc., senior notes, 10.875%, 4/15/05 .............................. 4,750,000 5,130,000 Premier Parks, Inc., senior disc. notes, zero coupon to 4/01/03, 10.00% thereafter, 4/01/08 .................................................................... 8,000,000 5,460,000 Premier Parks, Inc., senior notes, 9.25%, 4/01/06 ........................................ 8,000,000 8,430,000 Prime Hospitality Corp., senior sub. notes, Series B, 9.75%, 4/01/07 ..................... 23,200,000 23,548,000 RC/Arbys Corp., senior secured notes, 9.75%, 8/01/00 ..................................... 14,000,000 13,790,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 ...................................... 10,000,000 10,250,000 Regal Cinemas, Inc., senior sub. notes, 144A, 9.50%, 6/01/08 ............................. 39,500,000 41,672,500 Rogers Cablesystems, Inc., senior secured deb., 10.125%, 9/01/12 ......................... 5,000,000 5,512,500 Scott Cable Communications, junior sub. notes, PIK, 16.00%, 3/18/02 ...................... 6,930,000 8,801,100 Scott Cable Communications, senior sub. notes, PIK, 15.00%, 7/18/02 ...................... 1,029,705 535,447 SFX Broadcasting, Inc., senior sub. notes, 10.75%, 5/15/06 ............................... 22,478,000 24,276,240 Sinclair Broadcasting Group, senior sub. notes, 10.00%, 9/30/05 .......................... 14,400,000 15,300,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 6/15/98, 12.25% thereafter, 6/15/05 .................................................................... 22,000,000 24,530,000 TeleWest Communications, Plc., senior disc. deb., zero coupon to 10/01/00, 11.00% thereafter, 10/01/07 ............................................................ 24,500,000 20,733,125 TeleWest Communications, Plc., senior notes, 144A, 11.25%, 11/01/08 ...................... 4,000,000 4,540,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 2/01/24 ........................... 9,500,000 10,607,073 United Artist Theatre Circuit, Inc., senior sub. notes, Series B, 9.75%, 4/15/08 ......... 6,000,000 5,850,000 ----------- 637,500,215 ----------- ELECTRONIC TECHNOLOGY 1.6% Amphenol Corp., senior sub. notes, 9.875%, 5/15/07 ....................................... 5,000,000 5,125,000 Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ....................... 4,880,000 5,343,600 Hadco Corp., senior sub. notes, 9.50%, 6/15/08 ........................................... 25,000,000 25,125,000 L-3 Communications Corp., senior sub. notes, 144A, 10.375%, 5/01/07 ...................... 5,400,000 5,994,000 Microcell Telecommunication, senior disc. notes, Series B, zero coupon to 12/01/01, 14.00% thereafter, 6/01/06 ............................................................. 22,400,000 17,080,000 Wireless One, Inc., senior disc. notes, zero coupon to 8/01/01, 13.50% thereafter, 8/01/06 13,800,000 414,000 ----------- 59,081,600 -----------
17 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) ENERGY MINERALS 4.5% Abraxas Petroleum Corp., senior notes, Series D, 11.50%, 11/01/04 ...... $ 37,100,000 $ 30,607,500 Bellwether Exploration, senior sub. notes, 10.875%, 4/01/07 ............ 5,000,000 4,975,000 Chesapeake Energy Corp., senior notes, Series B, 9.625%, 5/01/05 ....... 7,000,000 6,405,000 Clark USA, Inc., senior notes, 10.875%, 12/01/05 ....................... 22,000,000 20,625,000 Conproca, SA, S.F., senior secured notes, 144A, 12.00%, 6/16/10 (Mexico) 33,300,000 31,968,000 Mesa Operating Co., senior sub. notes, zero coupon to 7/01/01, 11.625% thereafter, 7/01/06 .................................................. 4,300,000 3,300,250 Nuevo Energy Co., senior sub. notes, 144A 9.50%, 4/15/06 ............... 8,600,000 8,858,000 Nuevo Energy Co., senior sub. notes, Series B, 8.875%, 6/01/08 ......... 9,300,000 9,253,500 P & L Coal Holdings Corp., senior notes, 144A, 8.875%, 5/15/08 ......... 7,000,000 7,227,500 P & L Coal Holdings Corp., senior sub. notes, 144A, 9.625%, 5/15/08 .... 33,000,000 33,825,000 Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07 .......... 6,600,000 6,534,000 Rutherford-Moran Oil, senior sub. notes, 10.75%, 10/01/04 .............. 4,500,000 3,622,500 ----------- 167,201,250 ----------- FINANCE 2.1% Clark R&M, Inc., senior sub. notes, 8.875%, 11/15/07 ................... 9,000,000 8,235,000 HMH Properties, Inc., senior secured notes, Series B, 7.875%, 8/01/08 .. 50,000,000 48,750,000 Homeside International, Inc., senior second priority notes, Series B, 11.25%, 5/15/03 ...................................................... 4,300,000 5,052,500 (c)Polysindo International Finance, secured notes, 9.375%, 7/30/07 ....... 27,750,000 8,671,875 Tjiwi Kimia Finance Mauritius, senior notes, 10.00%, 8/01/04 ........... 11,000,000 7,095,000 ----------- 77,804,375 ----------- GOVERNMENT BONDS .9% ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) .............. 108,800,000 ZAR 14,023,451 Republic of Argentina, 9.75%, 9/19/27 .................................. 20,000,000 17,925,000 ----------- 31,948,451 ----------- HEALTH SERVICES 3.8% Everest Healthcare Services, senior sub. notes, 9.75%, 5/01/08 ......... 18,000,000 18,090,000 Fresenius Medical Care Capital Trust, 7.875%, 2/01/08 .................. 24,000,000 23,820,000 Magellan Health Services, Inc., senior sub. notes, 9.00%, 2/15/08 ...... 20,000,000 18,900,000 Pharmerica, Inc., senior sub. notes, 8.375%, 4/01/08 ................... 8,400,000 7,266,000 Sun Healthcare Group, Inc., senior sub. notes, 144A, 9.375%, 5/01/08 ... 30,000,000 26,175,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ................. 4,000,000 4,228,552 Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 ............. 17,800,000 18,779,000 Vencor Operating, Inc., senior sub. notes, 9.875%, 5/01/05 ............. 29,000,000 26,100,000 ----------- 143,358,552 ----------- HEALTH TECHNOLOGY .7% Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ....... 14,830,000 13,124,550 CONMED Corp., senior sub. notes, 9.00%, 3/15/08 ........................ 15,000,000 14,775,000 ----------- 27,899,550 ----------- INDUSTRIAL SERVICES 1.1% Dailey International, Inc., senior notes, Series B, 9.50%, 2/15/08 ..... 10,800,000 4,752,000 Envirosource, Inc., senior notes, 9.75%, 6/15/03 ....................... 17,000,000 15,640,000 Envirosource, Inc., senior notes, Series B, 9.75%, 6/15/03 ............. 9,000,000 8,280,000
18 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) INDUSTRIAL SERVICES (CONT.) Great Lakes Dredge & Dock, senior sub. notes, 144A, 11.25%, 8/15/08 ........... $ 4,750,000 $ 4,797,500 Newport News Shipbuilding, senior notes, 8.625%, 12/01/06 ..................... 2,600,000 2,762,500 Newport News Shipbuilding, senior sub. notes, 9.25%, 12/01/06 ................. 5,100,000 5,431,500 ----------- 41,663,500 ----------- NON-ENERGY MINERALS 1.5% AK Steel Corp., senior notes, 9.125%, 12/15/06 ................................ 13,400,000 14,204,000 Algoma Steel, Inc., first mortgage, 12.375%, 7/15/05 .......................... 8,000,000 6,440,000 Armco, Inc., senior notes, 9.00%, 9/15/07 ..................................... 5,200,000 5,460,000 Bear Island L.L.C./Finance, senior notes, 10.00%, 12/01/07 .................... 11,700,000 11,700,000 Doman Industries, Ltd., senior notes, 9.25%, 11/15/07 ......................... 6,800,000 5,610,000 Sheffield Steel Corp., first mortgage, 11.50%, 12/01/05 ....................... 16,000,000 13,040,000 ----------- 56,454,000 ----------- PROCESS INDUSTRIES 9.6% Allied Waste Industries, Inc., senior disc. notes, zero coupon to 6/01/02, 11.30% thereafter, 6/01/07 .................................................. 32,000,000 27,680,000 Allied Waste North America, Inc., senior sub. notes, 10.25%, 12/01/06 ......... 17,200,000 19,866,000 Anchor Glass Container, senior notes, 9.875%, 3/15/08 ......................... 17,300,000 17,300,000 Anchor Glass, first mortgage, 11.25%, 4/01/05 ................................. 23,700,000 25,240,500 Ball Corp., senior notes, 144A, 7.75%, 8/01/06 ................................ 9,250,000 9,724,063 Ball Corp., senior sub. notes, 144A, 8.25%, 8/01/08 ........................... 5,500,000 5,781,875 Climachem, Inc., senior notes, Series B, 10.75%, 12/01/07 ..................... 7,500,000 7,275,000 Container Corp. of America, senior notes, Series A, 9.75%, 4/01/03 ............ 12,000,000 12,360,000 Container Corp. of America, senior notes, Series A, 11.25%, 5/01/04 ........... 9,000,000 9,270,000 Fort Howard Corp., S.F., pass through trust, 11.00%, 1/02/02 .................. 7,136,009 7,243,049 Four M Corp., senior notes, Series B, 12.00%, 6/01/06 ......................... 23,700,000 16,590,000 Graham Packaging Corp., senior disc. notes, Series B, zero coupon to 1/15/03, 10.75% thereafter, 1/15/09 .................................................. 5,600,000 3,836,000 Graham Packaging Corp., senior sub. notes, Series B, 8.75%, 1/15/08 ........... 6,600,000 6,699,000 (e)Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 ...................... 38,500,000 38,500,000 LES, Inc., senior sub. notes, 144A, 9.25%, 6/01/08 ............................ 32,000,000 32,960,000 Pindo Deli Fin, senior notes, 11.75%, 10/01/17 ................................ 30,900,000 16,377,000 Purina Mills, Inc., senior sub. notes, 9.00%, 3/15/10 ......................... 18,000,000 18,450,000 Radnor Holdings, senior notes, 10.00%, 12/01/03 ............................... 6,250,000 6,343,750 Repap New Brunswick, senior notes, 9.00%, 6/01/04 ............................. 13,600,000 13,362,000 Terra Industries, Inc., senior notes, Series B, 10.50%, 6/15/05 ............... 15,000,000 15,300,000 Universal Compression, Inc., senior disc. notes, zero coupon to 2/15/03, 9.875% thereafter, 2/15/08 ....................................................... 31,800,000 19,080,000 Westpoint Stevens, Inc., senior notes, 7.875%, 6/15/08 ........................ 27,500,000 28,462,500 ----------- 357,700,737 ----------- PRODUCER MANUFACTURING 8.1% Advanced Accessory Systems, senior sub. notes, Series B, 9.75%, 10/01/07 ...... 8,000,000 8,040,000 Airxcel, Inc., senior sub. notes, 11.00%, 11/15/07 ............................ 13,500,000 13,567,500 Anacomp, Inc., senior sub. notes, Series D, 10.875%, 4/01/04 .................. 28,200,000 28,764,000 Cambridge Industries, Inc., senior sub. notes, 10.25%, 7/15/07 ................ 5,800,000 5,075,000
19 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) PRODUCER MANUFACTURING (CONT.) Collins & Aikman Products, senior sub. notes, 11.50%, 4/15/06 ................. $ 9,500,000 $ 10,070,000 Falcon Building Products, Inc., senior sub. disc. notes, Series B, zero coupon to 6/15/02, 10.50% thereafter, 6/15/07 ...................................... 7,250,000 3,625,000 Falcon Building Products, Inc., senior sub. notes, Series B, 9.50%, 6/15/07 ... 25,300,000 20,872,500 Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ............... 15,150,000 14,468,250 (c)Harvard Industries, Inc., senior notes, 12.00%, 7/15/04 ...................... 19,050,000 4,095,750 (c)Harvard Industries, Inc., senior notes, 11.125%, 8/01/05 ..................... 9,900,000 2,128,500 International Comfort Products, senior notes, Series B, 8.625%, 5/15/08 ....... 34,500,000 34,241,250 Keystone Consolidated Inds., senior notes, 9.625%, 8/01/07 .................... 7,000,000 6,755,000 LTV Corp., senior notes, 8.20%, 9/15/07 ....................................... 34,500,000 32,645,625 Neenah Corp., senior sub. notes, 11.125%, 5/01/07 ............................. 6,100,000 6,389,750 Neenah Corp., senior sub. notes, 144A, 11.125%, 5/01/07 ....................... 6,100,000 6,344,000 Nortek, Inc., senior notes, Series B 9.125%, 9/01/07 .......................... 19,200,000 20,160,000 Nortek, Inc., senior notes, 144A, 8.875%, 8/01/08 ............................. 8,000,000 8,240,000 Oshkosh Truck Corp., senior sub. notes, 8.75%, 3/01/08 ........................ 13,200,000 12,738,000 Talon Automotive Group, senior sub. notes, Series B, 9.625%, 5/01/08 .......... 20,850,000 19,703,250 Terex Corp., senior sub. notes, 8.875%, 4/01/08 ............................... 24,750,000 24,750,000 Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ..................... 19,781,000 19,929,358 ----------- 302,602,733 ----------- RETAIL TRADE 2.0% (c)Bruno's, Inc., senior sub. notes, 10.50%, 8/01/05 ............................ 12,500,000 812,500 Fleming Cos., Inc., senior sub. notes, Series B 10.50%, 12/01/04 .............. 15,000,000 15,150,000 Fleming Cos., Inc., senior sub. notes, 10.625%, 7/31/07 ....................... 14,000,000 14,070,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 5/01/03 ..................... 14,000,000 14,140,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 .............................. 5,000,000 2,325,000 Penn Traffic Co., senior notes, 10.375%, 10/01/04 ............................. 10,000,000 4,750,000 Pueblo Xtra International, senior notes, 9.50%, 8/01/03 ....................... 9,500,000 9,286,250 Pueblo Xtra International, senior notes, Series C, 9.50%, 8/01/03 ............. 5,000,000 4,887,500 Shoppers Food Warehouse, senior notes, 9.75%, 6/15/04 ......................... 7,375,000 8,075,625 ----------- 73,496,875 ----------- TRANSPORTATION 3.8% Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.06%, 1/02/16 .... 9,000,000 11,624,228 Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.50%, 4/30/16 .... 15,000,000 19,765,875 GS Superhighway Holdings, senior notes, 10.25%, 8/15/07 ....................... 35,000,000 14,350,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ........................ 19,000,000 20,140,000 Sea Containers, Ltd., senior notes, 10.50%, 7/01/03 ........................... 25,000,000 26,250,000 Ultrapetrol, Ltd., 10.50%, 4/01/08 ............................................ 34,000,000 27,370,000 United Airlines, S.F., pass-through equipment trust, Series B-2, 9.06%, 9/26/14 20,422,000 23,911,699 ----------- 143,411,802 ----------- UTILITIES AND TELECOMMUNICATIONS 24.2% AES China Generating Co., 10.125%, 12/15/06 ................................... 4,400,000 2,926,000 AES Corp., senior sub. notes, 8.50%, 11/01/07 ................................. 7,500,000 7,518,750 Allegiance Telecom, Inc., senior disc. notes, Series B, zero coupon to 2/15/03, 11.75% thereafter, 2/15/08 ................................................. 22,000,000 10,780,000
20 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - --------------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) UTILITIES AND TELECOMMUNICATIONS (CONT.) Allegiance Telecom, Inc., senior notes, 12.875%, 5/15/08 ............................... $20,500,000 $20,500,000 Arch Communications Group, Inc., senior disc. notes, zero coupon to 3/15/01, 10.875% thereafter, 3/15/08 ........................................................... 33,450,000 17,895,750 Comcast Cellular Holdings, senior notes, Series B, 9.50%, 5/01/07 ...................... 25,600,000 27,072,000 El Paso Electric Co., first mortgage, 9.40%, 5/01/11 ................................... 12,900,000 14,383,500 ESI Tractebel Acquisition Corp., 7.99%, 12/30/11 ....................................... 8,000,000 7,874,496 Flag, Ltd., senior notes, 8.25%, 1/30/08 ............................................... 6,600,000 6,765,000 Focal Communications Corp., senior disc. notes, Series B, zero coupon to 2/15/03, 12.125% thereafter, 2/15/08 .......................................................... 29,000,000 15,805,000 Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 ................................... 9,400,000 8,507,000 Global Crossing Holding, Ltd., senior notes, 9.625%, 5/15/08 ........................... 28,000,000 30,380,000 ICO Global Communications Holdings, Ltd., unit, 15.00%, 8/01/05 ........................ 35,000,000 26,950,000 IntelCom Group, Inc., senior disc. notes, zero coupon to 5/01/01, 12.50% thereafter, 5/01/06 .................................................................. 32,500,000 24,212,500 Intermedia Communications, senior disc. notes, Series B, zero coupon to 7/15/02, 11.25% thereafter, 7/15/07 ........................................................... 37,500,000 26,531,250 (c)International Wireless Communication, units, senior disc. notes, zero coupon to 8/15/01, 14.00% thereafter, 8/15/01 .......................................................... 36,400,000 2,821,000 Iridium L.L.C., senior notes, Series D, 10.875%, 7/15/05 ............................... 17,000,000 14,450,000 IXC Communications, Inc., senior sub. notes, 9.00%, 4/15/08 ............................ 15,900,000 16,059,000 (e)Level 3 Communications, Inc., senior disc. notes, 144A, zero coupon to 12/01/03, 10.50% thereafter, 12/01/08 .......................................................... 13,000,000 7,783,750 Level 3 Communications, Inc., senior notes, 9.125%, 5/01/08 ............................ 35,000,000 35,218,750 McCaw International, Ltd., units, senior disc. notes, zero coupon to 4/15/02, 13.00% thereafter, 4/15/07 ........................................................... 28,500,000 15,675,000 McLeodUSA, Inc., senior disc. notes, zero coupon to 3/01/02, 10.50% thereafter, 3/01/07 .................................................................. 10,000,000 7,675,000 McLeodUSA, Inc., senior notes, 144A, 9.50%, 11/01/08 ................................... 16,000,000 17,040,000 Metrocall, Inc., senior sub. notes, 9.75%, 11/01/07 .................................... 31,000,000 31,000,000 Midland Funding II, S.F., senior lease obligation, Series A, 11.75%, 7/23/05 ........... 4,500,000 5,289,251 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 7/23/06 ........... 11,500,000 14,306,541 Millicom International Cellular, SA, senior disc. notes, zero coupon to 6/01/00, 13.50% thereafter, 6/01/06 ........................................................... 22,300,000 15,833,000 Netia Holdings B.V., senior discount notes, Series B, zero coupon to 11/01/01, 11.25% thereafter, 11/01/07 (Poland) ...................................... 15,000,000 9,187,500 Netia Holdings B.V., senior notes, Series B, 10.25%, 11/01/07 (Poland) ................ 9,000,000 8,122,500 Nextel Communications, senior disc. notes, zero coupon to 2/15/99, 9.75% thereafter, 8/15/04 ................................................................. 21,500,000 21,177,500 Nextel Communications, senior disc. notes, zero coupon to 10/31/02, 9.75% thereafter, 10/31/07 ................................................................ 35,500,000 22,542,500 Nextel International, Inc., senior disc. notes, zero coupon to 4/15/03, 12.125% thereafter, 4/15/08 ................................................................. 20,000,000 9,200,000 NEXTLINK Communications, Inc., senior disc. notes, zero coupon to 4/15/03, 9.45% thereafter, 4/15/08 ........................................................... 20,250,000 12,048,750 NEXTLINK Communications, Inc., senior notes, 9.625%, 10/01/07 ............................................................................. 17,350,000 17,263,250 NEXTLINK Communications, Inc., senior notes, 9.00%, 3/15/08 ............................ 18,150,000 17,605,500 Niagara Mohawk Power Corp., senior disc. notes, Series H, zero coupon to 7/01/03, 8.50% thereafter, 7/01/10 ................................................... 10,850,000 8,137,500 Niagara Mohawk Power Corp., senior notes, Series D, 7.25%, 10/01/02 .................... 7,200,000 7,272,000 Niagara Mohawk Power Corp., senior notes, Series G, 7.75%, 10/01/08 .................... 8,400,000 8,946,000 NTL, Inc., senior notes, 144A, zero coupon to 4/01/03, 9.75% thereafter, 4/01/08 ...... 50,000,000 32,750,000
21 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND STATEMENT OF INVESTMENTS, NOVEMBER 30, 1998 (UNAUDITED) (CONT.)
PRINCIPAL AMOUNT* VALUE - ----------------------------------------------------------------------------------------------------------------------------- BONDS (CONT.) UTILITIES AND TELECOMMUNICATIONS (CONT.) Occidente y Caribe Celular, units, senior disc. notes, Series B, zero coupon to 3/15/01, 14.00% thereafter, 3/15/04 (Colombia) .......................... $ 38,165,000 $ 27,955,863 Orion Network Systems, Inc., units, senior disc. notes, zero coupon to 1/15/02, 12.50% thereafter, 1/15/07 ................................................. 35,300,000 22,062,500 Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 ..................... 17,000,000 17,807,500 Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ..................... 14,800,000 15,429,000 Poland Telecom Finance BV, 14.00%, 12/01/07 ................................... 30,000,000 27,450,000 Rogers Cantel Mobile Communications, Inc., senior secured deb., 9.75%, 6/01/16 34,000,000 36,380,000 RSL Communications Plc., 144A, 12.00%, 11/01/08 ............................... 6,250,000 6,609,375 RSL Communications Plc., senior disc. notes, zero coupon to 3/01/03, 10.125% thereafter, 3/01/08 ........................................................ 44,500,000 25,476,250 Sprint Spectrum, L.P., senior disc. notes, zero coupon to 8/01/01, 12.50% thereafter, 8/15/06 ........................................................ 23,200,000 21,373,000 Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ......................... 33,630,000 37,833,750 Telecommunications Techniques Co., senior sub. notes, 9.75%, 5/15/08 .......... 24,000,000 24,000,000 Triton Communications L.L.C., senior disc. notes, zero coupon to 5/01/03, 11.00% thereafter, 5/01/08 ................................................. 68,250,000 32,077,500 ------------- 899,960,276 ------------- TOTAL BONDS (COST $3,551,736,355) ............................................. 3,383,258,731 ------------- (b)REPURCHASE AGREEMENT 4.1% Joint Repurchase Agreement, 5.228%, 12/01/98, (Maturity Value $154,055,897) (COST $154,033,527) ......................................................... 154,033,527 154,033,527 Barclays Capital Group, Inc. Bear, Stearns & Co., Inc. Chase Securities, Inc. CIBC Wood Gundy Securities Corp. Deutsche Morgan Grenfell/C.J. Lawrence, Inc. Donaldson, Lufkin & Jenrette Securities Corp. Dresdner Kleinwort Benson, North America, L.L.C. Greenwich Capital Markets, Inc. NationsBanc Montgomery Securities, L.L.C. Paine Webber, Inc. Paribas Corp. SBC Warburg Dillon Read, Inc. Collateralized by U.S. Treasury Bills and Notes ------------- TOTAL INVESTMENTS (COST $3,851,434,844) 98.7% ................................. 3,677,813,325 OTHER ASSETS, LESS LIABILITIES 1.3% ........................................... 48,005,300 -------------- NET ASSETS 100.0% ............................................................. $3,725,818,625 ==============
CURRENCY ABBREVIATIONS ZAR - South African Rand * Securities traded in U.S. dollars unless otherwise indicated. (a) Non-income producing. (b) Investment is through participation in a joint account with other funds managed by the investment advisor. At November 30, 1998, all repurchase agreements held by the Fund had been entered into on that date. (c) See Note 6 regarding defaulted securities. (d) See Note 7 regarding restricted securities. (e) Sufficient collateral has been segregated for securities traded on a when-issued or delayed delivery basis. See notes to financial statements. 22 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements STATEMENT OF ASSETS AND LIABILITIES NOVEMBER 30, 1998 (UNAUDITED) Assets: Investments in securities, at value (cost $3,851,434,844) ........................................ $ 3,677,813,325 Receivables: Investment securities sold ...................................................................... 524,800 Capital shares sold ............................................................................. 12,857,374 Dividends and interest .......................................................................... 73,425,501 --------------- Total assets ................................................................................ 3,764,621,000 --------------- Liabilities: Payables: Investment securities purchased ................................................................. 18,658,080 Capital shares redeemed ......................................................................... 13,605,215 Affiliates ...................................................................................... 2,689,717 Shareholders .................................................................................... 3,659,956 Other liabilities ................................................................................ 189,407 --------------- Total liabilities ........................................................................... 38,802,375 --------------- Net assets, at value ....................................................................... $ 3,725,818,625 --------------- Net assets consist of: Undistributed net investment income .............................................................. $ 20,183,594 Net unrealized depreciation ...................................................................... (173,585,485) Accumulated net realized loss .................................................................... (253,779,550) Capital shares ................................................................................... 4,133,000,066 --------------- Net assets, at value ........................................................................ $ 3,725,818,625 =============== CLASS I: Net asset value per share ($3,224,921,915 / 1,156,314,084 shares outstanding)* ................... $ 2.79 =============== Maximum offering price per share ($2.79 / 95.75%) ................................................ $ 2.91 =============== CLASS II: Net asset value per share ($467,505,242 / 167,260,220 shares outstanding)* ....................... $ 2.80 =============== Maximum offering price per share ($2.80 / 99.0%) ................................................. $ 2.83 =============== ADVISOR CLASS: Net asset value and maximum offering price per share ($33,391,468 / 11,963,303 shares outstanding) $ 2.79 ===============
*Redemption price is equal to net asset value less any applicable contingent deferred sales charges. See notes to financial statements. 23 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED) Investment income: Dividends .............................................................. $ 3,500,463 Interest ............................................................... 176,768,145 ------------- Total investment income ........................................... 180,268,608 ------------- Expenses: Management fees (Note 3) ............................................... 8,180,226 Distribution fees (Note 3) Class I ............................................................... 2,038,750 Class II .............................................................. 1,371,548 Transfer agent fees (Note 3) ........................................... 1,461,282 Custodian fees ......................................................... 32,225 Reports to shareholders ................................................ 421,061 Registration and filing fees ........................................... 392,036 Professional fees ...................................................... 55,055 Trustees' fees and expenses ............................................ 35,378 Other .................................................................. 45,041 ------------- Total expenses .................................................... 14,032,602 ------------- Net investment income ............................................ 166,236,006 ------------- Realized and unrealized gains (losses): Net realized gain (loss) from: Investments ........................................................... 34,073,035 Foreign currency transactions ......................................... (45,170) ------------- Net realized gain ................................................. 34,027,865 Net unrealized appreciation (depreciation) on: Investments ........................................................... (264,752,355) Translation of assets and liabilities denominated in foreign currencies 79,182 ------------- Net unrealized depreciation ....................................... (264,673,173) ------------- Net realized and unrealized loss ........................................ (230,645,308) ------------- Net decrease in net assets resulting from operations .................... $ (64,409,302) =============
See notes to financial statements. 24 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Financial Statements (continued) STATEMENTS OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998 (UNAUDITED) AND THE YEAR ENDED MAY 31, 1998
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 1998 MAY 31, 1998 ----------------- ------------ Increase (decrease) in net assets: Operations: Net investment income ................................................................. $ 166,236,006 $ 292,667,415 Net realized gain from investments and foreign currency transactions .................. 34,027,865 34,259,350 Net unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies ........................................ (264,673,173) 33,894,269 --------------- --------------- Net increase (decrease) in net assets resulting from operations ................... (64,409,302) 360,821,034 Distributions to shareholders from: Net investment income: Class I .............................................................................. (146,023,174) (261,354,140) Class II ............................................................................. (18,346,794) (21,055,677) Advisor Class ........................................................................ (1,193,770) (1,879,720) --------------- --------------- Total distributions to shareholders .................................................... (165,563,738) (284,289,537) Capital share transactions: (Note 2) Class I ............................................................................... 190,421,175 525,305,713 Class II .............................................................................. 99,320,704 239,186,811 Advisor Class ......................................................................... 7,277,229 21,536,823 --------------- --------------- Total capital share transactions ........................................................ 297,019,108 786,029,347 Net increase in net assets ........................................................ 67,046,068 862,560,844 Net assets: Beginning of period .................................................................... 3,658,772,557 2,796,211,713 --------------- --------------- End of period .......................................................................... $ 3,725,818,625 $ 3,658,772,557 =============== =============== Undistributed net investment income included in net assets: End of period .......................................................................... $ 20,183,594 $ 19,511,326 =============== ===============
See notes to financial statements. 25 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Franklin High Income Trust (the Trust) is registered under the Investment Company Act of 1940 as an open-end, diversified investment company. The Trust consists of one Fund, the Franklin AGE High Income Fund (the Fund), which seeks to provide a high level of current income while seeking capital appreciation. The following summarizes the Fund's significant accounting policies. a. SECURITY VALUATION: Securities listed or traded on a recognized national exchange or NASDAQ are valued at the latest reported sales price. Over-the-counter securities and listed securities for which no sale is reported are valued within the range of the latest quoted bid and asked prices. Restricted securities and securities for which market quotations are not readily available are valued at fair value as determined by management in accordance with procedures established by the Board of Trustees (Board). b. FOREIGN CURRENCY TRANSLATION: Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date. The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments. Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period. c. INCOME TAXES: No provision has been made for income taxes because the Fund's policy is to qualify as a regulated investment company under the Internal Revenue Code and to distribute all of its taxable income. d. SECURITY TRANSACTIONS, INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS: Security transactions are accounted for on trade date. Realized gains and losses on security transactions are determined on a specific identification basis. Interest income and estimated expenses are accrued daily. Bond discount is amortized on an income tax basis. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Realized and unrealized gains and losses and net investment income, other than class specific expenses, are allocated daily to each class of shares based upon the relative proportion of net assets of each class. 26 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONT.) e. ACCOUNTING ESTIMATES: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the amounts of income and expense during the reporting period. Actual results could differ from those estimates. 2. SHARES OF BENEFICIAL INTEREST The Fund offers three classes of shares: Class I, Class II, and Advisor Class. The shares differ by their initial sales load, distribution fees, voting rights on matters affecting a single class and the exchange privilege of each class. On March 19, 1998, the Board approved name changes for Class I and Class II shares to Class A and Class C, respectively. The Board also approved the establishment of an additional class of shares, Class B. The effective date of the name changes and the inception date for Class B was January 1, 1999. At November 30, 1998, there were an unlimited number of shares authorized (no par value). Transactions in the Fund's shares were as follows:
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, 1998 MAY 31, 1998 --------------------------------------------------------------------- SHARES AMOUNT SHARES AMOUNT ------ ------ ------ ------ CLASS I Shares sold ...................................... 240,873,361 $ 671,575,454 398,847,574 $ 1,185,149,892 Shares issued in reinvestment of distributions.... 23,173,172 64,772,779 38,784,036 114,687,942 Shares redeemed .................................. (194,906,229) (545,927,058) (260,590,614) (774,532,121) ------------ ------------ ------------ ------------ Net increase ..................................... 69,140,304 $ 190,421,175 177,040,996 $ 525,305,713 ============ ============ ============ ============ CLASS II Shares sold ...................................... 55,263,580 $ 155,700,211 95,362,735 $ 284,202,607 Shares issued in reinvestment of distributions.... 3,740,403 10,445,736 4,043,761 12,004,240 Shares redeemed .................................. (24,047,110) (66,825,243) (19,128,856) (57,020,036) ------------ ------------ ------------ ------------ Net increase ..................................... 34,956,873 $ 99,320,704 80,277,640 $ 239,186,811 ============ ============ ============ ============ ADVISOR CLASS* Shares sold ...................................... 9,346,400 $ 26,004,230 13,161,829 $ 39,058,573 Shares issued in reinvestment of distributions.... 403,063 1,129,077 606,914 1,799,737 Shares redeemed .................................. (7,199,181) (19,856,078) (6,500,575) (19,321,487) ------------ ------------ ------------ ------------ Net increase ..................................... 2,550,282 $ 7,277,229 7,268,168 $ 21,536,823 ============ ============ ============ ============
* Effective date of Advisor Class shares was January 2, 1997. 27 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 3. TRANSACTIONS WITH AFFILIATES Certain officers and trustees of the Trust are also officers and/or directors of Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc. (Distributors), Franklin Templeton Services, Inc. (FT Services), and Franklin/Templeton Investor Services, Inc. (Investor Services) the Fund's investment manager, principal underwriter, administrative manager, and transfer agent, respectively. The Fund pays an investment management fee to Advisers based on the average net assets of the Fund as follows:
ANNUALIZED FEE RATE MONTH-END NET ASSETS ---------------------------------------------------------------- .625% First $100 million .500% Over $100 million, up to and including $250 million .450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services to the Fund. The fee is paid by Advisers based on average daily net assets, and is not an additional expense of the Fund. The Fund reimburses Distributors up to .15% and .65% per year of its average daily net assets of Class I and Class II, respectively, for costs incurred in marketing the Fund's shares. Distributors paid net commissions on sales of the Fund shares, and received contingent deferred sales charges for the period of $919,739 and $163,197, respectively. The Fund paid transfer agent fees of $1,461,282, of which $1,371,925 was paid to Investor Services. 4. INCOME TAXES At May 31, 1998, the Fund had tax basis capital losses which may be carried over to offset future capital gains. Such losses expire as follows: Capital loss carryovers expiring in: 1999 $192,912,531 2000 63,753,106 2001 14,304,993 2002 12,243,104 2003 4,606,276 ------------ $287,820,010 ============
28 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 4. INCOME TAXES (CONT.) At November 30, 1998, the net unrealized depreciation based on the cost of investments for income tax purposes of $3,851,434,844 was as follows: Unrealized appreciation $ 134,441,602 Unrealized depreciation (308,063,121) ------------- Net unrealized depreciation $(173,621,519) =============
Net investment income differs for financial statement and tax purposes primarily due to differing treatments of defaulted securities and foreign currency transactions. Net realized capital gains differ for financial statement and tax purposes primarily due to differing treatment of foreign currency transactions. 5. INVESTMENT TRANSACTIONS Purchases and sales of securities (excluding short-term securities) for the period ended November 30, 1998 aggregated $495,172,417 and $334,716,610, respectively. 6. CREDIT RISK AND DEFAULTED SECURITIES The Fund has 91.5% of its portfolio invested in lower rated and comparable quality unrated high yield securities, which tend to be more sensitive to economic conditions than higher rated securities. The risk of loss due to default by the issuer may be significantly greater for the holders of high yielding securities because such securities are generally unsecured and are often subordinated to other creditors of the issuer. At November 30, 1998, the Fund held defaulted securities with a value aggregating $18,529,625 representing .5% of the Fund's net assets. For information as to specific securities, see the accompanying Statement of Investments. For financial reporting purposes, the Fund discontinues accruing income on defaulted bonds and provides an estimate for losses on interest receivable. The Fund has investments in excess of 10% of its total net assets in the Consumer Services and Utilities industries. Such concentration may subject the Fund more significantly to economic changes occurring within that industry. 29 FRANKLIN HIGH INCOME TRUST AGE HIGH INCOME FUND Notes to Financial Statements (continued) 7. RESTRICTED SECURITIES The Fund may purchase securities through a private offering that generally cannot be resold to the public without prior registration under the Securities Act of 1933. The costs of registering such securities are paid by the issuer. Restricted securities held at November 30, 1998 are as follows:
PRINCIPAL ACQUISITION AMOUNT ISSUER DATE COST VALUE - -------------------------------------------------------------------------------------------------------------------------- 530,000 CMS Energy Corp., 7.75%, cvt. pfd. (.8% of net assets) 6/18/97 $26,500,000 $29,415,000
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