AGE HIGH INCOME FUND INC, N-30D, 1996-08-01

AGE HIGH INCOME FUND INC
N-30D, 1996-08-01

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MESSAGE FROM THE CHAIRMAN

Table of Contents

Page

Message from the Chairman 1

Manager's Discussion 3

Performance Summary 7

Statement of Investments 13

Financial Statements 22

Report of Independent Auditors 31

To ensure the highest quality of service, telephone calls to or from our service
departments may be monitored, recorded and accessed. These calls may be
determined by the presence of a regular beeping tone.

July 15, 1996

Dear Shareholder:

We're pleased to bring you the annual report of Franklin's AGE High Income Fund
for the period ended May 31, 1996.

Slow economic growth and mild inflation characterized much of the period under
review. Although the economy's annualized growth slowed to less than one percent
by the end of 1995, equity and bond markets at that time continued their rally
in the face of robust investor demand. Inflation, as measured by the Consumer
Price Index, advanced 3.16% over the reporting period, with more than two-thirds
of that advance in the last six months. With inflation apparently under control,
the Federal Reserve Board lowered the federal funds rate (the overnight rate at
which banks lend money to each other) three times, from 6.00% to 5.25%, between
July 1995 and January 1996.

Although the fund experienced favorable performance over the past fiscal year,
you should remember that markets experience both ups and downs, which is a
normal part of investing. We've always encouraged shareholders to focus on their
long-term investment goals, and believe it's appropriate to reiterate that
philosophy here. History has shown that, over the long term, stocks and bonds
have delivered consistently impressive results. By concentrating on your
long-term investment goals, you need not be unduly concerned with short-term
market fluctuations. An in-depth discussion of your fund's performance follows
this letter.

Many financial experts agree that a technique known as "dollar cost averaging"
may be one of the best ways to take advantage of market downturns and rallies.
With dollar cost averaging, you invest a fixed dollar amount at regular
intervals, regardless of the market's direction. Using this method, you
automatically purchase more shares when prices are low, and fewer shares when
prices are high, which can significantly reduce your average cost per share.

Of course, no investment technique can assure a profit or protect against loss,
but dollar cost averaging can provide you with a simple investment strategy that
can minimize the effects of market volatility and help you make the most of your
investment dollars.1 Diversifying your investments can also help to minimize the
effects of market fluctuations, and mutual funds offer a level of
diversification that would be almost impossible for individual investors to
achieve on their own.

As always, we welcome your questions, appreciate your support, and look forward
to serving you in the years to come.

Sincerely,

Rupert H. Johnson, Jr.
President
Franklin's AGE High Income Fund

1. When using this strategy, you should consider your financial ability to
continue purchases through periods of low price levels or changing economic
conditions. For more information on dollar cost averaging, see your investment
representative, or call Franklin Templeton Fund Information, toll free, at
1-800/DIAL BEN (1-800/342-5236).

MANAGER'S DISCUSSION

Your Fund's Objective:

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.

We are pleased to bring you Franklin's AGE High Income Fund annual report for
the fiscal year ended May 31, 1996. Despite a challenging interest rate
environment, your fund's Class I shares generated a +10.75% total return for the
reporting period, as discussed in the Performance Summary on page 7.

Market conditions during the first nine months of the reporting period were
distinctly different from those of the last three months. Interest rates
gradually declined in the first nine months as economic growth slowed to an
annual rate of only 0.5% in the fourth quarter of 1995. Over the same period,
the yield on 10-year U.S. Treasury bonds fell from 6.28% on May 31, 1995, to a
low of 5.52% on January 18, 1996.

Beginning in mid-February 1996, however, interest rates began to trend upward in
response to initial evidence of renewed economic strength. The yield on 10-year
U.S. Treasury bonds increased to 6.85% by the end of the fiscal year -- more
than one percentage point above January's figures -- and bond prices, which move
in the opposite direction of interest rates, generally fell. High-yield bonds,
however, recorded positive returns during the reporting period. This is
primarily because moderate economic growth helped strengthen the overall
financial condition of high-yield bond issuers.

Industry positioning and individual company selection played significant roles
in our performance. Over the year, we increased the fund's exposure to media and
broadcasting bonds, seeking to take advantage of new opportunities resulting
from passage of the Telecommunications Bill of 1996. The bill generally
deregulated the telecommunications industry, which resulted in improved growth
prospects for many corporations.

In addition, we feel there is excellent long-term growth potential for companies
in the wireless communications industry (6.8% of total net assets). This sector
includes new competition for the established phone companies in the
telecommunications, cellular telephone and satellite communications businesses.
Individual bonds in our portfolio that performed well this year included those
issued by Continental Cablevision, Inc., one of the largest cable TV operators
in the nation, and Comcast Corp., which has numerous wireless telecommunications
and electronic media interests, including part ownership of cable TV retailer
QVC, Inc.

GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Activity in other sectors included boosting our forest and paper products
holdings to 7.0% of total net assets. One of these issues, Tjiwi Kimia
International, provides exposure to the Indonesian market where low labor costs
and inexpensive raw materials, combined with high Asian demand, offers the
potential for attractive returns. Two healthcare service providers contributing
to the fund's performance were OrNda Healthcorp, and Tenet Healthcare Corp., a
new holding. Showboat, Inc., a gaming company with casinos in Nevada, New Jersey
and Louisiana, was also profitable.

Looking forward, recent data indicates moderate economic growth for the next
several months, with a relatively slim short-term risk of recession. Labor
costs, an important inflationary trigger, appear to us to be under control. We
believe these conditions should prove favorable for the high-yield bond market,
as issuers should continue to improve their financial condition and earnings.

It is important to keep in mind that we are in the sixth year of the current
economic cycle, a longer period than most cycles have lasted in the past.
Prudence dictates that we maintain a conservative stance toward credit risk by
staying invested in better quality companies. Even though this strategy may not
maximize current yield or short-term results, we feel that such an approach
should provide optimal return over the long term.

Of course, we are pleased that the high-yield corporate bond market and
Franklin's AGE High Income Fund fared well during the reporting period, yet we
cannot guarantee that this trend will continue. As stated in the fund's
prospectus, investing in Franklin's AGE High Income Fund entails a greater
degree of credit risk relative to investing in a fund of higher-rated,
lower-yielding securities. It should not be considered a complete investment
program, and should be carefully evaluated for its appropriateness in light of
your overall investment needs and goals. Those on fixed incomes, including
retired individuals, should consider the increased risk of loss of principal
that is present with an investment in higher risk securities such as those
contained in the fund's portfolio.

Many investors have found the fund's broad diversification and professional
management can help to reduce, though not eliminate, the risks involved. On May
31, 1996, Franklin's AGE High Income Fund had 192 positions in its portfolio,
and the fund's largest holding represented only 1.34% of total net assets. By
limiting our exposure to any one industry or issuer, we seek to reduce the
impact that a poorly performing security or sector could have on your
investment.

This discussion reflects the strategies we employed for the fund during the past
fiscal year, and includes our opinions as of the close of the period. Since
economic and market conditions are constantly changing, our strategies, and our
evaluations, conclusions and decisions regarding portfolio holdings, may change
as new circumstances arise. Although past performance of a specific investment
or sector cannot guarantee future performance, such information can be useful in
analyzing securities we purchase or sell for the fund.

We believe that our management approach should present a positive, long-term
investment opportunity for shareholders of the fund. As always, we appreciate
your continued support and look forward to serving you in the years to come.

PERFORMANCE SUMMARY

Class I
(Class II Performance Summary begins on page 10.)

The price of the fund's Class I shares, as measured by net asset value,
increased $0.02, from $2.77 on May 31, 1995, to $2.79 on May 31, 1996. Your fund
met its investment objective of providing high current income to shareholders.
For the 12-month period ended May 31, 1996, the fund's Class I shares paid
income distributions totaling 26.4 cents ($0.264) per share. Based on an
annualization of the current monthly dividend of 2.2 cents ($0.022) per share
and the maximum offering price of $2.91 on May 31, 1996, your fund's
distribution rate for Class I shares was 9.07%. Dividends will vary based on the
earnings of the fund's portfolio, and past distributions are not necessarily
predictive of future trends.

Franklin's AGE High Income Fund Class I shares posted a total return of +10.75%
for the one-year period ended May 31, 1996. Total return measures the change in
value of an investment, assuming reinvestment of dividends, and does not include
the initial sales charge. Past performance is not predictive of future results.

While we expect market volatility in the short term, we have always maintained a
long-term perspective in managing Franklin's AGE High Income Fund, and we
encourage shareholders to do the same. Class I shares, for example, provided an
average annual total return of +13.21% over the past five years, as shown in the
table on page 9.

The graph on the following page compares the total return performance of
Franklin's AGE High Income Fund Class I shares with the CS First Boston High
Yield Index (FBHY) for the 10-year period ended May 31, 1996. The FBHY index
includes more than 700 high-yield corporate securities rated split-BBB and lower
by Standard & Poor's bond rating service.

As you can see, the fund's performance lagged that of the index. Of course,
comparing a mutual fund with an unmanaged index is never an apples-to-apples
comparison. Unmanaged indices such as the CS First Boston High Yield Index do
not reflect management fees to cover salaries of securities analysts or
portfolio managers, nor do they include the impact of commissions or market
spreads to buy and sell bonds. Performance figures reported by a professionally
managed mutual fund, however, include the maximum sales charges, all fund
expenses and account fees. Unlike indices, mutual funds are never fully invested
because they must have cash on hand to redeem shares. If operating expenses of a
professionally managed fund, such as Franklin's AGE High Income Fund, had been
applied to this index, the index's performance would have been lower. Please
remember that an index is simply a measure of performance and cannot be invested
in directly. Past performance is not predictive of future results.

GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin's AGE High Income Fund
Class I
Periods ended May 31, 1996

Since
Inception
One-Year Five-Year Ten-Year (12/31/69)

Cumulative Total Return1 10.75% 94.57% 142.43% 806.37%
Average Annual Total Return2 6.15% 13.21% 8.79% 8.51%
Value of $10,000 Investment3 $10,615 $18,594 $23,213 $86,713

Distribution Rate:4 9.07%
30-Day Standardized Yield:5 8.69%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 4.25% initial sales
charge. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 4.25% initial
sales charge. See Note below.

3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 4.25% initial sales
charge.

4. Distribution rate is based on an annualization of the fund's current monthly
dividend of 2.2 cents ($0.022) per share, and the maximum offering price of
$2.91 on May 31, 1996.

5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio during the 30 days ended May 31, 1996. 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.

Note: Prior to July 1, 1994, the fund's Class I shares were offered at a lower
initial sales charge, with dividends reinvested at the offering price. Thus,
actual total returns for purchasers of shares during that period would have been
different than noted above. Effective May 1, 1994, the fund eliminated the sales
charge on reinvested dividends, and implemented a plan of distribution under
Rule 12b-1, which will affect future performance. All total return figures
assume reinvestment of dividends and capital gains at net asset value, and take
into account the effect of 12b-1 fees from the date of the plan's
implementation. Investment return and principal value will fluctuate with market
conditions, and you may have a gain or loss when you sell your shares. Past
performance is not predictive of future results.

Class II
(Class I Performance Summary begins on page 7.)

The price of the fund's Class II shares, as measured by net asset value,
increased $0.02, from $2.77 on May 31, 1995, to $2.79 on May 31, 1996. Your fund
met its investment objective of providing high current income to shareholders.
For the 12-month period ended May 31, 1996, the fund's Class II shares paid
income distributions totaling 24.7 cents ($0.247) per share. Based on an
annualization of the current monthly dividend of 2.06 cents ($0.0206) per share
and the maximum offering price of $2.82 on May 31, 1996, your fund's
distribution rate for Class II shares was 8.77%. Dividends will vary based on
the earnings of the fund's portfolio, and past distributions are not necessarily
predictive of future trends.

Franklin's AGE High Income Fund Class II shares posted a total return of +10.06%
for the one-year period ended May 31, 1996. Total return measures the change in
value of an investment, assuming the reinvestment of dividends, and does not
include the initial sales charge. Past performance is not predictive of future
results. While we expect market volatility in the short term, we have always
maintained a long-term perspective in managing Franklin's AGE High Income Fund,
and we encourage shareholders to do the same.

The graph on the following page compares the total return performance of
Franklin's AGE High Income Fund Class II shares with the CS First Boston High
Yield Index (FBHY) since the inception of Class II shares through May 31, 1996.
The FBHY index includes more than 700 high-yield corporate securities rated
split-BBB and lower by Standard & Poor's bond rating service.

As you can see, the fund's performance slightly lagged that of the index. Of
course, comparing a fund with an unmanaged index is never an apples-to-apples
comparison. Unmanaged indices, such as the CS First Boston High Yield Index, do
not reflect management fees to cover salaries of securities analysts or
portfolio managers, nor do they include the impact of commissions or market
spreads to buy and sell bonds. Performance figures reported by a professionally
managed mutual fund, however, include the maximum sales charges, all fund
expenses and account fees. Unlike indices, mutual funds are never fully invested
because they must have cash on hand to redeem shares. If operating expenses of a
professionally managed fund, such as the AGE High Income Fund, had been applied
to this index, the index's performance would have been lower. Please remember
that an index is simply a measure of performance and cannot be invested in
directly. Past performance is not predictive of future results.

GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT

Franklin's AGE High Income Fund
Class II
Periods ended May 31, 1996

Since
Inception
One-Year (5/16/95)

Cumulative Total Return1 10.06% 10.46%
Average Annual Total Return2 7.89% 7.90%
Value of $10,000 Investment3 $10,789 $10,828

Distribution Rate:4 8.77%
30-Day Standardized Yield:5 8.49%

1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the maximum 1.00% initial sales
charge or the 1.00% Contingent Deferred Sales Charge (CDSC) applicable to shares
redeemed within the first 18 months after purchase. See Note below.

2. Average annual total return represents the average annual change in value of
an investment over the specified periods and includes the maximum 1.00% initial
sales charge and the 1.00% CDSC applicable to shares redeemed within the first
18 months after purchase. See Note below.

3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the maximum 1.00% initial sales
charge and the 1.00% CDSC applicable to shares redeemed within the first 18
months after purchase. See Note below.

4. Distribution rate is based on an annualization of the fund's current monthly
dividend of 2.06 cents ($0.0206) per share, and the maximum offering price of
$2.82 on May 31, 1996.

Note: All total return figures assume reinvestment of dividends and capital
gains at net asset value. Investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares. Past performance is not predictive of future results.

AGE HIGH INCOME FUND, INC.

Statement of Investments in Securities and Net Assets, May 31, 1996

Face Value
Amount (Note 1)
Bonds 85.8%
Automotive .8%
<C> <C> <C>
$ 16,750,000 SPX Corp., senior sub. notes, 11.75%, 06/01/02 ........................... $ 18,006,250
----------------
Cable Television 9.0%
29,000,000 Bell Cablemedia, Plc., senior disc. notes, zero coupon to 07/15/99, (original
accretion rate 11.95%), 11.95% thereafter, 07/15/04 ..................... 20,880,000
17,400,000 Cablevision Industries Corp., senior notes, 10.75%, 01/30/02 ............. 18,596,250
20,000,000 Cablevision Systems Corp., senior sub. deb., 10.50%, 05/15/16 ............ 20,150,000
5,000,000 Cablevision Systems Corp., senior sub. deb., 9.875%, 04/01/23 ............ 4,850,000
7,000,000 Century Communications Corp., senior notes, 9.50%, 03/01/05 .............. 6,956,250
20,000,000 Comcast Cellular Communications, Inc., senior notes, Series B, (original
accretion rate 11.37%), 0.00%, 03/05/00 ................................. 14,075,000
15,000,000 Comcast Corp., senior sub. deb., 9.50%, 01/15/08 ......................... 14,868,750
3,000,000 Continental Cablevision, Inc., senior deb., 8.875%, 09/15/05 ............. 3,161,250
8,500,000 Continental Cablevision, Inc., senior deb., 9.50%, 08/01/13 .............. 9,180,000
13,000,000 Continental Cablevision, Inc., senior sub. deb., 11.00%, 06/01/07 ........ 14,576,250
5,800,000 Continental Cablevision, Inc., senior sub. deb., 9.00%, 09/01/08 ......... 6,191,500
18,850,000 Diamond Cable Communications Corp., senior disc. notes, zero coupon to
12/15/99, (original accretion rate 11.75%), 11.75% thereafter, 12/15/05.. 11,498,500
10,000,000 Helicon Group L.P. Corp., S.F., senior secured notes, 9.00% coupon to 11/1/96,
11.00% thereafter, 11/01/03 ............................................. 9,875,000
5,000,000 Rogers Cablesystems, Inc., senior secured deb., 10.125%, 09/01/12......... 5,037,500
7,000,000 c Scott Cable Communications, Inc., S.F., sub. deb., 12.25%, 04/15/01....... 4,515,000
20,000,000 Tele-Communications, Inc., senior deb., 9.80%, 02/01/12 .................. 21,587,900
25,500,000 Telewest Plc., deb., zero coupon to 10/01/00, (original accretion rate 11.00%),
11.00% thereafter, 10/01/07 ............................................. 15,363,750
----------------
201,362,900
----------------
Chemicals 4.0%
18,000,000 Arcadian Partners, S.F., senior notes, Series B, 10.75%, 05/01/05 ........ 19,530,000
18,750,000 Harris Chemical North America, Inc., senior secured disc. notes, zero coupon
to 01/15/96, (original accretion rate 10.25%), 10.25% thereafter, 07/15/01 19,125,000
3,400,000 IMC Fertilizer Group, Inc., senior deb., 9.45%, 12/15/11 ................. 3,510,500
7,000,000 IMC Fertilizer Group, Inc., senior notes, 9.25%, 10/01/00 ................ 7,245,000
6,000,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.125%, 06/15/01 .... 6,427,500
6,550,000 IMC Fertilizer Group, Inc., senior notes, Series B, 10.75%, 06/15/03 ..... 7,106,750
15,000,000 Terra Industries, Inc., senior notes, Series B, 10.50%, 06/15/05 ......... 16,031,250
4,850,000 UCC Investors, senior sub. notes, 11.00%, 05/01/03 ....................... 5,189,500
6,000,000 UCC Investors, sub. notes, zero coupon to 05/01/98, (original accretion rate
12.00%), 12.00% thereafter, 05/01/05 .................................... 5,010,000
----------------
89,175,500
----------------
Consumer Goods 3.3%
$ 17,000,000 Coleman Holdings, Inc., senior secured disc. notes, (original accretion rate
10.875%), 0.00%, 05/27/98 ............................................... $ 14,258,750
3,600,000 Herff Jones, Inc., senior sub. notes, 11.00%, 08/15/05 ................... 3,825,000
7,500,000 Playtex Family Products Corp., senior sub. notes, 9.00%, 12/15/03 ........ 7,050,000
15,000,000 Revlon Consumer Products Corp., senior sub. notes, 10.50%, 02/15/03 ...... 15,300,000
4,900,000 Revlon Worldwide Corp., senior secured disc. notes, (original accretion rate
12.00%), 0.00%, 03/15/98 ................................................ 4,054,750
20,000,000 RJR Nabisco, Inc., senior notes, 9.25%, 08/15/13 ......................... 20,000,000
9,600,000 Sealy Corp., senior sub. notes, 9.50%, 05/01/03 .......................... 9,504,000
----------------
73,992,500
----------------
Containers & Packaging 2.5%
9,000,000 Container Corp. of America, company guaranteed senior notes, Series A,
11.25%, 05/01/04 9,315,000
12,000,000 Container Corp. of America, senior notes, Series A, 9.75%, 04/01/03 ...... 11,970,000
2,600,000 Four M Corp., senior notes, 12.00%, 06/01/06 ............................. 2,652,000
12,000,000 Owens Illinois, Inc., senior sub. notes, 9.75%, 08/15/04 ................. 12,330,000
5,500,000 Owens Illinois, Inc., S.F., senior deb., 11.00%, 12/01/03 ................ 5,974,375
13,400,000 Riverwood International Corp., company guaranteed, 10.25%, 04/01/06 ...... 13,433,500
----------------
55,674,87
----------------
Energy 2.0%
12,000,000 Clark USA, Inc., senior notes, 10.875%, 12/01/05 ......................... 12,540,000
6,750,000 Energy Ventures, senior notes, 10.25%, 03/15/04 .......................... 7,053,750
17,000,000 Gulf Canada Resources, Ltd., senior sub. notes, 9.25%, 01/15/04 .......... 16,830,000
8,600,000 Nuevo Energy Co., senior sub. notes, 9.50%, 04/15/06 ..................... 8,557,000
----------------
44,980,750
----------------
Financial Services .5%
10,500,000 Homeside Finance, Inc., senior notes, 11.25%, 05/15/03 ................... 10,657,500
----------------

Food & Beverages 4.5%
9,250,000 c Beatrice Foods, Inc., S.F., senior sub. notes, 12.00%, 12/01/01 .......... 2,821,250
3,100,000 Curtice-Burns Foods, Inc., senior sub.notes, 12.25%, 02/01/05 ............ 3,053,500
2,500,000 Darling-Delaware Co., Inc., S.F., senior sub. notes, 11.00%, 07/15/00 .... 2,468,750
34,570,000 Del Monte Corp., sub. notes, PIK, 12.25%, 09/01/02 ....................... 27,656,000
1,540,000 Dr Pepper Bottling Co. of Texas, senior notes, 10.25%, 02/15/00 .......... 1,597,750
2,000,000 Dr Pepper Bottling Holdings, S.F., senior disc. notes, zero coupon to 02/15/98,
(original accretion rate 11.625%), 11.625% thereafter, 02/15/03 ......... 1,675,000
12,625,000 PMI Acquisition Corp., senior sub. notes, 10.25%, 09/01/03 ............... 12,498,750
14,000,000 Royal Crown Corp., senior secured notes, 9.75%, 08/01/00 ................. 13,370,000
Food & Beverages (cont.)
$ 19,000,000 Specialty Foods Corp., senior notes, Series B, 10.25%, 08/15/01 .......... $ 17,385,000
19,000,000 Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ........... 18,905,000
----------------
101,431,000
----------------
Food Retailing 6.7%
17,500,000 Bruno's, Inc., senior sub. notes, 10.50%, 08/01/05 ....................... 17,303,125
5,950,000 Dominick's Finer Foods, senior sub. deb., 10.875%, 05/01/05 .............. 6,307,000
18,900,000 Grand Union Co., senior notes, 12.00%, 09/01/04 .......................... 17,955,000
11,600,000 P & C Food Markets, Inc., senior sub. notes, 11.50%, 10/15/01 ............ 11,745,000
14,000,000 Pathmark Stores, Inc., senior sub. notes, 9.625%, 05/01/03 ............... 13,370,000
10,000,000 Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 06/15/02 ............... 10,250,000
5,000,000 Penn Traffic Co., senior notes, 8.625%, 12/15/03 ......................... 4,425,000
10,000,000 Penn Traffic Co., senior notes, 10.375%, 10/01/04 ........................ 9,600,000
11,000,000 Pueblo Xtra International, senior notes, 9.50%, 08/01/03 ................. 9,845,000
19,250,000 Ralphs Grocery Co., senior notes, 10.45%, 06/15/04 ....................... 18,624,375
13,500,000 Ralphs Grocery Co., senior sub. notes, 11.00%, 06/15/05 .................. 12,521,250
2,000,000 Ralphs Grocery Co., senior sub. notes, 13.75%, 06/15/05 .................. 2,055,000
16,050,000 Smith's Food & Drug Centers, Inc., senior sub. notes, 11.25%, 05/15/07 ... 16,371,000
----------------
150,371,750
----------------
Forest & Paper Products 7.0%
15,000,000 APP International Finance, company guaranteed, 11.75%, 10/01/05 .......... 15,412,500
23,000,000 Fort Howard Corp., senior sub. notes, 9.00%, 02/01/06 .................... 22,080,000
7,724,352 Fort Howard Corp., S.F., pass through trust, 11.00%, 01/02/02 ............ 8,052,637
27,900,000 Rapp International Finance Co., company guaranteed, 13.25%, 12/15/05 ..... 29,853,000
8,000,000 Repap New Brunswick, FRN, senior notes, 8.859%, 07/15/00 ................. 7,960,000
10,000,000 Repap New Brunswick, senior notes, first priority, 9.875%, 07/15/00 ...... 9,825,000
12,900,000 Repap New Brunswick, senior notes, second priority, 10.625%, 04/15/05 .... 12,061,500
11,300,000 S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 ..................... 11,780,250
20,000,000 Tembec Finance Corp., senior notes, 9.875%, 09/30/05 ..................... 18,500,000
18,900,000 Tjiwi Kimia International, company guaranteed senior notes, 13.25%, 08/01/01 20,884,500
----------------
156,409,387
----------------
Gaming & Leisure 5.1%
16,400,000 b AMF Group, Inc., senior disc. notes, zero coupon to 03/15/01, (original accretion
rate 12.25%), 12.25% thereafter, 03/15/06 ............................... 8,958,500
19,900,000 Aztar Corp., senior sub. notes, 13.75%, 10/01/04 ......................... 22,885,000
7,300,000 Grand Casinos, Inc., first mortgage, 10.125%, 12/01/03 ................... 7,519,000
9,000,000 Harrahs Operating, Inc., senior sub. notes, 10.875%, 04/15/02 ............ 9,630,000
4,750,000 Players International, Inc., senior notes, 10.875, 04/15/05 .............. 4,892,500
17,000,000 Showboat, Inc., senior sub. notes, 13.00%, 08/01/09 ...................... 19,337,500
Gaming & Leisure (cont.)
$ 22,000,000 Six Flags Theme Parks, senior sub. notes, zero coupon to 06/15/98, (original
accretion rate 12.25%), 12.25% thereafter, 06/15/05 ..................... $ 18,920,000
22,000,000 Trump Atlantic City, first mortgage, 11.25%, 05/01/06 .................... 22,385,000
----------------
114,527,500
----------------
Healthcare 3.4%
14,830,000 Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 ......... 15,460,275
3,344,681 Amerisource Distribution Corp., senior deb., PIK, 11.25%, 07/15/05 ....... 3,445,021
9,000,000 Merit Behavioral Care, senior sub. notes, 11.50%, 11/15/05 ............... 9,495,000
16,900,000 OrNda Healthcorp., company guaranteed senior sub. notes, 11.375%, 08/15/04 18,843,500
9,000,000 Sola Group, Ltd., senior sub. notes, 6.00% coupon to 12/15/98, 9.625%
thereafter, 12/15/03 .................................................... 8,325,000
3,400,000 Tenet Healthcare Corp., senior notes, 9.625%, 09/01/02 ................... 3,604,000
4,000,000 Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ................... 4,070,000
12,300,000 Tenet Healthcare Corp., senior sub. notes, 10.125%, 03/01/05 ............. 13,099,500
----------------
76,342,296
----------------
Industrial 4.7%
23,000,000 American Standard, Inc., senior deb., 11.375%, 05/15/04 .................. 25,012,500
22,850,000 American Standard, Inc., S.F., senior sub. deb., zero coupon to 06/01/98,
(original accretion rate 10.50%), 10.50% thereafter, 06/01/05 ........... 19,765,250
5,000,000 Coltec Industries, Inc., senior notes, 9.75%, 11/01/99 ................... 5,150,000
18,000,000 Coltec Industries, Inc., senior sub. notes, 10.25%, 04/01/02 ............. 18,427,500
12,600,000 Inter-City Products Corp., senior secured notes, 9.75%, 03/01/00 ......... 11,655,000
10,376,000 Thermadyne Industries, Inc., senior sub. notes, 10.25%, 05/01/02 ......... 10,350,060
14,387,000 Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ................ 14,351,032
----------------
104,711,342
----------------
Lodging 2.4%
20,000,000 HMH Properties, Inc., senior notes, 9.50%, 05/15/05 ...................... 19,500,000
20,000,000 John Q. Hammons Hotels, Inc., first mortgage, 8.875%, 02/15/04 ........... 19,000,000
4,500,000 John Q. Hammons Hotels, Inc., first mortgage, 9.75%, 10/01/05 ............ 4,415,625
10,000,000 Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 ...................... 9,500,000
----------------
52,415,625
----------------
Media & Broadcasting 7.5%
12,000,000 Ackerley Communications, Inc., senior secured notes, Series B, 10.75%, 10/01/03
12,540,000
8,700,000 American Media Operation, senior sub. notes, 11.625%, 11/15/04 ........... 8,917,500
7,000,000 Benedek Broadcasting, senior notes, 11.875%, 03/01/05 .................... 7,516,250
24,500,000 h Benedek Communications, senior disc. notes, zero coupon to 05/15/01, (original
accretion rate 13.25%), 13.25% thereafter, 05/15/06 ..................... 13,199,375
Media & Broadcasting (cont.)
$ 17,500,000 EZ Communications, Inc., senior sub. notes, 9.75%, 12/01/05 .............. $ 16,712,500
7,100,000 Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 05/15/05
7,046,750
6,400,000 Hollinger International, Inc., company guaranteed, 9.25%, 02/01/06 ....... 6,000,000
5,075,000 Infinity Broadcasting Corp., senior sub. notes, 10.375%, 03/15/02 ........ 5,392,188
15,000,000 New World Television, Inc., S.F., senior notes, 11.00%, 06/30/05 ......... 15,825,000
18,000,000 PanAmSat Capital Corp., L.P., S.F., senior sub. disc. notes, zero coupon to
08/01/98, (original accretion rate 11.375%), 11.375% thereafter, 08/01/03 15,480,000
19,200,000 SFX Broadcasting, Inc., senior sub. notes, 10.75%, 05/15/06 .............. 19,200,000
14,400,000 Sinclair Broadcasting Group, senior sub. notes, 10.00%, 09/30/05 ......... 14,040,000
16,400,000 Sullivan Broadcast Holdings, deb., 13.25%, 12/15/06 ...................... 15,990,000
9,500,000 Turner Broadcasting Systems, Inc., senior deb., 8.40%, 02/01/24 .......... 9,072,500
----------------
166,932,063
----------------
Metals & Mining 4.4%
23,400,000 Acme Metals, Inc., senior secured disc. notes, zero coupon to 08/01/97,
(original accretion rate 13.50%), 13.50% thereafter, 08/01/04 ........... 20,943,000
20,000,000 AK Steel Corporation, senior notes, 10.75%, 04/01/04 ..................... 21,850,000
18,000,000 Algoma Steel, Inc., first mortgage, 12.375%, 07/15/05 .................... 18,112,500
17,000,000 Envirosource, Inc., senior notes, 9.75%, 06/15/03 ........................ 15,470,000
20,000,000 Gulf States Steel, first mortgage, 13.50%, 04/15/03 ...................... 18,250,000
3,090,000 Ucar Global Enterprises, Inc., senior sub. notes, 12.00%, 01/15/05 ....... 3,561,225
----------------
98,186,725
----------------
Retail .4%
10,000,000 Florsheim Shoe Co., senior notes, 12.75%, 09/01/02 ....................... 9,400,000
----------------
Restaurants 1.9%
10,850,000 Family Restaurants, Inc., senior notes, 9.75%, 02/01/02 .................. 6,944,000
2,000,000 Flagstar Corp., senior notes, 10.75%, 09/15/01 ........................... 1,795,000
11,000,000 Flagstar Corp., senior notes, 10.875%, 12/01/02 .......................... 9,872,500
13,614,000 Flagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 ................. 9,734,010
5,900,000 Foodmaker, Inc., senior notes, 9.25%, 03/01/99 ........................... 5,855,750
8,400,000 Foodmaker, Inc., senior sub. notes, 9.75%, 06/01/02 ...................... 8,137,500
----------------
42,338,760
----------------
Technology & Information Systems 1.2%
10,000,000 ADT Operations, company guaranteed senior sub. notes, 9.25%, 08/01/03 .... 10,400,000
7,500,000 Bell & Howell Co., senior deb., zero coupon to 03/01/00, (original accretion rate
11.50%), 11.50% thereafter, 03/01/05 ........................................................ 4,968,750
3,550,000 Bell & Howell Co., senior notes, 9.25%, 07/15/00 ......................... 3,532,250
6,500,000 Bell & Howell Co., senior sub. notes, 10.75%, 10/01/02 ................... 6,808,750
----------------
25,709,750
----------------
Textiles & Appare l1.5%
$ 10,300,000 c Forstmann & Co., Inc., S.F., senior sub. notes, 14.75%, 04/15/99 ......... $ 2,523,500
15,000,000 Hartmarx Corp., senior sub. notes, 10.875%, 01/15/02 ..................... 14,306,250
6,000,000 WestPoint Stevens, Inc., senior notes, 8.75%, 12/15/01 ................... 5,955,000
10,000,000 WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 .............. 9,775,000
----------------
32,559,750
----------------
Transportation 3.8%
9,000,000 Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.06%, 01/02/16 10,208,798
15,000,000 Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.50%, 04/30/16 17,617,513
19,000,000 Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ................... 20,045,000
4,900,000 b Howmet Corp., senior sub. notes, 10.00%, 12/01/03 ........................ 5,169,500
9,500,000 Southern Pacific Rail Corp., senior notes, 9.375%, 08/15/05 .............. 10,093,750
20,422,000 United Airlines, S.F., pass-through equipment trust, Series B-2, 9.06%, 09/26/14 21,282,138
----------------
84,416,699
----------------
Utilities 2.4%
22,500,000 California Energy, senior notes, zero coupon to 01/15/97, (original accretion rate
10.25%), 10.25% thereafter, 01/15/04 ....................... ............ 22,106,250
12,900,000 El Paso Electric Co., first mortgage, 9.40%, 05/01/11 .................... 12,916,125
4,500,000 Midland Funding II, S.F., senior lease obligation, Series A, 11.75%, 07/23/05 4,758,750
11,500,000 Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 07/23/06 12,851,250
----------------
52,632,375
----------------
Wireless Communication 6.8%
21,100,000 Arch Communications Group, Inc., senior disc. notes, zero coupon to 03/15/01,
(original accretion rate 10.875%), 10.875% thereafter, 03/15/08 .............. 12,079,750
27,250,000 Dial Call Communications, units, senior disc. notes, zero coupon to 04/15/99,
(original accretion rate 12.25%), 12.25% thereafter, 04/15/04 ........... 16,622,500
29,000,000 b IntelCom Group, Inc., senior disc. notes, zero coupon to 05/01/01, (original
accretion rate 12.50%), 12.50% thereafter, 05/01/06 .................. . 16,131,250
27,000,000 Intermedia Communications of Florida, Inc., senior disc. notes, zero coupon
to 05/15/01, (original accretion rate 12.50%), 12.50% thereafter, 05/15/06 .. 15,153,750
17,000,000 MFS Communications Co., Inc., senior disc. notes, zero coupon to 01/15/01,
(original accretion rate 8.875%), 8.875% thereafter, 01/15/06 .............. 10,582,500
19,000,000 h Millicom International Cellular, S.A., senior disc. notes, zero coupon to 06/01/00,
(original accretion rate 13.50%), 13.50% thereafter, 06/01/06 ........... 10,070,000
15,000,000 Nextel Communications, senior disc. notes, (original accretion rate 9.75%),
0.00%, 08/15/04 9,225,000
38,165,000 h Occidente Y Caribe Celular, units, zero coupon to 03/15/01 (original accretion
rate 14.00%), 14.00% thereafter, 03/15/04 ............................... 20,008,383
Wireless Communication (cont.)
$ 12,000,000 Paging Network, Inc., senior sub. notes, 10.125%, 08/01/07 ............... $ 12,360,000
30,000,000 Rogers Cantel Mobile Communications, Inc., senior secured deb.,
9.75%, 06/01/16 29,925,000
----------------
152,158,133
----------------
Total Bonds (Cost $1,905,340,894)......................................... 1,914,393,430
----------------
Foreign Currency Notes .8%
South Africa
108,800,000 f ESCOM, E168, utility deb., 11.00%, 06/01/08 (Cost $25,324,908)............ 18,336,826
----------------
Foreign Government Agencies 1.1%
Mexico
28,000,000 United Mexican States, FRN, Series D, 6.5468%, 12/31/19 .................. 22,032,500
4,000,000 United Mexican States, Series B, 6.25%, 12/31/19 ......................... 2,570,000
----------------
Total Foreign Government Agencies (Cost $20,813,678)...................... 24,602,500
----------------
Shares,
Warrants
& Rights
Common Stocks 3.4%
741,331 a,d Bucyrus-Erie Co. ......................................................... 8,061,975
168,149 a Darling Delaware Co. ..................................................... 4,455,949
20,000 Gulf States Steel......................................................... 100,000
111,234 a Kash N' Karry Food Stores, Inc. .......................................... 3,142,361
1,436,971 a,d,g NVR, Inc. ................................................................ 15,267,817
39,757 a Penn Traffic Co. ......................................................... 506,902
2,291,953 a,d Price Communications Corp. ............................................... 17,905,883
546,646 a Pullman Co. .............................................................. 3,348,207
510,000 RJR Nabisco Holdings Corp. ............................................... 16,893,750
97,500 a,b Specialty Food Corp. ..................................................... 48,750
262,400 Sullivan Broadcast Holdings,.............................................. 2,624,000
38,615 Thermadyne Holdings Corp. ................................................ 849,530
189,505 a Walter Industries, Inc., Class A ......................................... 2,439,877
----------------
Total Common Stocks (Cost $117,829,061)................................... 75,645,001
----------------
Preferred Stocks 3.7%
181,544 b Cablevision System Corp., 11.125% pfd., Series L.......................... 17,609,768
199,000 First Nationwide Bank, 11.50% pfd. ....................................... 21,890,000
379,837 a Glendale Federal Bank, 1.00% cvt. pfd., Series D.......................... 6,789,586
11,202 PanAmSat Corp., L.P., 12.75%, pfd., PIK................................... 13,106,381
23,300 b Time Warner, Inc., 10.25%, pfd. .......................................... 22,950,500
----------------
Total Preferred Stocks (Cost $78,677,041)................................. 82,346,235
----------------
Partnership Units .4%
415,000 Freeport-McMoRan Resource Partners, Ltd., depository units (Cost $5,928,642) 8,300,000
----------------
Warrants & Rights .1%
27,250 a Dial Page, Inc. .......................................................... 273
8,030 a Foodmaker, Inc. .......................................................... 173,328
232,762 a Gaylord Container Corp. .................................................. 2,065,763
16,789 a Grand Union Co., Series 1................................................. 6,295
33,578 a Grand Union Co., Series 2................................................. 4,196
5,896 a Kendall International, Inc., rights....................................... 514,680
120,000 a NVR, Inc. ................................................................ 225,000
20,000 a Payless Cashways, Inc. ................................................... 2,500
15,000 a Smitty's Supervalu, Inc. ................................................. 150,000
----------------
Total Warrants & Rights (Cost $2,293,625)................................. 3,142,035
----------------
Total Common Stocks, Preferred Stocks, Partnership Units,
and Warrants & Rights (Cost $204,728,369)................................ 169,433,271
----------------
Total Long Term Investments (Cost $2,156,207,849)......................... 2,126,766,027
----------------
Face
Amount
e Receivables from Repurchase Agreements 4.5%
$ 100,785,268 Joint Repurchase Agreement, 5.329%, 06/03/96, (Maturity Value $100,283,760)
(Cost $100,239,245)
B.A. Securities, Inc., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Notes, 5.625% - 7.25%, 11/15/96 - 06/30/97
Bear Stearns & Co., Inc., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Bills, 11/21/96
U.S. Treasury Notes, 5.625% - 9.25%, 08/15/98 - 02/28/01
B.T. Securities Corp., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Notes, 6.375%, 05/15/99
Daiwa Securities America, Inc., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Notes, 5.375% - 6.875%, 11/30/97 - 04/30/01
Donaldson, Lufkin & Jenrette Securities Corp., (Maturity Value $17,151,636)
Collateral: U.S. Treasury Notes, 5.625% - 8.50%, 03/31/97 - 02/29/00
Nikko Securities Co. International, Inc., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Notes, 4.75% - 8.25%, 08/31/97 - 08/31/00
SBC Capital Markets, Inc., (Maturity Value $13,855,354)
Collateral: U.S. Treasury Notes, 5.625% - 6.875%, 10/31/97 - 07/31/99 .... 100,239,245
----------------
Total Investments (Cost $2,256,447,094) 99.8%............... .. 2,227,005,272
Other Assets and Liabilities, Net.2%.......................... 2,796,617
----------------
Net Assets 100.0%............................................... $2,229,801,889
================

At May 31, 1996, the net unrealized depreciation based on the cost of
investments for income tax purposes of $2,256,447,094 was as follows:
Aggregate gross unrealized appreciation for all investments in which there
was an excess of value over tax cost...................................... $ 80,045,479
Aggregate gross unrealized depreciation for all investments in which there
was an excess of tax cost over value..................................... (109,487,301)
----------------
Net unrealized depreciation.............................................. $ (29,441,822)
================

PORTFOLIO ABBREVIATIONS:
FRN - Floating Rate Notes
L.P. - Limited Partnership
PIK - Payment-in-Kind
S.F. - Sinking Fund

aNon-income producing.

bPurchased in a private placement transaction; resale may only be to qualified
institutional buyers.

cSee Note 7 regarding defaulted securities.

dSee Note 9 regarding holdings of 5% voting securities.

eFace amount for repurchase agreements is for the underlying collateral. See
Note 1(g) regarding joint repurchase agreement.

fFace amount is stated in foreign currency and value is stated in U.S. dollars.

gSee Note 1(a) regarding restricted securities.

hSee Note 1(h) regarding securities purchased on a when-issued basis.

The accompanying notes are an integral part of these financial statements.
</TABLE>

AGE HIGH INCOME FUND, INC.

Financial Statements

Statement of Assets and Liabilities
May 31, 1996

Assets:
<S> <C>
Investments in securities, at value (identified cost $2,156,207,849).......................... $2,126,766,027
Receivables from repurchase agreements, at value and cost..................................... 100,239,245
Receivables:
Dividend and interest........................................................................ 45,522,851
Capital shares sold.......................................................................... 5,694,553
----------------
Total assets............................................................................. 2,278,222,676
----------------
Liabilities:
Payables:
Investment securities purchased on a when-issued basis (Note 1).............................. 42,898,903
Capital shares repurchased................................................................... 4,075,974
Management fees.............................................................................. 857,204
Distribution fees............................................................................ 366,897
Shareholder servicing costs.................................................................. 109,151
Accrued expenses and other liabilities........................................................ 112,658
----------------
Total liabilities........................................................................ 48,420,787
----------------
Net assets, at value........................................................................... $2,229,801,889
================
Net assets consist of:
Undistributed net investment income........................................................... $ 9,555,454
Unrealized depreciation on investments and translation of assets and liabilities
denominated in foreign currencies............................................................. (29,601,969)
Net realized loss from investments and foreign currency transactions.......................... (384,272,949)
Class I capital shares........................................................................ 2,588,051,055
Class II capital shares....................................................................... 46,070,298
----------------
Net assets, at value........................................................................... $2,229,801,889
================
Class I Shares:
Net assets, at value.......................................................................... $2,183,738,107
================

Shares outstanding............................................................................ 784,036,078
================
Net asset value per share*................................................................. $2.79
================
Maximum offering price per share (100/95.75 of $2.79)......................................... $2.91
================
Class II Shares:
Net assets, at value.......................................................................... $ 46,063,782
================
Shares outstanding............................................................................ 16,520,811
================
Net asset value per share*.................................................................... $2.79
================
Maximum offering price per share (100/99 of $2.79)........................................... $2.82
================
*Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.

The accompanying notes are an integral part of these financial statements.
</TABLE>

AGE HIGH INCOME FUND, INC. Financial Statements (cont.)

Statement of Operations
for the year ended May 31, 1996

Investment income:
<S> <C>
Interest (Note 1).............................................................. $197,081,747
Dividends...................................................................... 4,786,661
---------------
Total income.............................................................. $201,868,408
Expenses:
Management fees (Note 5)....................................................... 9,614,852
Distribution fees - Class I (Note 5)........................................... 1,966,407
Distribution fees - Class II (Note 5).......................................... 126,826
Shareholder servicing costs (Note 5)........................................... 1,232,502
Reports to shareholders........................................................ 1,058,888
Custodian fees................................................................. 173,427
Registration and filling fees.................................................. 125,642
Professional fees.............................................................. 97,017
Directors' fees and expenses................................................... 74,139
Other.......................................................................... 56,323
----------------
Total expenses............................................................ 14,526,023
----------------
Net investment income.................................................... 187,342,385
----------------
Realized and unrealized gain (loss) from investments and foreign currency:
Net realized gain (loss) on:
Investments................................................................... (7,780,450)
Foreign currency transactions................................................. 83,301
Net unrealized appreciation (depreciation) on:
Investments................................................................... 28,559,790
Translation of assets and liabilities denominated in foreign currency......... (233,678)
----------------
Net realized and unrealized gain from investments and foreign currency.......... 20,628,963
----------------
Net increase in net assets resulting from operations............................ $207,971,348
================

The accompanying notes are an integral part of these financial statements.
</TABLE>

AGE HIGH INCOME FUND, INC. Financial Statements (cont.)

Statements of Changes in Net Assets
for the years ended May 31, 1996 and 1995

1996 1995
------------ -----------
Increase (decrease) in net assets:
Operations:
Net investment income.................... $ 187,342,385 $ 172,668,215
Net realized loss from investments
and foreign currency transactions.... (7,697,149) (4,004,670)

Net unrealized appreciation on
investments and translation of assets
and liabilities denominated in foreign
currency............................ 28,326,112 55,295,775
------------- ------------
Net increase in net assets resulting
from operations...................... 207,971,348 223,959,320

Distributions to shareholders from
undistributed net investment income:
Class I.... ........................... (192,694,968) (176,150,325)
Class II............................... (1,595,105)

Increase in net assets from capital
share transactions (Note 3)............. 306,555,171 44,275,805
------------- ------------
Net increase in net assets......... 320,236,446 92,084,800
Net assets:
Beginning of year....................... 1,909,565,443 1,817,480,643
------------- ------------
End of year (including undistributed
net investment income of $9,472,153
and $16,419,841, respectively)......... $2,229,801,889 $1,909,565,443
============== ==============

The accompanying notes are an integral part of these financial statements.

AGE HIGH INCOME FUND, INC.

Notes to Financial Statements

1. SIGNIFICANT ACCOUNTING POLICIES

AGE High Income Fund, Inc. (the Fund) is an open-end, diversified management
investment company (mutual fund) registered under the Investment Company Act of
1940, as amended. The Fund seeks to provide a high level of current income while
seeking capital appreciation.

The Fund offers two classes of shares, Class I and Class II. Class I shares are
sold with a higher front-end sales charge than Class II shares. Each class of
shares may be subject to a contingent deferred sales charge and has the same
rights, except with respect to the effect of the respective sales charges, the
distribution fees borne by each class, voting rights on matters affecting a
single class and the exchange privilege of each class.

The offering of Class II shares began May 16, 1995, at which time all previously
outstanding shares became Class I shares. Realized and unrealized gains or
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.

The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles for
investment companies.

a. Security Valuation:

Portfolio securities listed on a securities exchange or on the NASDAQ for which
market quotations are readily available are valued at the last sale price or, if
there is no sale price, within the range of the most recent quoted bid and asked
prices. Other securities are valued based on a variety of factors, including
yield, risk, maturity, trade activity and recent developments related to the
securities. The Fund may utilize a pricing service, bank or broker/dealer
experienced in such matters to perform any of the pricing functions, under
procedures approved by the Board of Directors (the Board). Securities for which
market quotations are not available, and securities restricted as to resale, are
valued in accordance with procedures established by the Board.

The value of a foreign security is determined as of the earlier of the close of
trading on the foreign exchange on which it is traded or the close of trading on
the New York Stock Exchange. That value is then converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at noon, New York time, on the
day the value of the foreign security is determined. If no sale is reported at
that time, the mean between the current bid and asked prices is used.
Occasionally, events which affect the values of foreign securities and foreign
exchange rates may occur between the times at which they are determined and the
close of the exchange and will, therefore, not be reflected in the computation
of the Fund's net asset value, unless material. If events which materially
affect the value of these foreign securities occur during such period, these
securities will be valued in accordance with procedures established by the
Board.

b. Income Taxes:

The Fund intends to continue to qualify for the tax treatment applicable to
regulated investment companies under the Internal Revenue Code and to make the
requisite distributions to its shareholders which will be sufficient to relieve
it from income and excise taxes.

c. Security Transactions:

Security transactions are accounted for on the date the securities are purchased
or sold (trade date). Realized gains and losses on security transactions are
determined on the basis of specific identification.

d. Investment Income, Expenses and Distributions:

Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income and estimated expenses are accrued daily.
Original issue discount is amortized as required by the Internal Revenue Code.

1. SIGNIFICANT ACCOUNTING POLICIES (cont.)

d. Investment Income, Expenses and Distributions: (cont.)

Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions - see Note 7. Net realized capital gains and losses differ for
financial statement and tax purposes primarily due to differing treatment of
foreign currency transactions.

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 expenses during the reporting
period. Actual results could differ from those estimates.

f. Foreign Currency Translation:

The accounting records of the Fund are maintained in U.S. dollars. All assets
and liabilities denominated in foreign currencies are translated into U.S.
dollars at the rate of exchange of the currencies against U.S. dollars on the
valuation date. Purchases and sales of securities, income and expenses are
translated at the rate of exchange quoted on the day that the transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are recognized when reported by the custodian.

The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from fluctuations arising
from changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.

Realized foreign exchange gains or losses arise from sales and maturities of
short-term securities, sales of foreign currencies, gains or losses realized
between the trade and settlement dates on security transactions, the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized appreciation or depreciation on
translation of assets and liabilities denominated in foreign currencies arises
from changes in the value of assets and liabilities, other than investments in
securities at the end of the reporting period, resulting from changes in
exchange rates.

g. Repurchase Agreement:

The Fund may enter into a joint repurchase agreement whereby its uninvested cash
balance is deposited into a joint cash account to be used to invest in one or
more repurchase agreements with government securities dealers recognized by the
Federal Reserve Board and/or member banks of the Federal Reserve System. The
value and face amount of the joint repurchase agreement are allocated to the
Fund based on its pro-rata interest.

A repurchase agreement is accounted for as a loan by the Fund to the seller,
collateralized by underlying U.S. government securities, which are delivered to
the Fund's custodian. The market value, including accrued interest, of the
initial collateralization is required to be at least 102% of the dollar amount
invested by the Fund, with the value of the underlying securities marked to
market daily to maintain coverage of at least 100%. At May 31, 1996, all
outstanding repurchase agreements held by the Fund had been entered into on that
date.

h. Securities Purchased on a When-Issued or Delayed Delivery Basis:

The Fund may trade securities on a when issued or delayed delivery basis, with
payment and delivery scheduled for a future date. These transactions are subject
to market fluctuations and are subject to the risk that the value at delivery
may be more or less than the trade date purchase price. Although the Fund will
generally purchase these securities with the intention of holding the
securities, it may sell the securities before the settlement date. These
securities are identified on the accompanying Statement of Investments in
Securities and Net Assets.

2. DISTRIBUTIONS AND CAPITAL LOSS CARRYOVERS

At May 31, 1996, for tax purposes, the Fund had capital loss carryovers as
follows:

Expiring in: 1997 $ 163,832
1998 85,786,601
1999 192,912,531
2000 63,753,106
2001 14,304,993
2002 12,243,104
2003 4,606,276
-----------
$373,770,443
===========

In addition, from November 1, 1995 through May 31, 1996, the Fund incurred
approximately $10,493,762 of net realized capital losses. As permitted by tax
regulations, the Fund intends to elect to defer these losses and treat them as
having arisen in the year ended May 31, 1997.

Capital loss carryovers of $92,197,226 expired at May 31, 1996 and were
reclassified to paid-in-capital pursuant to Statement of Position (SOP) 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies.

For tax purposes, the aggregate cost of securities and unrealized depreciation
of the Fund are the same as for financial statement purposes at May 31, 1996.

3. CAPITAL STOCK

At May 31, 1996, there were 5,000,000,000 shares of $0.01 par value capital
stock authorized, of which 2,000,000,000 shares were designated as Class I and
2,000,000,000 shares were designated as Class II. Transactions in the Fund's
shares for the years ended May 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>

1996 1995
----------------------- -----------------------
Class I Shares: Shares Amount Shares Amount
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Shares sold................................... 231,372,319 $ 643,863,590 232,716,756 $617,790,468
Shares issued in reinvestment of distributions 29,097,278 80,632,284 27,202,050 71,798,174
Shares redeemed............................... (166,521,367) (463,301,557) (242,966,844) (646,022,281)
---------- ------------ ---------- -----------
Net increase.................................. 93,948,230 $ 261,194,317 16,951,962 $ 43,566,361
========== ============ ========== ===========
Class II Shares:*
Shares sold................................... 17,825,471 $ 49,705,233 257,620 $ 709,444
Shares issued in reinvestment of distributions 273,548 760,988 -- --
Shares redeemed............................... (1,835,828) (5,105,367) -- --
---------- ------------ ---------- -----------
Net increase ................................. 16,263,191 $ 45,360,854 257,620 $ 709,444
========== ============ ========== ===========
</TABLE>

*For the year ended May 31,1996 and the period May 16, 1995 (effective date) to
May 31,1995

4. PURCHASES AND SALES OF SECURITIES

Purchases and sales of securities (excluding purchases and sales of short-term
securities) for the year ended May 31, 1996 aggregated $636,558,346 and
$389,131,581, respectively.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

a. Management Agreement

Under the terms of a management agreement, Franklin Advisers, Inc. (Advisers),
provides investment advice, administrative services, office space and facilities
to the Fund, and receives fees computed monthly based on the net assets of the
Fund on the last day of the month as follows:

Annualized Fee Rate Month End Net Assets
------------------- ----------------------------------
0.625% First $100 million
0.50% Over $100 million, up to and including $250 million
0.45% Over 250 million

The terms of the management agreement provide that aggregate annual expenses of
the Fund be limited to the extent necessary to comply with the limitations set
forth in the laws, regulations and administrative interpretations of the states
in which the Fund's shares are registered. For the year ended May 31, 1996, the
Fund's expenses did not exceed these limitations.

b. Shareholders Services Agreement

Under the terms of a shareholder services agreement with Franklin/Templeton
Investors Services, Inc., (Investor Services) the Fund pays costs on a per
shareholder account basis. Shareholder servicing costs incurred by the Fund for
the year ended May 31, 1996, aggregated $1,232,502 of which $1,153,533 was paid
to Investor Services.

c. Distribution Plans and Underwriting Agreement

Under the terms of distribution plans pursuant to Rule 12b-1 of the Investment
Company Act of 1940 (the Plans), the Fund will reimburse Franklin/Templeton
Distributors, Inc., (Distributors) in an amount up to a maximum of .15% per
annum for Class I and .65% per annum for Class II, of the average daily net
assets of such class, for costs incurred in the promotion, offering and
marketing of the Fund's shares. The Plans do not permit nor require payments of
excess costs after termination. Fees incurred by the Fund under the Plans
aggregated $2,093,233 for the year ended May 31, 1996.

In its capacity as underwriter for the capital stock of the Fund, Distributors
receives commissions on sales of the Fund's capital stock. Commissions are
deducted from the gross proceeds received from the sale of the capital stock of
the Fund, and as such are not expenses of the Fund. Distributors may also make
payments, out of its own resources, to dealers for certain sales of the Fund's
shares. Commissions received by Distributors, the amounts paid to other dealers,
and any applicable contingent deferred sales charges for the year ended May 31,
1996, were as follows:

Total commissions received............................... $10,228,931
Paid to other dealers.................................... 10,248,833
Contingent deferred sales charge......................... 14,004

d. Other Affiliated Parties and Transactions

Certain officers and directors of the Fund are also officers and/or directors of
Distributors, Advisers, and Investor Services, all wholly-owned subsidiaries of
Franklin Resources, Inc.

6. RESTRICTED SECURITIES

A restricted security is a security which has not been registered with the
Securities and Exchange Commission pursuant to the Securities Act of 1933. The
Fund may purchase restricted securities through a private offering and they
cannot be sold without prior registration under the Securities Act of 1933
unless such sale is pursuant to an exemption therefrom. Subsequent costs of
registration of such securities are borne by the issuer. A secondary market
exists for certain privately placed securities. The Fund's restricted securities
are currently valued as disclosed in Note 1. At May 31, 1996, the Fund held
restricted securities with a value aggregating $15,492,817, representing .69% of
the Fund's net assets. Such securities are:

Shares Security Acquisition Date Cost Value
--------- ---------- ---------------- ----------- ----------
1,436,971 NVR, Inc. 6/16/87 $19,641,948 $15,267,817

Warrants
---------
120,000 NVR, Inc. 9/29/93 510,000 225,000

7. CREDIT RISK AND DEFAULTED SECURITIES

The Fund's portfolio is primarily invested in lower rated and comparable quality
unrated high yield securities. Investments in high yield securities are
accompanied by a greater degree of credit risk and such lower rated securities
tend to be more sensitive to economic conditions than higher rated securities.
The risk of loss due to default by the issuer may be significantly greater for
the holders of high yielding securities, because such securities are generally
unsecured and are often subordinated to other creditors of the issuer. At May
31, 1996, the Fund held three defaulted securities issued by three companies
with a value aggregating $9,859,750, representing .44% of the Fund's net assets.
For more information as to specific securities, see the accompanying Statement
of Investments in Securities and Net Assets.

For financial reporting purposes, it is the Fund's accounting practice to
discontinue accrual of income and provide an estimate for probable losses due to
unpaid interest income on defaulted bonds for the current reporting period.

8. OTHER CONSIDERATIONS

Advisers, as the Fund's Manager, may serve as a member of various credit
committees, representing credit interests in certain corporate restructuring
negotiations. Currently, Advisers serves on the credit committees for
Bucyrus-Erie and Grand Union. As a result of this involvement in these
committees, Advisers may be in possession of certain material non-public
information. Advisers has not sold nor does it intend to sell any of its
holdings in these securities while in possession of material non-public
information in contravention of the Federal Securities Laws.

9. HOLDINGS OF 5% VOTING SECURITIES OF PORTFOLIO COMPANIES

Investments in portfolio companies, 5% or more of whose outstanding voting
securities are held by the Fund, are defined in the Investment Company Act of
1940 as affiliated companies. The Fund had investments in such affiliated
companies at May 31, 1996, with a value in the amount of $41,235,675. For more
information as to specific securities, see the accompanying Statement of
Investments in Securities and Net Assets.

10. SUBSEQUENT EVENTS

On May 14, 1996 and June 18, 1996, the Board of Directors declared distributions
per share as follows:

From
Undistributed
Record Payment Net Investment
Date Date Income
------ ------ ----------
Class I............ 5/31 6/14 $0.022
Class II........... 5/31 6/14 0.0206

Class I............ 6/28 7/15 0.022
Class II........... 6/28 7/15 0.0207

11. FINANCIAL HIGHLIGHTS

Selected data for a share of capital stock outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>

Year ended May 31,
Class I Shares: 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Per Share Operating Performance
<S> <C> <C> <C> <C> <C>
Net asset value at beginning of period ........... $2.77 $2.70 $2.81 $2.72 $2.37
-------- -------- -------- -------- --------
Net investment income ............................ .25 .26 .27 .30 .31
Net realized and unrealized gain (loss)
on securities.................................... .034 .074 (.113) .054 .340
-------- -------- -------- -------- --------
Total from investment operations ................. .284 .334 .157 .354 .650
Less distributions from net investment income .... (.264) (.264) (.267) (.264) (.300)
-------- -------- -------- -------- --------
Net asset value at end of period ................. $2.79 $2.77 $2.70 $2.81 $2.72
======== ======== ======== ======== ========
TOTAL RETURN* .................................... 10.75% 13.34% 5.19% 13.33% 28.48%
Ratios/Supplemental Data
Net assets at end of period (in 000's) ........... $2,183,738 $1,908,853 $1,817,481 $1,935,919 $1,864,195
Ratio of expenses to average net assets .......... .70% .66% .59% .56% .58%
Ratio of net investment income to average net assets 9.07% 9.71% 9.61% 10.78% 12.18%
Portfolio turnover rate .......................... 19.87% 28.56% 42.32% 38.33% 43.70%

Class II Shares: 1996 1995**
-------- --------
Per Share Operating Performance
<S> <C> <C>
Net asset value at beginning of period ........... $2.77 $2.76
-------- --------
Net investment income ............................ .25 --
Net realized and unrealized gain
on securities.................................... .017 .010
-------- --------
Total from investment operations ................. .267 .010
Less distributions from net investment income .... (.247) --
-------- --------
Net asset value at end of period ................. $2.79 $2.77
======== ========
TOTAL RETURN* .................................... 10.06% .36%
Ratios/Supplemental Data
Net assets at end of period (in 000's) ........... $46,064 $713
Ratio of expenses to average net assets .......... 1.25% 1.14%+
Ratio of net investment income to average net assets 8.50% 6.91%+
Portfolio turnover rate .......................... 19.87% 28.56%
</TABLE>

*Total return measures the change in value of an investment over the periods
indicated. It is not annualized. It does not include the maximum front-end sales
charge or the contingent deferred sales charge, and assumes reinvestment of
dividends and capital gains, if any, at net asset value. Prior to May 1, 1994,
dividends were reinvested at the maximum offering price, and capital gains at
net asset value. Effective May 1, 1994, with the implementation of the Rule
12b-1 distribution plan for Class I shares, the sales charge on reinvested
dividends was eliminated.

**For the period May 16, 1995 (effective date) to May 31, 1995.

+Annualized

The percentage of income dividends paid by the Fund during the fiscal year ended
May 31, 1996, which qualified for the 70% dividends received deduction, was
2.29%. The Fund hereby designates these amounts as dividends qualifying for the
dividends received deductions under Internal Revenue Code Section 854(b)(2).

AGE HIGH INCOME FUND, INC.

Report of Independent Auditors

To the Shareholders and Board of Directors of AGE High Income Fund, Inc.

We have audited the accompanying statement of assets and liabilities of the AGE
High Income Fund, Inc. (the Fund), including the statement of investments in
securities and net assets, as of May 31, 1996, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods presented thereon. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of May 31, 1996, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the periods presented thereon,
in conformity with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

San Francisco, California
July 3, 1996

Franklin's AGE High Income Fund Annual Report 5/31/96.

APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL OMITTED FROM EDGAR FILING
(PURSUANT TO ITEM 304 (a) OF REGULATION S-T)

GRAPHIC MATERIAL (1)

This chart shows in pie chart format the asset allocation of the fund's
securities by asset class based on total net assets.

<TABLE>
<CAPTION>
Asset Allocation by Asset Class on 5/31/96
<S> <C>
Bonds 87.7%
Equities 7.6%
Short-Term Obligations & 4.7%
Other Net Assets
</TABLE>

GRAPHIC MATERIAL (2)

The following line graph hypothetically compares the performance of the fund's
Class I Shares with the CS First Boston High Yield Index, based on a $10,000
investment from 6/1/86 to 5/31/96.

<TABLE>
<CAPTION>
Period Ending Fund Index
<S> <C> <C>
6/1/86 $ 9,575 $ 10,000
Jun-86 $ 9,679 $ 10,000
Jul-86 $ 9,528 $ 10,000
Aug-86 $ 9,686 $ 10,000
Sep-86 $ 9,689 $ 10,000
Oct-86 $ 9,929 $ 10,000
Nov-86 $ 9,851 $ 10,000
Dec-86 $ 9,894 $ 10,000
Jan-87 $ 10,291 $ 10,000
Feb-87 $ 10,499 $ 10,000
Mar-87 $ 10,571 $ 10,000
Apr-87 $ 10,308 $ 10,000
May-87 $ 10,127 $ 10,000
Jun-87 $ 10,259 $ 10,000
Jul-87 $ 10,276 $ 10,000
Aug-87 $ 10,381 $ 10,000
Sep-87 $ 10,046 $ 10,000
Oct-87 $ 9,557 $ 10,000
Nov-87 $ 9,906 $ 10,000
Dec-87 $ 10,016 $ 10,000
Jan-88 $ 10,434 $ 10,000
Feb-88 $ 10,763 $ 10,000
Mar-88 $ 10,656 $ 10,000
Apr-88 $ 10,771 $ 10,000
May-88 $ 10,822 $ 10,000
Jun-88 $ 10,971 $ 10,000
Jul-88 $ 11,122 $ 10,000
Aug-88 $ 11,075 $ 10,000
Sep-88 $ 11,129 $ 10,000
Oct-88 $ 11,318 $ 10,000
Nov-88 $ 11,407 $ 10,000
Dec-88 $ 11,428 $ 10,000
Jan-89 $ 11,658 $ 10,000
Feb-89 $ 11,644 $ 10,000
Mar-89 $ 11,629 $ 10,000
Apr-89 $ 11,579 $ 10,000
May-89 $ 11,638 $ 10,000
Jun-89 $ 11,844 $ 10,000
Jul-89 $ 11,866 $ 10,000
Aug-89 $ 11,851 $ 10,000
Sep-89 $ 11,682 $ 10,000
Oct-89 $ 11,163 $ 10,000
Nov-89 $ 11,070 $ 10,000
Dec-89 $ 11,014 $ 10,000
Jan-90 $ 10,634 $ 10,000
Feb-90 $ 10,251 $ 10,000
Mar-90 $ 10,483 $ 10,000
Apr-90 $ 10,449 $ 10,000
May-90 $ 10,756 $ 10,000
Jun-90 $ 11,022 $ 10,000
Jul-90 $ 11,293 $ 10,000
Aug-90 $ 10,596 $ 10,000
Sep-90 $ 9,844 $ 10,000
Oct-90 $ 9,126 $ 10,000
Nov-90 $ 9,321 $ 10,000
Dec-90 $ 9,423 $ 10,000
Jan-91 $ 9,623 $ 10,000
Feb-91 $ 10,695 $ 10,000
Mar-91 $ 11,343 $ 10,000
Apr-91 $ 11,850 $ 10,000
May-91 $ 11,931 $ 10,000
Jun-91 $ 12,316 $ 10,000
Jul-91 $ 12,706 $ 10,000
Aug-91 $ 13,049 $ 10,000
Sep-91 $ 13,290 $ 10,000
Oct-91 $ 13,746 $ 10,000
Nov-91 $ 13,831 $ 10,000
Dec-91 $ 13,972 $ 10,000
Jan-92 $ 14,441 $ 10,000
Feb-92 $ 14,750 $ 10,000
Mar-92 $ 15,039 $ 10,000
Apr-92 $ 15,163 $ 10,000
May-92 $ 15,400 $ 10,000
Jun-92 $ 15,469 $ 10,000
Jul-92 $ 15,768 $ 10,000
Aug-92 $ 16,011 $ 10,000
Sep-92 $ 16,197 $ 10,000
Oct-92 $ 15,915 $ 10,000
Nov-92 $ 16,105 $ 10,000
Dec-92 $ 16,296 $ 10,000
Jan-93 $ 16,671 $ 10,000
Feb-93 $ 16,926 $ 10,000
Mar-93 $ 17,183 $ 10,000
Apr-93 $ 17,320 $ 10,000
May-93 $ 17,519 $ 10,000
Jun-93 $ 17,908 $ 10,000
Jul-93 $ 18,111 $ 10,000
Aug-93 $ 18,187 $ 10,000
Sep-93 $ 18,264 $ 10,000
Oct-93 $ 18,795 $ 10,000
Nov-93 $ 18,873 $ 10,000
Dec-93 $ 19,170 $ 10,000
Jan-94 $ 19,580 $ 10,000
Feb-94 $ 19,393 $ 10,000
Mar-94 $ 18,532 $ 10,000
Apr-94 $ 18,411 $ 10,000
May-94 $ 18,493 $ 10,000
Jun-94 $ 18,506 $ 10,000
Jul-94 $ 18,590 $ 10,000
Aug-94 $ 18,745 $ 10,000
Sep-94 $ 18,830 $ 10,000
Oct-94 $ 18,915 $ 10,000
Nov-94 $ 18,714 $ 10,000
Dec-94 $ 18,874 $ 10,000
Jan-95 $ 19,035 $ 10,000
Feb-95 $ 19,787 $ 10,000
Mar-95 $ 19,951 $ 10,000
Apr-95 $ 20,491 $ 10,000
May-95 $ 20,960 $ 10,000
Jun-95 $ 21,128 $ 10,000
Jul-95 $ 21,528 $ 10,000
Aug-95 $ 21,621 $ 10,000
Sep-95 $ 21,793 $ 10,000
Oct-95 $ 21,966 $ 10,000
Nov-95 $ 22,061 $ 10,000
Dec-95 $ 22,397 $ 10,000
Jan-96 $ 22,816 $ 10,000
Feb-96 $ 22,995 $ 10,000
Mar-96 $ 22,848 $ 10,000
Apr-96 $ 22,947 $ 10,000
May-96 $ 23,213 $ 10,000
CUM TR 132.13% 0.00%
</TABLE>

GRAPHIC MATERIAL (3)

The following line graph hypothetically compaires the performance of the fund's
Class II Shares with the CS First Boston High Yield Index, based on a $10,000
investment from 5/16/95 to 5/31/96.

<TABLE>
<CAPTION>
Period Ending Fund Index
<S> <C> <C>
5/16/95 $9,892 $ 10,000
May-95 $9,928 $ 10,000
Jun-95 $10,004 $ 10,000
Jul-95 $10,186 $ 10,000
Aug-95 $10,223 $ 10,000
Sep-95 $10,297 $ 10,000
Oct-95 $10,373 $ 10,000
Nov-95 $10,412 $ 10,000
Dec-95 $10,565 $ 10,000
Jan-96 $10,756 $ 10,000
Feb-96 $10,835 $ 10,000
Mar-96 $10,760 $ 10,000
Apr-96 $10,840 $ 10,000
May-96 $10,828 $ 10,000
CUM TR 8.28% 0.00%
</TABLE>