Annual
Report
May 31, 1998
Franklin's AGE High Income Fund
Thank you for investing with Franklin Templeton. We encourage our investors to
maintain a long-term perspective, and to expect that mixed in with the good
years can be some bad years. It's important to 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.
CONTENTS
Shareholder Letter........................................ 1
Manager's Discussion...................................... 3
Performance Summary
Class I.................................................. 8
Class II................................................. 12
Advisor Class............................................ 16
Bond Ratings.............................................. 20
Financial Highlights &
Statement of Investments.................................. 23
Financial Statements...................................... 34
Notes to
Financial Statements...................................... 37
Independent
Auditor's Report.......................................... 42
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin's AGE High Income Fund's annual report for
the period ended May 31, 1998.
The U.S. economy remained strong over the fund's reporting period as measured by
1998's first quarter, annualized Gross Domestic Product gain of 5.4%. Investors'
favorable reaction to first quarter corporate earnings pushed stock prices
generally higher in the month of May. Although overall corporate earnings
increases were lower than in recent quarters, they generally exceeded
expectations.
The reporting period closed with President Clinton's prediction of a $39 billion
federal budget surplus for the government's fiscal year-end on September 30,
1998. This would be the first annual surplus since the government finished $3.2
billion ahead in 1969. During the fund's fiscal year, economic growth benefited
employment without triggering significant inflation. April's figure of 4.3%
marked a 28-year low in the nation's unemployment rate; in May, commodity prices
fell to their lowest levels since the early 1990s.
Over the year interest rates declined. However, for the first quarter of 1998,
the combination of a strong economy and low inflation kept interest rates in a
narrow range. The healthy economy prevented significant rate decline, while low
inflation prevented rates from rising. The yield for the 30-year U.S. Treasury
bond stood at 5.81% on May 31, 1998, compared with 6.92% a year earlier.
High yield, lower-rated bonds, the primary type of security in which the fund
invests, are driven as much by the finances of the underlying companies as by
interest rate movements. Thus, their performance falls somewhere between that of
stocks and that of high-grade corporate bonds.# Not only do high yield,
lower-rated securities generally offer premium returns compared with other
income securities, they also tend to fare well against U.S. Treasury and
municipal bonds.1 In strong years, such as 1993 and 1995, they matched or
exceeded the returns of the other sectors; whereas, in weak bond market years,
such as 1994, they held their own. Franklin's AGE High Income Fund's research
department emphasizes stringent, fundamental analysis, preceding each purchase,
in an effort to ensure that investors will receive superior returns on
investment, while attempting to reduce the credit and interest rate risk
associated with these securities.
We encourage you to discuss your financial goals with an investment
representative. He or she can address concerns about volatility and help you
diversify your investments and stay focused on the long term. Mutual funds offer
a level of diversification that is almost impossible for individual investors to
achieve on their own. High yield bonds continue to be an attractive investment
for diversifying a heavily weighted stock portfolio 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,
Rupert H. Johnson, Jr.
President
Franklin's AGE High Income Fund
1. The value of Treasuries, if held to maturity, is fixed; principal is
guaranteed and interest is fixed. Investment return and share price of
Franklin's AGE High Income Fund fluctuate with market conditions.
"Franklin's AGE High Income Fund's research department emphasizes stringent,
fundamental analysis ... ."
MANAGERS' 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.
Overview
We are pleased to report that for the 12-month period ended May 31, 1998,
Franklin's AGE High Income Fund produced a 12.32% cumulative total return to
Class I shareholders, as discussed in the performance summary on page 8. The
fund continued to outperform its benchmark index -- the unmanaged CS First
Boston High Yield Index -- which returned 12.25% for the reporting period.
During the 12 months under review, high yield bonds performed well, thanks to
favorable domestic economic conditions. The yield on the 30-year Treasury bond
fell from 6.92% on May 31, 1997, to 5.81% on May 31, 1998. In addition,
unemployment and inflation rates declined moderately, and the Dow Jones(R)
Industrial Average* increased more than 1500 points, from 7331.04 on May 31,
1997, to 8899.95 on May 31, 1998. This increase in economic activity, combined
with a decline in interest rates and benign inflation, positively impacted
corporate profits, which in turn, benefited high yield corporate bonds.
*The Dow Jones Industrial Average is a price-weighted average of 30 actively
traded blue chip stocks.
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Portfolio Update
Wireless Communication
Rapid subscriber growth remained a central theme during the reporting period, as
wireless companies sought to expand revenue bases in an increasingly competitive
environment. In general, the growing number of new entrants in each product and
geographical market lowered the price of service, as more companies competed for
market share. However, price declines made service more affordable for the
consumer, and subsequent increases in subscriber growth translated into a larger
revenue pie overall. During the period under review, we focused on specific
companies that we believed had superior business strategies, or which were
relatively sheltered from competition. Our holdings in Paging Network, Inc.
(Page Net), Nextel Communications and Sygnet Wireless, Inc., in particular, are
representative of this focus, and stand out as solid performers over the
reporting period. Nextel Communications, a leading wireless company, experienced
excellent subscriber growth in the market's business-user segment. This area
generally consists of higher-usage, higher-margin subscribers. Sygnet Wireless
also went through a period of strong growth, primarily due to its ability to
sustain pricing power as a leader in the comparatively less competitive rural
cellular markets. And lastly, in the paging sector, PageNet contributed a
healthy return, thanks largely to its ability to maintain its low cost structure
and pricing power.
Media and Broadcasting
In general, media and broadcasting companies benefited from a strong economy and
a healthy advertising environment during the reporting period. Consolidation in
both industries continued, manifested by increased merger activity, which
created larger, more diversified corporations. Consequently, we focused on
companies that we believed would benefit from consolidation trends. In the
broadcasting sector, the addition of LIN Television Corp., a large television
company with an aggressive consolidation strategy, contributed to the fund's
performance.
Gaming & Leisure
Consolidation was also a major theme in the gaming and leisure industries. One
such example among our holdings is Premier Parks, Inc., the largest regional
theme park operator in the U.S. Premier Parks has been successful in realizing
operating synergies from its acquisition of Six Flags Theme Parks. Their use of
the Six Flags brand name should help the company, moving forward.
Cable Television
Over the reporting period, domestic cable companies posted solid results, due to
rate increases, growth in the overall subscriber base and expansion of service
areas and offered services. The fund profited from the purchases of NTL, Inc.
and Telewest Plc., two of the British cable industry's larger consolidators.
Longer-term, the companies that increase market penetration through successful
merger and acquisition strategies should offer attractive opportunities.
Telecommunications
After a period of uncertainty regarding the impact of deregulation, the
regulatory environment in the domestic telecommunications industry is becoming
more defined. Deregulatory change in the wake of the 1996 Telecommunications Act
is accelerating as barriers to entry in domestic markets fall. In these
circumstances, we focused on companies that we believe are poised to take
advantage of increased competition. So far, new entrants to the market, mainly
represented by the competitive local exchange carriers (CLECs), have shown
significant progress in capturing market share from the larger incumbent
providers, such as the regional bell operating companies (RBOCs). This is
demonstrated by the CLECs' strong subscriber growth and service area expansion.
In addition to increased competition during the reporting period, Internet usage
growth drove business and residential customers' demand for data transmission
services. This positively impacted several of the fund's holdings, particularly
our positions in IntelCom Group, Inc. and Intermedia Communications.
Top Five Issues on 5/31/98
Company % of Total
(INDUSTRY)Net Assets
Nextel Communications, Inc. 1.53%
(WIRELESS COMMUNICATION)
Nextel is transforming itself from a radio dispatch company to
a major cellular phone company. Nextel service areas are
expected to cover 85% of the U.S. population by 1998.
The company also has licenses in Canada, Asia and Latin America.
CSC Holdings Inc. 1.50%
(CABLE TELEVISION)
Cablevision Systems is the nation's sixth largest
cable television provider, with about 3.3 million subscribers.
Through subsidiary Rainbow Media Holdings,
Cablevision owns cable channels, regional SportsChannels
and 90% of Madison Square Garden, which includes
the New York Knicks basketball team and
the New York Rangers hockey team.
Nextlink Communications, Inc. 1.27%
(TELECOMMUNICATIONS)
Nextlink Communications is a
competitive local-exchange carrier that offers
switched local and long-distance services, primarily to
small and medium-sized businesses. Nextlink uses
its own fiber-optic networks to provide services in
26 markets in eight states, includ-
ing California, Illinois, Nevada,
Pennsylvania and Tennessee.
Anchor Glass Container Corp. 1.20%
(CONTAINERS/PACKAGING)
Anchor Glass is the third largest manufacturer of glass
containers for consumer products in the U.S. Anchor
Glass is a subsidiary of Canadian glass
manufacturer Consumers Packaging, Inc.
Allied Waste Industries, Inc./ 1.16%
Allied Waste North America, Inc.
(INDUSTRIAL)
Allied Waste is a non-hazardous solid waste management company.
The company conducts operations in 18 states located in the Midwest,
Northeast, Southeast and Southwest United States. Allied Waste
provides its services through a network of 81 collection companies,
43 transfer stations, 56 landfills and 21 recycling facilities.
Health Care
During the reporting period, strong demographic trends benefited the health care
industry, as an aging "baby boomer" population sustained its demand for
increased health care services. Technology advances also contributed to higher
health care expenditures, which continue to rise in a long-term growth trend. In
the long-term care sector, the consolidation trend characterized the period,
resulting in strong top-line growth as well as margin growth for many companies
in this expanding market segment. Additionally, strong asset values encouraged
many health care companies to improve their balance sheets by selling assets to
reduce debt. For example, one of the fund's holdings, Vencor, Inc., took
advantage of its operating company's strong asset value by spinning it off into
a real estate investment trust (REIT). As a result of this spin-off, Vencor
tendered its senior subordinated notes at a premium, which led to a high total
return on these notes for the fund.
Industrial
The fund's assets in the industrial sector performed well over the period, due
to strong showings in individual securities such as Nortek, Inc. and Allied
Waste Industries, Inc.. Strength in the building cycle, building products and
HVAC (heating, ventilation and air conditioning) market benefited Nortek, a
diversified building product manufacturer, as did the company's expansion of its
distribution channels into do-it-yourself chains. In addition, Nortek benefited
from the successful integration of Ply Gen and Nutone, two acquisitions made
during the period. Allied Waste also experienced strong operating performance,
augmented by its capable management team and sound acquisition strategy. During
the reporting period, Allied Waste's purchase of Laidlaw's solid waste assets
and its success in realizing operating efficiencies by integrating operations
and spinning off non-core divisions contributed largely to its success.
Looking Forward
We hold a positive outlook for the high yield bond market, in general, and for
Franklin's AGE High Income Fund, in particular. The domestic economy's growth
remained strong over the first quarter of 1998 and recent economic data suggests
moderate growth and benign inflation with relatively stable interest rates. The
fact that the Federal Open-Market Committee left rates unchanged on its May 19
meeting is a positive sign, and we believe that rate stability is likely for the
near term. If this environment persists, high-yield corporate bonds should
remain attractive investments over the short to intermediate term.
Please remember, this discussion reflects our views, opinions and portfolio
holdings as of May 31, 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 historic
performance is no guarantee of future results, these insights may help you
understand our investment and management philosophy.
Sincerely,
Christopher J. Molumphy
Senior Portfolio Manager
Franklin's AGE High Income Fund
PERFORMANCE SUMMARY
Class I
Franklin's AGE High Income Fund - Class I share price, as measured by net asset
value, increased 8 cents, from $2.90 on May 31, 1997, to $2.98 on May 31, 1998.
During the 12-month reporting period, shareholders received income distributions
totaling 26.4 cents ($0.264) per share. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Based on an annualization of May's monthly per-share dividend of 2.2 cents
($0.022) and the maximum offering price of $3.11 on May 31, 1998, your fund's
distribution rate was 8.49%.
Your fund posted a cumulative total return of +12.32% for the 12-month period
ended May 31, 1998. Cumulative total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include the
sales charge.
The chart on page 10 compares your fund's Class I shares' performance with that
of the unmanaged CS First Boston High Yield (FBHY) Index. The FBHY index
includes over 1,400 high yield corporate securities rated split-BBB and lower by
Standard & Poor's(R) bond rating service. Of course, such market indices have
inherent performance differentials over any fund. They do not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the maximum
initial sales charge, all fund expenses and account fees. If operating expenses
such as Franklin's AGE High Income Fund's 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 one cannot invest in it directly.
GRAPHIC MATERIAL 2 OMITTED - SEE APPENDIX AT END OF DOCUMENT
GRAPHIC MATERIAL 3 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The historical performance data shown pertains only to the fund's Class I
shares. The fund offers other share classes subject to different fees and
expenses, which affect their performance. Please see the prospectus for more
details.
*Includes the sales charge and represents the change in value of an investment
over the period shown. Total return assumes reinvestment of dividends and
capital gains at net asset value. Index is unmanaged and includes reinvested
dividends. One cannot invest directly in an index.
**Source: Standard & Poor's Micropal.
Class I
Periods ended 5/31/98
Since
Inception
1-Year 5-Year 10-Year (12/31/69)
Cumulative Total Return1 12.32% 69.79% 174.87% 1,061.48%
Average Annual Total Return 27.50% 10.24% 10.16% 8.84%
Value of $10,000 Investment3 $10,750 $16,284 $26,316 $111,119
Distribution Rate4 8.49%
30-Day Standardized Yield5 7.99%
5/31/94 5/31/95 5/31/96 5/31/97 5/31/98
One-Year
Total Return6 5.56% 13.34% 10.75% 14.09% 12.32%
1. Cumulative total return measures the change in value of an investment over
the periods indicated and does not include the sales charge.
2. Average annual total return represents the average annual change in value of
an investment over the periods indicated and includes the current, maximum 4.25%
initial sales charge.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include the sales charge.
4. Distribution rate is based on an annualization of May's 2.2 cent per share
monthly dividend and the maximum offering price of $3.11 on May 31, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 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 returns represent the change in value of an investment over
the periods ended on the specified dates and do not include the sales charge.
Prior to July 1, 1994, fund shares were offered at a lower initial sales charge
with dividends reinvested at the offering price. Thus, actual total returns
would 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.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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.
GRAPHIC MATERIAL 4 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Class II
Franklin's AGE High Income Fund - Class II share price, as measured by net asset
value, increased 8 cents, from $2.90 on May 31, 1997, to $2.98 on May 31, 1998.
During the 12-month reporting period, shareholders received income distributions
totaling 24.77 cents ($0.2477) per share. Distributions will vary based on the
earnings of the fund's portfolio, and past distributions are not predictive of
future trends.
Based on an annualization of May's monthly per-share dividend of 2.06 cents
($0.0206) and the maximum offering price of $3.01 on May 31, 1998, your fund's
distribution rate was 8.21%.
Your fund posted a cumulative total return of +11.69% for the 12-month period
ended May 31, 1998. Cumulative total return measures the change in value of an
investment, assuming reinvestment of all distributions, and does not include
sales charges.
The chart on page 14 compares your fund's Class II shares' performance with that
of the unmanaged CS First Boston High Yield (FBHY) Index. The FBHY index
includes over 1,400 high yield corporate securities rated split-BBB and lower by
Standard & Poor's bond rating service. Of course, such market indices have
inherent performance differentials over any fund. They do not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes the sales
charges, all fund expenses and account fees. If operating expenses such as
Franklin's AGE High Income Fund's 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 one cannot invest in it directly.
GRAPHIC MATERIAL 5 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The historical performance data shown pertains only to the fund's Class II
shares. The fund offers other share classes subject to different fees and
expenses, which affect their performance. Please see the prospectus for more
details.
*Includes sales charges and represents the change in value of an investment over
the period shown. The total value on 5/31/98 reflects the contingent deferred
sales charge (CDSC), assuming the account is liquidated on that date. Purchasers
who remain in the account for longer than 18 months will not be assessed the
CDSC; thus total return may be higher. Index is unmanaged and includes
reinvested dividends. One cannot invest directly in an index.
**Source: Standard & Poor's Micropal. Class II Periods ended 5/31/98
Since
Inception
1-Year 3-Year (5/16/95)
Cumulative Total Return1 11.69% 39.42% 39.92%
Average Annual Total Return2 9.56% 11.31% 11.28%
Value of $10,000 Investment3 $10,956 $13,792 $13,842
Distribution Rate4 8.21%
30-Day Standardized Yield5 7.72%
1. Cumulative total return measures 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 1.0% initial sales
charge and the 1.0% contingent deferred sales charge, applicable to shares
redeemed within 18 months of investment.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated and include sales charges.
4. Distribution rate is based on an annualization of May's 2.06 cent per share
monthly dividend and the maximum offering price of $3.01 on May 31, 1998.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 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.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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.
GRAPHIC MATERIAL 6 OMITTED - SEE APPENDIX AT END OF DOCUMENT
Advisor Class
Franklin's AGE High Income Fund - Advisor Class share price, as measured by net
asset value, increased 8 cents, from $2.90 on May 31, 1997, to $2.98 on May 31,
1998. During the 12-month reporting period, shareholders received income
distributions totaling 26.76 cents ($0.2676) per share. Distributions will vary
based on the earnings of the fund's portolio, and past distributions are not
predictive of future trends.
Based on an annualization of May's monthly per-share dividend of 2.23 cents
($0.0223) and the net asset value price of $2.98 on May 31, 1998, your fund's
distribution rate was 8.98%.
For the 12-month period ended May 31, 1998, your fund posted a cumulative total
return of +12.46%. Cumulative total return measures the change in value of an
investment assuming reinvestment of all distributions.
The chart on page 18 compares your fund's Advisor Class shares' performance with
that of the unmanaged CS First Boston High Yield (FBHY) Index. The FBHY index
includes over 1,400 high yield corporate securities rated split-BBB and lower by
Standard & Poor's bond rating service. Of course, such market indices have
inherent performance differentials over any fund. They do not pay management
fees to cover salaries of securities analysts or portfolio managers, or pay
commissions or market spreads to buy and sell securities. Unlike an index,
mutual funds are never 100% invested because they need cash on hand to redeem
shares. In addition, the performance shown for the fund includes all fund
expenses and account fees. If operating expenses such as Franklin's AGE High
Income Fund's 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
one cannot invest in it directly.
GRAPHIC MATERIAL 7 OMITTED - SEE APPENDIX AT END OF DOCUMENT
The historical performance data shown pertains only to the fund's Advisor Class
shares. The fund offers other share classes subject to different fees and
expenses, which affect their performance. Please see the prospectus for more
details.
*Represents the change in value of an investment over the period shown. Total
return assumes reinvestment of dividends and capital gains at net asset value.
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 Class I expenses, including Rule 12b-1 fees;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Index is unmanaged and includes reinvested dividends. One cannot
invest directly in an index.
**Source:Standard &Poor's Micropal.
Advisor Class
Periods ended 5/31/98
Since
Inception
1-Year* 5-Year* 10-Year* (12/31/69)*
Cumulative Total Return1 12.46% 70.07% 175.31% 1,063.34%
Average Annual Total Return1 12.46% 11.20% 10.66% 9.02%
Value of $10,000 Investment2 $11,246 $17,007 $27,531 $116,334
Distribution Rate3 8.98%
30-Day Standardized Yield4 8.44%
5/31/94 5/31/95 5/31/96 5/31/97 5/31/98
One-Year
Total Return*,5 5.56% 13.34% 10.75% 14.09% 12.46%
*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 Class I expenses, including Rule 12b-1 fees;
and (b) for periods after January 1, 1997, figures reflect actual Advisor Class
performance, including the deduction of all fees and expenses applicable only to
that class. Since January 2, 1997 (commencement of sales), the cumulative total
return of Advisor Class shares was 16.88%.
1. Cumulative total return measures the change in value of an investment over
the periods indicated. Average annual total return represents the average annual
change in value of an investment over the periods indicated.
2. These figures represent the value of a hypothetical $10,000 investment in the
fund over the periods indicated.
3. Distribution rate is based on an annualization of May's 2.23 cent per share
monthly dividend and the net asset value price of $2.98 on May 31, 1998.
4. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended May 31, 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.
5. One-year total returns represent the change in value of an investment over
the periods ended on the specified dates.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. 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.
BOND RATINGS
Moody's
Aaa: Best quality. They carry the smallest degree of investment risk. Interest
payments are protected by a large or exceptionally stable margin, and principal
is secure. While various protective elements may change, such changes are most
unlikely to impair the fundamentally strong position of these issues.
Aa: High quality by all standards. Together with the Aaa group, they comprise
what are generally known as high-grade bonds. Aa bonds are rated lower than Aaa
because margins of protection may not be as large, fluctuation of protective
elements may be of greater amplitude, or there may be other elements which make
the long-term risks appear larger.
A: Considered upper-medium-grade obligations that possess many favorable
investment attributes. Security provisions are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa: Medium-grade obligations, i.e., they are neither highly protected nor
poorly secured. Interest payments and principal security appear adequate for the
present, but certain protective elements may be unreliable or lacking over any
great length of time.
Ba: Contain speculative elements. Often the protection of interest and principal
payments may be very moderate and, thereby, not well safeguarded during both
good and bad times over the future. Uncertainty of position characterizes these
bonds.
B: Generally lack characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract
over any long period of time may be small.
Caa: Poor standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca: Obligations which are highly speculative. Such issues are often in default
or have other marked shortcomings.
C: Lowest-rated class of bonds. Issues rated C can be regarded as having
extremely poor prospects of ever attaining any real investment standing.
S&P(R)
AAA: This is the highest rating assigned by S&P to a debt obligation and
indicates the ultimate degree of protection as to principal and interest.
AA: Also qualify as high-grade obligations, and, in the majority of instances,
differ from AAA issues only to a small degree.
A: Generally regarded as upper-medium grade. They have considerable investment
strength but are not entirely free from adverse effects of changes in economic
and trade conditions. Interest and principal are regarded as safe.
BBB: Regarded as having an adequate capacity to pay principal and interest.
Whereas BBB-rated issues normally exhibit adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to weaken
the capacity to pay principal and interest for these bonds than those rated A.
BB, B, CCC, CC: Bonds rated BB, B, CCC and CC are regarded, on balance, as
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligations. BB
indicates the lowest degree of speculation and CC the highest degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C: Reserved for income bonds on which no interest is being paid.
D: Debt rated D is in default and payment of interest and/or repayment of
principal is in arrears.
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Highlights
<TABLE>
<CAPTION>
Class I
-----------------------------------------------------
Year Ended May 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year............. $2.90 $2.79 $2.77 $2.70 $2.81
-----------------------------------------------------
Income from investment operations:
Net investment income......................... .26 .26 .25 .26 .27
Net realized and unrealized gains (losses).... .08 .11 .03 .07 (.11)
-----------------------------------------------------
Total from investment operations............... .34 .37 .28 .33 .16
-----------------------------------------------------
Less distributions from net investment income.. (.26) (.26) (.26) (.26) (.27)
-----------------------------------------------------
Net asset value, end of year................... $2.98 $2.90 $2.79 $2.77 $2.70
=====================================================
Total return**................................. 12.32% 14.09% 10.75% 13.34% 5.19%
Ratios/supplemental data
Net assets, end of year (000's)............... $3,236,134 $2,638,914 $2,183,738 $1,908,853 $1,817,481
Ratios to average net assets:
Expenses...................................... .70% .71% .70% .66% .59%
Net investment income......................... 9.04% 9.31% 9.07% 9.71% 9.61%
Portfolio turnover rate........................ 29.69% 20.01% 19.87% 28.56% 42.32%
**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.
Class II
--------------------------------------------
Year Ended May 31,
--------------------------------------------
1998 1997 1996 19951
--------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year......................... $2.90 $2.79 $2.77 $2.76
--------------------------------------------
Income from investment operations:
Net investment income..................................... .25 .25 .25 --
Net realized and unrealized gains......................... .08 .11 .02 .01
--------------------------------------------
Total from investment operations........................... .33 .36 .27 .01
--------------------------------------------
Less distributions from net investment income.............. (.25) (.25) (.25) --
--------------------------------------------
Net asset value, end of year............................... $2.98 $2.90 $2.79 $2.77
============================================
Total return**............................................. 11.69% 13.41% 10.06% .36%
Ratios/supplemental data
Net assets, end of year (000's)............................ $394,612 $151,073 $46,064 $713
Ratios to average net assets:
Expenses.................................................. 1.23% 1.25% 1.25% 1.14%*
Net investment income..................................... 8.51% 8.75% 8.50% 6.91%*
Portfolio turnover rate.................................... 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. 1For the period May 16, 1995 (effective
date) to May 31, 1995.
Advisor Class
-------------------
Year Ended May 31,
-------------------
1998 19972
-------------------
<S> <C> <C>
Per share operating performance
(for a share outstanding throughout the year)
Net asset value, beginning of year .............................................. $2.90 $2.90
-------------------
Income from investment operations:
Net investment income .......................................................... .27 .12
Net realized and unrealized gains (losses) ..................................... .08 (.01)
-------------------
Total from investment operations ................................................ .35 .11
-------------------
Less distributions from net investment income ................................... (.27) (.11)
-------------------
Net asset value, end of year .................................................... $2.98 $2.90
===================
Total return** .................................................................. 12.46% 3.94%
Ratios/supplemental data
Net assets, end of year (000's) ................................................. $28,026 $6,224
Ratios to average net assets:
Expenses ....................................................................... .58% .61%*
Net investment income .......................................................... 9.17% 9.25%*
Portfolio turnover rate ......................................................... 29.69% 20.01%
*Annualized.
**Total return is not annualized.
2For the period January 2, 1997 (effective date) to May 31, 1997.
See notes to financial statements.
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Statement of Investments, May 31, 1998
SHARES VALUE
<S> <C> <C>
a Common Stocks 1.1%
a Advantica Restaurant Group, Inc............................................. 612,439 $ 6,315,777
a Darling International, Inc.................................................. 504,447 3,657,241
a Fred Meyer, Inc............................................................. 94,870 4,079,410
a Freeport-McMoRan Sulphur, Inc............................................... 41,500 575,813
a Penn Traffic Co. ........................................................... 39,757 161,513
RJR Nabisco Holdings Corp. .................................................... 510,000 14,375,625
a Specialty Food Corp., 144A.................................................. 97,500 683
a Sullivan Broadcast Holdings................................................. 262,400 8,396,800
a Thermadyne Holdings Corp.................................................... 38,615 1,699,060
a Walter Industries, Inc., Class A............................................ 189,505 3,624,283
-------------
Total Common Stocks (Cost $41,567,304)......................................... 42,886,205
-------------
Rights/Warrants .1%
a Foodmaker, Inc.............................................................. 8,030 384,115
a Gaylord Container Corp. .................................................... 232,762 1,891,191
a Grand Union Co., Series 1................................................... 16,789 67
a Grand Union Co., Series 2................................................... 33,578 134
a Gulf States Steel........................................................... 27,800 147,340
a International Wireless Communication Holding................................ 36,400 163,800
a Kendall International, Inc., rights......................................... 5,896 1,599,875
a Loral Orion Network Systems................................................. 35,300 424,804
a Nextel Communications, Inc.................................................. 27,250 35,153
a Nextel International, Inc................................................... 28,500 142,500
a Occidente y Caribe Celular, 144A............................................ 152,660 1,526,600
a Wireless One, Inc........................................................... 35,000 175
-------------
Total Rights/Warrants (Cost $2,799,736)........................................ 6,315,754
-------------
Preferred Stocks 4.4%
Asia Pulp & Paper Co., Ltd., 12.00%, pfd....................................... 24,700,000 18,092,750
California Federal Bank, 11.50%, pfd........................................... 199,000 22,101,438
d CMS Energy Corp., 7.75%, cvt. pfd........................................... 530,000 32,065,000
CSC Holdings, Inc., Series M, PIK, 11.125%, 4/01/03 ........................... 226,092 26,170,185
Fresenius Medical Care AG, 9.00%, pfd.......................................... 13,100 13,558,500
Sinclair Capital, 11.625%, pfd................................................. 147,000 16,330,230
Time Warner, Inc., 10.25%, pfd................................................. 27,721 31,601,940
-------------
Total Preferred Stocks (Cost $144,811,811)..................................... 159,920,043
-------------
Partership Units .1%
Phosphate Resource Partners L.P. (Cost $3,752,427) ............................ 415,000 2,671,563
-------------
PRINCIPAL
AMOUNT*
Bonds 91.6%
Automotive 1.6%
Advanced Accessory, senior sub. notes, 144A, 9.75%, 10/01/07 .................. $ 8,000,000 8,060,000
Cambridge Industries, Inc., senior sub. notes, 10.25%, 7/15/07 ................ 5,800,000 6,032,000
Automotive (cont.)
Collins & Aikman Products, senior sub. notes, 11.50%, 4/15/06 ................. $ 9,500,000 $ 10,687,500
c Harvard Industries, Inc., senior notes, 12.00%, 7/15/04 .................... 19,050,000 8,143,875
c Harvard Industries, Inc., senior notes, 11.125%, 8/01/05 ................... 9,900,000 4,232,250
Talon Automotive Group, senior sub. notes, 144A, 9.625%, 5/01/08 .............. 20,850,000 20,954,250
-------------
58,109,875
-------------
Broadcasting 5.9%
Benedek Broadcasting, senior notes, 11.875%, 3/01/05 .......................... 7,000,000 7,848,750
Benedek Communications, senior disc. notes
zero coupon to 5/15/01, 13.25% thereafter, 5/15/06 ............................. 24,500,000 19,232,500
Chancellor Media Corp., senior sub. notes, 8.75%, 6/15/07 ..................... 32,000,000 33,120,000
Chancellor Media Corp., senior sub. notes, 144A, 8.125%, 12/15/07 ............. 6,000,000 6,030,000
EZ Communications, Inc., senior sub. notes, 9.75%, 12/01/05 ................... 17,500,000 19,381,250
Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 5/15/05 ..... 7,100,000 7,490,500
Jacor Communications Co., senior sub. notes, 9.75%, 12/15/06 .................. 6,400,000 6,928,000
LIN Holdings Corp., senior disc. notes, 144A,
zero coupon to 3/01/03, 10.00% thereafter, 3/01/08 ............................. 21,000,000 13,545,000
LIN Television Corp., senior sub. notes, 144A, 8.375%, 3/01/08 ................ 19,000,000 19,047,500
SFX Broadcasting, Inc., senior sub. notes, 10.75%, 5/15/06 .................... 34,200,000 37,962,000
Sinclair Broadcasting Group, senior sub. notes, 10.00%, 9/30/05 ............... 14,400,000 15,408,000
Sullivan Broadcast Holdings, senior deb., 13.25%, 12/15/06 .................... 16,400,000 21,361,000
Turner Broadcasting Systems, Inc., senior deb., 8.40%, 2/01/24 ................ 9,500,000 10,072,033
-------------
217,426,533
-------------
Cable Television 5.0%
Comcast Cellular Holdings, senior notes, Series B, 9.50%, 5/01/07 ............. 25,600,000 26,560,000
Comcast Corp., senior sub. deb., 9.50%, 1/15/08 ............................... 15,000,000 15,918,750
CSC Holdings, Inc., senior sub. deb., 10.50%, 5/15/16 ......................... 20,000,000 23,300,000
CSC Holdings, Inc., senior sub. deb., 9.875%, 4/01/23 ......................... 5,000,000 5,512,500
Diamond Cable Communications Plc., senior disc. notes, zero coupon to 12/15/99,
11.75% thereafter, 12/15/05 .................................................. 18,850,000 15,174,250
Diamond Cable Communications Plc., senior disc. notes,
zero coupon to 2/15/02, 10.75% thereafter, 2/15/07 ............................ 7,850,000 5,573,500
Diamond Holdings Plc., senior notes, 144A, 9.125%, 2/01/08 .................... 10,600,000 10,865,000
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 10,800,000
NTL, Inc., senior notes, 144A, zero coupon to 4/01/03, 9.75% thereafter, 4/01/08 50,000,000 32,375,000
Rogers Cablesystems, Inc., senior secured deb., 10.125%, 9/01/12 .............. 5,000,000 5,362,500
Scott Cable Communications, Inc., junior sub. notes, PIK, 15.00%, 3/18/02 ..... 6,930,000 8,142,750
Scott Cable Communications, Inc., junior sub. notes, PIK, 16.00%, 7/18/02 ..... 882,836 397,276
Telewest Plc., senior deb., zero coupon to 10/01/00, 11.00% thereafter, 10/01/07 24,500,000 19,783,750
Wireless One Inc., senior disc. notes,
zero coupon to 8/01/01, 13.50% thereafter, 8/01/06 ............................ 13,800,000 1,242,000
-------------
181,007,276
-------------
Chemicals 1.4%
Climachem, Inc., senior notes, 144A, 10.75%, 12/01/07 ......................... 7,500,000 7,837,500
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 ....................... 27,500,000 27,740,625
Terra Industries, Inc., senior notes, Series B, 10.50%, 6/15/05 ............... 15,000,000 16,275,000
-------------
51,853,125
-------------
Consumer Products 2.1%
Revlon Consumer Products Corp., senior sub. notes, 144A, 8.625%, 2/01/08 ...... $42,000,000 $ 42,105,000
RJR Nabisco, Inc., senior notes, 9.25%, 8/15/13 ............................... 20,000,000 21,575,540
Sealy Mattress Co., senior disc. notes, 144A, zero coupon to
12/15/02, 10.875% thereafter, 12/15/07 ........................................ 10,200,000 6,630,000
Sealy Mattress Co., senior sub. notes, 144A, 9.875%, 12/15/07 ................. 6,800,000 7,038,000
-------------
77,348,540
-------------
Containers/Packaging 3.0%
Anchor Glass, first mortgage, 11.25%, 4/01/05 ................................. 23,700,000 26,188,500
Anchor Glass, senior notes, 144A, 9.875%, 3/15/08 ............................. 17,300,000 17,797,375
Container Corp. of America, senior notes, Series A, 9.75%, 4/01/03 ............ 12,000,000 12,930,000
Container Corp. of America, senior notes, Series A, 11.25%, 5/01/04 ........... 9,000,000 9,810,000
Four M Corp., senior notes, Series B, 12.00%, 6/01/06 ......................... 23,700,000 25,359,000
Graham Packaging/GPC., senior disc. notes, 144A, 10.75%, 1/15/09 .............. 6,600,000 6,567,000
Graham Packaging/GPC., senior sub. notes, 144A, 8.75%, 1/15/08 ................ 5,600,000 3,528,000
Radnor Holdings, senior notes, 10.00%, 12/01/03 ............................... 6,250,000 6,515,625
-------------
108,695,500
-------------
Energy 4.5%
Abraxas Petroleum Corp., senior notes, Series D, 11.50%, 11/01/04 ............. 37,100,000 38,955,000
Bellwether Exploration, senior sub. notes, 10.875%, 4/01/07 ................... 5,000,000 5,262,500
Chesapeake Energy Corp., senior notes, 144A, 9.625%, 5/01/05 .................. 7,000,000 7,000,000
Clark R&M, Inc., senior sub. notes, 8.875%, 11/15/07 .......................... 9,000,000 9,056,250
Clark USA, Inc., senior notes, 10.875%, 12/01/05 .............................. 22,000,000 24,090,000
Dailey International, Inc., senior notes Series B, 9.50%, 2/15/08 ............. 10,800,000 10,800,000
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 .......................... 9,400,000 9,552,750
Mesa Operating Co., senior sub. notes, zero
coupon to 7/01/01, 11.625% thereafter, 7/01/06 ................................. 4,300,000 3,569,000
Nuevo Energy Co., senior sub. notes, 144A, 9.50%, 4/15/06 ..................... 8,600,000 8,987,000
Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07 ................. 6,600,000 7,062,000
Rutherford-Moran Oil, senior sub. notes, 10.75%, 10/01/04 ..................... 4,500,000 4,837,500
Ultrapetrol (Bahamas) Ltd., first mortgage, 144A, 10.50%, 4/01/08 ............. 34,000,000 33,830,000
-------------
163,002,000
-------------
Financial Services .1%
Homeside Finance, Inc., senior notes, 11.25%, 5/15/03 ......................... 4,300,000 5,133,125
-------------
Food/Beverages 2.2%
Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 2/01/05 ................. 3,100,000 3,410,000
Delta Beverage Group, senior notes, 9.75%, 12/15/03 ........................... 2,800,000 2,926,000
International Home Foods, senior sub. notes, 10.375%, 11/01/06 ................ 11,200,000 12,264,000
Beatrice Foods, sub. notes, 1.00%, 11/19/26 ................................... 4,567,000 753,555
Purina Mills, Inc., senior sub. notes, 144A, 9.00%, 3/15/10 ................... 18,000,000 18,450,000
RC/Arbys Corp., senior secured notes, 9.75%, 8/01/00 .......................... 14,000,000 14,280,000
Specialty Foods Corp., senior notes, 144A, Series B, 10.25%, 8/15/01 .......... 19,000,000 18,810,000
Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 ................ 8,650,000 9,147,375
-------------
80,040,930
-------------
Food Retailing 1.4%
c Bruno's, Inc., senior sub. notes, 10.50%, 8/01/05 .......................... $ 12,500,000 $ 2,437,500
Pathmark Stores, Inc., senior sub. notes, 9.625%, 5/01/03 ..................... 14,000,000 14,315,000
Penn Traffic Co., senior notes, 8.625%, 12/15/03 .............................. 5,000,000 3,975,000
Penn Traffic Co., senior notes, 10.375%, 10/01/04 ............................. 10,000,000 8,250,000
Pueblo Xtra International, senior notes, 9.50%, 8/01/03 ....................... 9,500,000 9,428,750
Pueblo Xtra International, senior notes, Series C, 9.50%, 8/01/03 ............. 5,000,000 4,950,000
Shoppers Food Warehouse, senior notes, 9.75%, 6/15/04 ......................... 7,375,000 8,186,250
-------------
51,542,500
-------------
Gaming/Leisure 3.0%
AMF Bowling Worldwide, Inc., senior disc. notes,
Series B, zero coupon to 3/15/01, 12.25% thereafter, 3/15/06 ................... 9,951,000 8,060,310
Aztar Corp., senior sub. notes, 13.75%, 10/01/04 .............................. 19,900,000 22,785,500
Players International, Inc., senior notes, 10.875%, 4/15/05 ................... 4,750,000 5,165,625
Premier Parks, Inc., senior disc. notes, zero coupon to 4/01/03,
10.00% thereafter, 4/01/08 .................................................... 8,000,000 5,140,000
Premier Parks, Inc., senior notes, 9.25%, 4/01/06 ............................. 8,000,000 8,140,000
Regal Cinemas Inc., senior sub. notes, 144A, 9.50%, 6/01/08 ................... 39,500,000 39,549,375
Showboat, Inc., senior sub. notes, 13.00%, 8/01/09 ............................ 18,000,000 21,690,000
-------------
110,530,810
-------------
Government 1.0%
Argentina Government, senior notes, 9.75%, 9/19/27 ............................ 20,000,000 18,562,500
ESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) ..................... 108,800,000 ZAR 17,573,437
-------------
36,135,937
-------------
Healthcare 5.0%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 .............. 14,830,000 14,607,550
Conmed Corp., senior sub. notes, 144A, 9.00%, 3/15/08 ......................... 15,000,000 14,962,500
Everest Healthcare Services, senior sub. notes, 144A, 9.75%, 5/01/08 .......... 18,000,000 18,360,000
Fresenius Medical Care AG, trust pfd. securities, 144A, 7.875%, 2/01/08 ....... 24,000,000 23,520,000
Magellan Health Services, Inc., senior sub. notes, 144A, 9.00%, 2/15/08 ....... 20,000,000 19,850,000
Pharmerica, Inc., senior sub. notes, 144A, 8.375%, 4/01/08 .................... 8,400,000 8,400,000
Sun Healthcare Group, Inc., senior sub. notes, 144A, 9.375%, 5/01/08 .......... 30,000,000 30,150,000
Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 ........................ 4,000,000 4,269,860
Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 .................... 17,800,000 18,356,250
Vencor, Inc., senior sub. notes, 144A, 9.875%, 5/01/05 ........................ 29,000,000 29,217,500
-------------
181,693,660
-------------
Industrial 7.4%
Airxcel Inc., senior sub. notes, 11.00%, 11/15/07 ............................. 13,500,000 14,343,750
Allied Waste Industries, Inc., senior disc. notes, zero
coupon to 6/01/02, 11.30% thereafter, 6/01/07 ................................. 32,000,000 23,520,000
Allied Waste North America, Inc., senior sub. notes, 10.25%, 12/01/06 ......... 17,200,000 18,963,000
Falcon Building Products, Inc., senior sub. notes, Series B, 9.50%, 6/15/07 ... 4,500,000 4,635,000
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 4,911,875
Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 ............... 15,150,000 16,172,625
International Comfort Products, senior notes, 144A, 8.625%, 5/15/08 ........... 34,500,000 34,068,750
Intertek Finance, Plc, senior sub. notes, Series B, 10.25%, 11/01/06 .......... 9,400,000 10,011,000
Industrial (cont.)
LES, Inc., senior sub. notes, 144A, 9.25%, 6/01/08 ............................ $32,000,000 $ 32,560,000
Neenah Corp., senior sub. notes, 11.125%, 5/01/07 ............................. 6,100,000 6,740,500
Newport News Shipbuilding, senior notes, 8.625%, 12/01/06 ..................... 2,600,000 2,743,000
Newport News Shipbuilding, senior sub. notes, 9.25%, 12/01/06 ................. 5,100,000 5,431,500
Nortek, Inc., senior notes, Series B, 9.125%, 9/01/07 ......................... 19,200,000 19,632,000
Oshkosk Truck Corp., senior sub. notes, 144A, 8.75%, 3/01/08 .................. 13,200,000 13,398,000
Terex Corp., senior sub. notes, 144A, 8.875%, 4/01/08 ......................... 21,500,000 21,123,750
Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 ..................... 19,781,000 21,388,206
Universal Compression, Inc., senior disc. notes, 144A,
zero coupon to 2/15/03, 9.875% thereafter, 2/15/08 ............................. 31,800,000 20,511,000
-------------
270,153,956
-------------
Information Systems/Technology 1.5%
Amphenol Corp., senior sub. notes, 9.875%, 5/15/07 ............................ 5,000,000 5,350,000
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 ............ 7,300,000 8,030,000
Hadco Corp., senior sub. notes, 144A, 9.50%, 6/15/08 .......................... 25,000,000 25,250,000
Iron Mountain, Inc., senior sub. notes, 8.75%, 9/30/09 ........................ 16,650,000 16,899,750
-------------
55,529,750
-------------
Lodging 2.5%
HMH Properties, Inc., senior notes, 9.50%, 5/15/05 ............................ 20,000,000 21,700,000
HMH Properties, Inc., Series B, senior notes, 8.875%, 7/15/07 ................. 8,250,000 9,209,063
John Q. Hammons Hotels, Inc., first mortgage, 8.875%, 2/15/04 ................. 20,000,000 20,275,000
John Q. Hammons Hotels, Inc., first mortgage, 9.75%, 10/01/05 ................. 4,500,000 4,792,500
Prime Hospitality, senior sub. notes, Series B, 9.75%, 4/01/07 ................ 23,200,000 24,447,000
Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 ........................... 10,000,000 10,300,000
-------------
90,723,563
-------------
Media 6.3%
American Media Operation, senior sub. notes, 11.625%, 11/15/04 ................ 8,700,000 9,396,000
Ascent Entertainment Group, senior disc. notes,
zero coupon to 12/15/02, 11.875% thereafter, 12/15/04 .......................... 19,500,000 12,675,000
Big Flower Press Holding, senior sub. notes, 8.875%, 7/01/07 .................. 12,100,000 12,523,500
Century Communications Corp., senior disc. notes,
Series B, zero coupon, 1/15/08 ................................................ 39,800,000 17,711,000
Fox Family Worldwide, Inc., senior disc. notes,
zero coupon to 11/01/02, 10.25% thereafter, 11/01/07 ........................... 19,350,000 12,190,500
Fox Family Worldwide, Inc., senior notes, 9.25%, 11/01/07 ..................... 10,000,000 9,787,500
Fox/Liberty Networks, L.L.C., senior disc. notes,
zero coupon to 8/15/02, 9.75% thereafter, 8/15/07 .............................. 22,650,000 15,288,750
Fox/Liberty Networks, L.L.C., senior notes, 8.875%, 8/15/07 ................... 15,000,000 15,112,500
Hollinger International, Inc., senior sub. notes, 9.25%, 2/01/06 .............. 6,400,000 6,688,000
Hollinger International, Inc., senior sub. notes, 9.25%, 3/15/07 .............. 12,800,000 13,472,000
Lamar Advertising Co., senior sub. notes, 9.625%, 12/01/06 .................... 20,000,000 21,500,000
Outdoor Systems, Inc., senior sub. notes, 8.875%, 6/15/07 ..................... 34,750,000 36,226,875
Six Flags Theme Parks, senior sub. notes,
zero coupon to 6/15/98, 12.25% thereafter, 6/15/05 ............................. 22,000,000 24,915,000
United Artists Theatre, senior sub. notes, 144A, 9.75%, 4/15/08 ............... 24,000,000 24,120,000
-------------
231,606,625
-------------
Metals/Mining 4.8%
AK Steel Corp., senior notes, 10.75%, 4/01/04 ................................. 20,000,000 21,400,000
AK Steel Corp., senior notes, 9.125%, 12/15/06 ................................ 13,400,000 14,187,250
Metals/Mining (cont.)
Algoma Steel, Inc., first mortgage, 12.375%, 7/15/05 .......................... $ 8,000,000 $ 9,260,000
Armco, Inc., senior notes, 9.00%, 9/15/07 ..................................... 5,200,000 5,343,000
Envirosource, Inc., senior notes, 9.75%, 6/15/03 .............................. 17,000,000 17,212,500
Envirosource, Inc., senior notes, 9.75%, 6/15/03 .............................. 9,000,000 9,112,500
Keystone Consolidated Inds., senior notes, 9.625%, 8/01/07 .................... 7,000,000 7,192,500
LTV Corp., senior notes, 8.20%, 9/15/07 ....................................... 34,500,000 34,413,750
P & L Coal Holdings Corp., senior notes, 144A, 8.875%, 5/15/08 ................ 7,000,000 7,201,250
P & L Coal Holdings Corp., senior sub. notes, 144A, 9.625%, 5/15/08 ........... 33,000,000 33,948,750
Sheffield Steel Corp., first mortgage, 11.50%, 12/01/05 ....................... 16,000,000 16,560,000
-------------
175,831,500
-------------
Paper/Forest Products 3.3%
Bear Island L.L.C./Finance, senior notes, 10.00%, 12/01/07 .................... 11,700,000 12,109,500
Doman Industries Ltd., senior notes, 9.25%, 11/15/07 .......................... 6,800,000 6,876,500
Fort Howard Corp., S.F., pass through trust, 11.00%, 1/2/02.................... 7,162,720 7,377,602
Pindo Deli Fin, senior notes, 11.75%, 10/01/17 ................................ 30,900,000 21,012,000
Repap New Brunswick, FRN, senior notes, first priority, 9.125%, 7/15/00 ....... 8,000,000 8,060,000
Repap New Brunswick, senior notes, first priority, 9.875%, 7/15/00 ............ 10,000,000 10,550,000
e Repap New Brunswick, senior notes, first priority, 144A, 9.00%, 6/01/04 .... 13,600,000 13,753,000
S.D. Warren Co., senior sub. notes, Series B, 12.00%, 12/15/04 ................ 11,300,000 12,599,500
Tembec Finance Corp., senior notes, 9.875%, 9/30/05 ........................... 20,000,000 21,200,000
Tjiwi Kimia Finance Mauritius, senior notes, 10.00%, 8/01/04 .................. 11,000,000 7,947,500
-------------
121,485,602
-------------
Restaurants 1.8%
Advantica Restaurant Group, senior notes, 11.25%, 1/15/08 ..................... 13,896,030 14,816,642
Ameriserv Food Dist., Inc., senior sub. notes, 8.875%, 10/15/06 ............... 11,350,000 11,463,500
Ameriserv Food Dist., Inc., senior sub. notes, 10.125%, 7/15/07 ............... 21,500,000 22,467,500
Family Restaurants, Inc., senior notes, 9.75%, 2/01/02 ........................ 10,850,000 8,680,000
Foodmaker, Inc., senior sub. notes, 9.75%, 6/01/02 ............................ 8,400,000 8,652,000
-------------
66,079,642
-------------
Retail 1.2%
Fleming Companies, Inc., senior sub. notes, 10.50%, 12/01/04 .................. 15,000,000 15,656,250
Fleming Companies, Inc., senior sub. notes, 10.625%, 7/31/07 .................. 14,000,000 14,682,500
Specialty Retailers, Inc., senior notes, 8.50%, 7/15/05 ....................... 7,250,000 7,503,750
Specialty Retailers, Inc., senior sub. notes, 9.00%, 7/15/07 .................. 5,000,000 5,200,000
-------------
43,042,500
-------------
Telecommunication 8.8%
Flag Limited, senior notes, 144A, 8.25%, 1/30/08 .............................. 6,600,000 6,732,000
Focal Communications Corp., senior disc. notes, 144A,
zero coupon to 2/15/03, 12.125% thereafter, 2/15/08 ........................... 29,000,000 17,545,000
Global Crossing Holding Ltd., senior notes, 144A, 9.625%, 5/15/08 ............. 28,000,000 28,910,000
IntelCom Group, Inc., senior disc. notes, zero coupon to 5/01/01,
12.50% thereafter, 5/01/06 .................................................... 32,500,000 26,000,000
Intermedia Communications, senior disc. notes, Series B,
zero coupon to 7/15/02, 11.25% thereafter, 7/15/07 ............................ 37,500,000 27,562,500
IXC Communications, Inc., senior sub. notes, 144A, 9.00%, 4/15/08 ............. 15,900,000 15,880,125
Level 3 Communications, senior notes, 144A, 9.125%, 5/01/08 ................... 35,000,000 34,300,000
Telecommunication (cont.)
Netia Holdings B.V., senior notes, 144A, 10.25%, 5/01/07 (Poland) ............. $ 9,000,000 $ 9,011,250
Netia Holdings B.V., senior disc. notes, 144A, zero coupon to
11/01/01, 11.25% thereafter, 11/01/07 (Poland)................................. 15,000,000 10,425,000
Nextlink Communications, Inc., senior disc. notes, 144A,
zero coupon to 4/15/03, 9.45% thereafter, 4/15/08 ............................. 17,000,000 10,455,000
Nextlink Communications, Inc., senior notes, 9.625%, 10/01/07 ................. 17,350,000 17,783,750
Nextlink Communications, Inc., senior notes, 144A, 9.00%, 3/15/08 ............. 18,150,000 18,240,750
Poland Telecom Finance, units, 144A, 14.00%, 12/01/07 ......................... 30,000,000 33,900,000
RSL Communications Plc., senior disc. notes, 144A,
zero coupon to 3/01/03, 10.125% thereafter, 3/01/08 ........................... 44,500,000 27,145,000
Telecommunication Techniques Co., senior sub. notes, 9.75%, 5/15/08 ........... 24,000,000 24,300,000
WorldCom, Inc., senior notes, 8.875%, 1/15/06 ................................. 12,544,000 13,641,596
-------------
321,831,971
-------------
Textiles/Apparel 1.1%
Hartmarx Corp., senior sub. notes, 10.875%, 1/15/02 ........................... 15,000,000 15,675,000
Polysindo International Finance, secured notes, 9.375%, 7/30/07 ............... 27,750,000 12,834,375
WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 ................... 10,000,000 10,650,000
-------------
39,159,375
-------------
Transportation 3.8%
Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.06%, 1/2/16...... 9,000,000 11,473,938
Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.50%, 4/30/16 .... 15,000,000 20,013,450
Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 ........................ 19,000,000 20,805,000
GS Superhighway Holdings, senior notes, 10.25%, 8/15/07 ....................... 35,000,000 28,000,000
L-3 Communications Corp., senior sub. notes, 144A, 10.375%, 5/01/07 ........... 5,400,000 5,994,000
Sea Containers Ltd., senior notes, 10.50%, 7/01/03 ............................ 25,000,000 26,875,000
United Airlines, S.F., pass-through equipment trust, Series B-2, 9.06%, 9/26/14 20,422,000 24,190,392
-------------
137,351,780
-------------
Utilities 2.0%
AES China Generating Co., notes, 10.125%, 12/15/06 ............................ 4,400,000 4,026,000
AES Corp., senior sub. notes, 8.50%, 11/01/07 ................................. 7,500,000 7,575,000
California Energy, senior notes, 10.25%, 1/15/04 .............................. 17,500,000 18,878,125
El Paso Electric Co., first mortgage, 9.40%, 5/01/11 .......................... 12,900,000 14,770,500
ESI Tractebel Acquisition Corp., bonds, 144A, 7.99%, 12/30/11 ................. 8,000,000 7,960,000
Midland Funding II, S.F., senior lease obligation, Series A, 11.75%, 7/23/05 .. 4,500,000 5,390,753
Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 7/23/06 .. 11,500,000 14,646,619
-------------
73,246,997
-------------
Wireless Communication 10.9%
Arch Communications Group, Inc., senior disc. notes,
zero coupon to 3/15/01, 10.875% thereafter, 3/15/08 ........................... 33,450,000 18,313,875
International Wireless Communication, units,
senior disc. notes, zero coupon to 8/15/01,
14.00% thereafter, 8/15/01 ................................................... 36,400,000 12,376,000
Iridium L.L.C., senior notes, Series D, 10.875%, 7/15/05 ...................... 17,000,000 17,148,750
McCaw International, Ltd., units, 13.00%, 4/15/07 ............................. 28,500,000 18,952,500
Metrocall, Inc., senior sub. notes, 9.75%, 11/01/07 ........................... 31,000,000 31,620,000
Microcell Telecommunication, senior disc. notes, Series B,
zero coupon to 12/01/01, 14.00% thereafter, 6/01/06 ........................... 22,400,000 16,688,000
Millicom International Cellular, SA, senior disc. notes,
zero coupon to 6/01/00, 13.50% thereafter, 6/01/06 ............................. 22,300,000 17,394,000
Nextel Communications, senior disc. notes,
zero coupon to 2/15/99, 9.75% thereafter, 8/15/04 .............................. 21,500,000 20,801,250
Wireless Communication (cont.)
Nextel Communications, senior disc. notes, zero coupon to
10/31/02, 9.75% thereafter 10/31/07 ........................................... $35,500,000 $ 23,075,000
Nextel International, Inc., senior disc. notes, 144A,
zero coupon to 4/15/08, 12.125% thereafter, 4/15/08 ........................... 20,000,000 12,100,000
Occidente y Caribe Celular, units, senior disc. notes,
zero coupon to 3/15/01, 14.00% thereafter, 3/15/04 ............................ 38,165,000 29,196,225
Orion Network Systems, Inc., units, senior disc. notes,
zero coupon to 1/15/02, 12.50% thereafter, 1/15/07 ............................ 35,300,000 27,445,750
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 ..................... 17,000,000 17,722,500
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 ..................... 14,800,000 15,410,500
Rogers Cantel Mobile Communications, Inc., senior secured deb., 9.75%, 6/01/16 34,000,000 37,060,000
Sprint Spectrum L.P., senior disc. notes, zero coupon to
8/01/01, 12.50% thereafter, 8/15/06 ........................................... 23,200,000 19,952,000
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 ......................... 20,130,000 22,293,975
Triton Communications, L.L.C., senior disc. notes, 144A,
zero coupon to 5/01/03, 11.00% thereafter, 5/01/08 ............................ 68,250,000 40,011,563
-------------
397,561,888
-------------
Total Bonds (Cost $3,273,856,411) ............................................. 3,346,124,960
-------------
b Repurchase Agreement 2.2%
Joint Repurchase Agreement, 5.521%, 6/01/98,
(Maturity Value $81,441,345) (Cost $81,403,891) .............................. 81,403,891 81,403,891
BancAmerica Robertson Stephens
Barclays Capital Group, Inc.
Bear, Stearns & Co., Inc.
BT Alex Brown, Inc.
Chase Securities, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.,
Dresdner Kleinwort Benson, North America, L.L.C.
Greenwich Capital Markets, Inc.
Paribas Corp.
SBC Warburg Dillion Read, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes
Total Investments (Cost $3,548,191,580) 99.5% 3,639,322,416
Other Assets, less Liabilities .5% 19,450,141
-------------
Net Assets 100.0% $3,658,772,557
=============
CURRENCY ABBREVIATIONS
ZAR - South African Rand
*Securities traded in U.S. dollars unless otherwise indicated.
aNon-income producing.
bInvestment is through participation in a joint account with other funds managed
by the investment advisor. At May 31, 1998, all repurchase agreements had been
entered into on May 29, 1998.
cSee Note 6 regarding defaulted securities.
dSee Note 7 regarding restricted securities.
eSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements
Statement of Assets and Liabilities
May 31, 1998
<S> <C>
Assets:
Investments in securities, at value (cost $3,548,191,580) ............................... $3,639,322,416
Cash ................................................................................... 1,804,608
Receivables:
Capital shares sold .................................................................... 9,946,271
Dividends and interest ................................................................. 69,635,539
---------------
Total assets ............................................................................. 3,720,708,834
---------------
Liabilities:
Payables:
Investment securities purchased ........................................................ 21,574,948
Capital shares redeemed ................................................................ 2,377,529
Affiliates ............................................................................. 34,926,584
Shareholders ........................................................................... 2,877,403
Distributions to shareholders ........................................................... 4,827
Other liabilities ....................................................................... 174,986
---------------
Total liabilities ........................................................................ 61,936,277
---------------
Net assets, at value .................................................................... $3,658,772,557
===============
Net assets consist of:
Undistributed net investment income ..................................................... $ 19,511,326
Net unrealized appreciation ............................................................. 91,087,688
Accumulated net realized loss ........................................................... (287,807,415)
Capital shares .......................................................................... 3,835,980,958
---------------
Net assets, at value ..................................................................... $3,658,772,557
===============
Class I:
Net asset value per share ($3,236,134,159 / 1,087,173,780 shares outstanding)* .......... $2.98
---------------
Maximum offering price per share ($2.98 / 95.75%)........................................ $3.11
---------------
Class II:
Net asset value per share ($394,611,944 / 132,303,347 shares outstanding)* .............. $2.98
---------------
Maximum offering price per share ($2.98 / 99.0%) ....................................... $3.01
---------------
Advisor Class:
Net asset value and maximum offering price per share ($28,026,454 / 9,413,021 shares outstanding) $2.98
---------------
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charges.
See notes to financial statements.
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements (continued)
Statement of Operations
for the year ended May 31, 1998
<S> <C> <C>
Investment income:
Dividends .................................................................. $ 12,223,386
Interest.................................................................... 304,720,732
--------------
Total investment income...................................................... $316,944,118
Expenses:
Management fees (Note 3).................................................... 15,055,199
Distribution fees (Note 3)
Class I.................................................................... 3,682,784
Class II................................................................... 1,711,032
Transfer agent fees (Note 3)................................................ 2,474,138
Custodian fees.............................................................. 57,612
Reports to shareholders..................................................... 741,450
Registration and filing fees................................................ 337,352
Professional fees........................................................... 92,313
Trustees' fees and expenses ................................................ 63,348
Other....................................................................... 61,475
--------------
Total expenses............................................................. 24,276,703
--------------
Net investment income........................................................ 292,667,415
--------------
Realized and unrealized gains (losses):
Net realized gain (loss) from:
Investments................................................................ 34,300,061
Foreign currency transactions.............................................. (40,711)
--------------
Net realized gain........................................................... 34,259,350
--------------
Net unrealized appreciation (depreciation) on:
Investments................................................................ 33,953,119
Translation of assets and liabilities denominated in foreign currencies.... (58,850)
--------------
Net unrealized appreciation................................................. 33,894,269
--------------
Net realized and unrealized gain............................................. 68,153,619
--------------
Net increase in net assets resulting from operations......................... $360,821,034
--------------
See notes to financial statements.
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements (continued)
Statements of Changes in Net Assets
for the years ended May 31, 1998 and 1997
1998 1997
<S> <C> <C>
Increase (decrease)in net assets:
Operations:
Net investment income ................................................. $ 292,667,415 $ 231,525,511
Net realized gain from investments and foreign currency transactions .. 34,259,350 12,396,658
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies .................................... 33,894,269 86,795,388
---------------------------------
Net increase in net assets resulting from operations .................... 360,821,034 330,717,557
Distributions to shareholders from:
Net investment income:
Class I ............................................................... (261,354,140) (221,817,438)
Class II .............................................................. (21,055,677) (7,337,363)
Advisor Class ......................................................... (1,879,720) (111,931)
---------------------------------
Total distributions to shareholders .................................... (284,289,537) (229,266,732)
Capital share transactions: (Note 2)
Class I ............................................................... 525,305,713 357,273,624
Class II .............................................................. 239,186,811 101,480,560
Advisor Class ......................................................... 21,536,823 6,204,815
---------------------------------
Total capital share transactions ....................................... 786,029,347 464,958,999
Net increase in net assets .............................................. 862,560,844 566,409,824
Net assets:
Beginning of year ...................................................... 2,796,211,713 2,229,801,889
---------------------------------
End of year ............................................................ $3,658,772,557 $2,796,211,713
=================================
Undistributed net investment income included in net assets:
End of year ............................................................ $ 19,511,326 $ 11,174,159
=================================
</TABLE>
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.
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 and
premium are 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.
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 have the same rights except for their initial sales load,
distribution fees, voting rights on matters affecting a single class and the
exchange privilege of each class.
At May 31, 1998, there were an unlimited number of shares authorized (no par
value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
May 31, 1998 May 31, 1997
------------------------------------------------------------
Shares Amount Shares Amount
------------------------------------------------------------
<S> <C> <C> <C> <C>
Class I
Shares sold ..................................... 398,847,574 $1,185,149,892 293,629,457 $835,438,509
Shares issues in reinvestment of distributions .. 38,784,036 114,687,942 33,179,593 93,767,624
Shares redeemed ................................. (260,590,614) (774,532,121) (200,712,344) (571,932,509)
------------------------------------------------------------
Net increase .................................... 177,040,996 $ 525,305,713 126,096,706 $357,273,624
============================================================
Class II
Shares sold ..................................... 95,362,735 $ 284,202,607 40,869,751 $116,747,378
Shares issues in reinvestment of distributions .. 4,043,761 12,004,240 1,379,201 3,919,843
Shares redeemed ................................. (19,128,856) (57,020,036) (6,744,056) (19,186,661)
------------------------------------------------------------
Net increase .................................... 80,277,640 $ 239,186,811 35,504,896 $101,480,560
============================================================
Advisor Class*
Shares sold ..................................... 13,161,829 $ 39,058,573 2,709,819 $ 7,822,829
Shares issues in reinvestment of distributions .. 606,914 1,799,737 36,816 105,353
Shares redeemed ................................. (6,500,575) (19,321,487) (601,782) (1,723,367)
------------------------------------------------------------
Net increase .................................... 7,268,168 $ 21,536,823 2,144,853 $ 6,204,815
============================================================
*Effective date of Advisor Class shares was January 2, 1997.
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
Certain officers and trustees of the Trust are also officers and/or trustees 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 Franklin AGE High Income 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 $2,129,751 and $62,723,
respectively.
The Fund paid transfer agent fees of $2,474,138, of which $2,299,905 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
=============
On May 31, 1998, the Fund had expired capital loss carryovers of $49,128,742
which were reclassified to paid-in-capital.
4. INCOME TAXES (cont.)
At May 31, 1998, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,548,191,580 was as follows:
Unrealized appreciation .......... $210,549,551
Unrealized depreciation .......... (119,418,715)
-------------
Net unrealized appreciation ...... $ 91,130,836
=============
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 year
ended May 31, 1998 aggregated $1,859,655,870 and $896,108,109, respectively.
6. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 92.72% 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 May 31, 1998, the Fund
held defaulted securities with a value aggregating $14,813,625 representing .4%
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
Wireless Communication industry. Such concentration may subject the Fund more
significantly to economic changes occurring within that industry.
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 May 31, 1998 are as follows:
<TABLE>
<CAPTION>
Face Acquisition
Amount Issuer Date Cost Value
<S> <C> <C> <C> <C>
530,000 CMS Energy Corp., 7.75%, cvt. pfd. (.9% of net assets) ....... 6/18/97 $26,500,000 $32,065,000
</TABLE>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Independent Auditor's Report
To the Shareholders and Board of Trustees
of Franklin High Income Trust:
We have audited the accompanying statement of assets and liabilities of the AGE
High Income Fund of the Franklin High Income Trust, including the Fund's
statement of investments, as of May 31, 1998, 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. 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, 1998, 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, 1998, 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 its financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 30, 1998
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Tax Designation
Under Section 854(b)(2) of the Internal Revenue Code, the Fund hereby designates
4.30% of the ordinary income dividends as income qualifying for the dividends
received deduction for the fiscal year ended May 31, 1998.
Franklin AGE High Income Fund
Annual Report
May 31, 1998
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 format the fund composition of the Franklin AGE High
Income Fund based on total net assets as of 5/31/98.
Bonds 91.6%
Equities 5.7%
Short-Term
Obligatations &
Other Net Assets 2.7%
GRAPHIC MATERIAL (2)
This chart shows the dividend distributions for Franklin AGE High Income Fund's
Class I from 6/1/97 to 5/31/98.
June 2.2 cents
July 2.2 cents
August 2.2 cents
September 2.2 cents
October 2.2 cents
November 2.2 cents
December 2.2 cents
January 2.2 cents
February 2.2 cents
March 2.2 cents
April 2.2 cents
May 2.2 cents
Total 26.4 cents
GRAPHIC MATERIAL (3)
The following line graph compares the performance of the Franklin AGE High
Income Fund's Class I shares to that of the CS First Boston High Yield Bond
Index based on a $10,000 investment from 6/1/88 to 5/31/98.
TOTAL RETURN COMPARISON
(6/1/88-5/31/98)
*Total return of the AGE Fund includes reinvested dividends and capital gains,
as well as the maximum 4.25% sales charge.
FRANKLIN'S AGE HIGH CS FIRST BOSTON HIGH
INCOME FUND - CLASS I YIELD INDEX
6/1/88 $9,574 $ 10,000
6/30/88 $9,706 2.12% $ 10,212
7/31/88 $9,839 1.14% $ 10,328
8/31/88 $9,798 -0.29% $ 10,298
9/30/88 $9,845 0.91% $ 10,392
10/31/88 $10,013 1.37% $ 10,535
11/30/88 $10,092 0.22% $ 10,558
12/31/88 $10,110 0.63% $ 10,624
1/31/89 $10,314 2.01% $ 10,838
2/28/89 $10,301 0.46% $ 10,888
3/31/89 $10,288 -0.72% $ 10,809
4/30/89 $10,243 -0.24% $ 10,783
5/31/89 $10,295 2.38% $ 11,040
6/30/89 $10,478 1.44% $ 11,199
7/31/89 $10,497 0.22% $ 11,224
8/31/89 $10,484 -0.01% $ 11,222
9/30/89 $10,335 -2.27% $ 10,968
10/31/89 $9,875 -2.50% $ 10,694
11/30/89 $9,793 0.20% $ 10,715
12/31/89 $9,743 -0.45% $ 10,667
1/31/90 $9,408 -3.52% $ 10,291
2/28/90 $9,068 -1.85% $ 10,101
3/31/90 $9,274 2.88% $ 10,392
4/30/90 $9,244 0.42% $ 10,435
5/31/90 $9,515 2.08% $ 10,652
6/30/90 $9,751 3.15% $ 10,988
7/31/90 $9,990 3.23% $ 11,343
8/31/90 $9,374 -4.62% $ 10,819
9/30/90 $8,709 -7.63% $ 9,993
10/31/90 $8,074 -2.51% $ 9,743
11/30/90 $8,246 2.01% $ 9,938
12/31/90 $8,336 0.48% $ 9,986
1/31/91 $8,514 2.74% $ 10,260
2/28/91 $9,462 8.63% $ 11,145
3/31/91 $10,035 6.20% $ 11,836
4/30/91 $10,483 4.15% $ 12,327
5/31/91 $10,554 0.50% $ 12,389
6/30/91 $10,895 2.62% $ 12,714
7/31/91 $11,240 3.38% $ 13,143
8/31/91 $11,544 1.82% $ 13,382
9/30/91 $11,757 2.27% $ 13,686
10/31/91 $12,160 3.31% $ 14,139
11/30/91 $12,235 0.80% $ 14,252
12/31/91 $12,360 0.73% $ 14,356
1/31/92 $12,775 4.07% $ 14,941
2/29/92 $13,048 2.43% $ 15,304
3/31/92 $13,305 1.49% $ 15,532
4/30/92 $13,414 0.08% $ 15,544
5/31/92 $13,624 1.36% $ 15,756
6/30/92 $13,685 0.99% $ 15,912
7/31/92 $13,949 1.54% $ 16,157
8/31/92 $14,164 1.38% $ 16,380
9/30/92 $14,329 0.65% $ 16,486
10/31/92 $14,079 -1.04% $ 16,315
11/30/92 $14,247 1.50% $ 16,559
12/31/92 $14,417 1.13% $ 16,746
1/31/93 $14,748 2.73% $ 17,204
2/28/93 $14,974 1.98% $ 17,544
3/31/93 $15,201 2.11% $ 17,914
4/30/93 $15,322 0.57% $ 18,017
5/31/93 $15,499 1.46% $ 18,280
6/30/93 $15,843 1.81% $ 18,610
7/31/93 $16,022 1.04% $ 18,804
8/31/93 $16,090 0.85% $ 18,964
9/30/93 $16,158 0.57% $ 19,072
10/31/93 $16,627 1.83% $ 19,421
11/30/93 $16,697 1.26% $ 19,666
12/31/93 $16,959 1.26% $ 19,913
1/31/94 $17,322 1.78% $ 20,268
2/28/94 $17,156 0.15% $ 20,298
3/31/94 $16,395 -2.94% $ 19,702
4/30/94 $16,287 -1.34% $ 19,438
5/31/94 $16,360 0.57% $ 19,548
6/30/94 $16,372 -0.67% $ 19,417
7/31/94 $16,446 0.47% $ 19,509
8/31/94 $16,583 0.72% $ 19,649
9/30/94 $16,658 0.40% $ 19,728
10/31/94 $16,734 0.07% $ 19,741
11/30/94 $16,555 -1.16% $ 19,512
12/31/94 $16,697 1.06% $ 19,719
1/31/95 $16,839 1.05% $ 19,926
2/28/95 $17,505 2.46% $ 20,417
3/31/95 $17,650 1.13% $ 20,647
4/30/95 $18,128 2.22% $ 21,106
5/31/95 $18,543 2.82% $ 21,701
6/30/95 $18,691 0.66% $ 21,844
7/31/95 $19,045 1.55% $ 22,183
8/31/95 $19,128 0.28% $ 22,245
9/30/95 $19,280 1.15% $ 22,501
10/31/95 $19,433 1.11% $ 22,750
11/30/95 $19,517 0.47% $ 22,857
12/31/95 $19,814 1.27% $ 23,147
1/31/96 $20,185 1.90% $ 23,587
2/29/96 $20,343 0.53% $ 23,712
3/31/96 $20,213 -0.27% $ 23,648
4/30/96 $20,300 0.54% $ 23,776
5/31/96 $20,536 0.81% $ 23,969
6/30/96 $20,551 0.22% $ 24,021
7/31/96 $20,715 0.90% $ 24,237
8/31/96 $21,107 1.09% $ 24,502
9/30/96 $21,578 1.72% $ 24,923
10/31/96 $21,746 0.84% $ 25,132
11/30/96 $22,224 1.56% $ 25,525
12/31/96 $22,629 1.95% $ 26,022
1/31/97 $22,801 0.73% $ 26,212
2/28/97 $23,212 1.88% $ 26,705
3/31/97 $22,671 -1.12% $ 26,406
4/30/97 $22,928 0.89% $ 26,641
5/31/97 $23,429 2.01% $ 27,176
6/30/97 $23,852 1.36% $ 27,546
7/31/97 $24,524 2.12% $ 28,130
8/31/97 $24,541 0.54% $ 28,282
9/30/97 $24,974 1.98% $ 28,842
10/31/97 $24,823 -0.01% $ 28,839
11/30/97 $25,177 0.71% $ 29,044
12/31/97 $25,364 0.91% $ 29,308
1/31/98 $25,638 1.70% $ 29,806
2/28/98 $25,914 0.78% $ 30,039
3/31/98 $26,193 0.50% $ 30,189
4/30/98 $26,298 0.75% $ 30,415
5/31/98 $26,316 0.07% 0.30% $ 30,507
Total Return 163.16% 205.07%
GRAPHIC MATERIAL (4)
This chart shows the dividend distributions for Franklin AGE High Income Fund's
Class II from 6/1/97 to 5/31/98.
June 2.06 cents
July 2.07 cents
August 2.07 cents
September 2.07 cents
October 2.06 cents
November 2.07 cents
December 2.07 cents
January 2.06 cents
February 2.06 cents
March 2.06 cents
April 2.06 cents
May 2.06 cents
Total 24.77 cents
GRAPHIC MATERIAL (5)
The following line graph compares the performance of the Franklin AGE High
Income Fund's Class II shares to that of the CS First Boston High Yield Bond
Index based on a $10,000 investment from 5/16/95 to 5/31/98.
TOTAL RETURN COMPARISON
(5/16/95-5/31/98)
May 1995 Proration 31-16 = 15; 15/31=48.38%,
48.38%*2.82 = 1.36%
FRANKLIN'S AGE HIGH INCOME CS FIRST BOSTON
FUND - CLASS II HIGH YIELD INDEX
5/16/95 $9,892 $ 10,000
5/31/95 $9,928 1.36% $ 10,136
6/30/95 $10,004 0.66% $ 10,203
7/31/95 $10,186 1.55% $ 10,361
8/31/95 $10,223 0.28% $ 10,390
9/30/95 $10,297 1.15% $ 10,510
10/31/95 $10,373 1.11% $ 10,626
11/30/95 $10,412 0.47% $ 10,676
12/31/95 $10,565 1.27% $ 10,812
1/31/96 $10,756 1.90% $ 11,017
2/29/96 $10,835 0.53% $ 11,076
3/31/96 $10,760 -0.27% $ 11,046
4/30/96 $10,840 0.54% $ 11,105
5/31/96 $10,927 0.81% $ 11,195
6/30/96 $10,930 0.22% $ 11,220
7/31/96 $11,052 0.90% $ 11,321
8/31/96 $11,215 1.09% $ 11,444
9/30/96 $11,500 1.72% $ 11,641
10/31/96 $11,584 0.84% $ 11,739
11/30/96 $11,792 1.56% $ 11,922
12/31/96 $12,001 1.95% $ 12,154
1/31/97 $12,087 0.73% $ 12,243
2/28/97 $12,340 1.88% $ 12,473
3/31/97 $12,006 -1.12% $ 12,334
4/30/97 $12,136 0.89% $ 12,443
5/31/97 $12,393 2.01% $ 12,694
6/30/97 $12,611 1.36% $ 12,866
7/31/97 $12,960 2.12% $ 13,139
8/31/97 $13,007 0.54% $ 13,210
9/30/97 $13,230 1.98% $ 13,471
10/31/97 $13,144 -0.01% $ 13,470
11/30/97 $13,281 0.71% $ 13,566
12/31/97 $13,419 0.91% $ 13,689
1/31/98 $13,511 1.70% $ 13,922
2/28/98 $13,650 0.78% $ 14,030
3/31/98 $13,836 0.50% $ 14,101
4/30/98 $13,839 0.75% $ 14,206
5/31/98 $13,842 02% 0.30% $ 14,249
Total Return 38.42% 42.49%
GRAPHIC MATERIAL (6)
This chart shows the dividend distributions for Franklin AGE High Income Fund
Advisor Class from 6/1/97 to 5/31/98.
June 2.23 cents
July 2.23 cents
August 2.23 cents
September 2.23 cents
October 2.23 cents
November 2.23 cents
December 2.23 cents
January 2.23 cents
February 2.23 cents
March 2.23 cents
April 2.23 cents
May 2.23 cents
Total 26.76 cents
GRAPHIC MATERIAL (7)
The following line graph compares the performance of the Franklin AGE High
Income Fund's Advisor Class shares to that of the CS First Boston High Yield
Bond Index based on a $10,000 investment from 6/1/88 to 5/31/98.
TOTAL RETURN COMPARISON
(6/1/88-5/31/98)
*Total return of the AGE Fund includes
reinvested dividends and capital gains.
FRANKLIN'S AGE HIGH CS FIRST
INCOME FUND - ADVISOR BOSTON HIGH
CLASS YIELD INDEX
6/1/88 $10,000 $ 10,000
6/30/88 $10,138 2.12% $ 10,212
7/31/88 $10,277 1.14% $ 10,328
8/31/88 $10,234 -0.29% $ 10,298
9/30/88 $10,283 0.91% $ 10,392
10/31/88 $10,458 1.37% $ 10,535
11/30/88 $10,541 0.22% $ 10,558
12/31/88 $10,560 0.63% $ 10,624
1/31/89 $10,773 2.01% $ 10,838
2/28/89 $10,760 0.46% $ 10,888
3/31/89 $10,746 -0.72% $ 10,809
4/30/89 $10,699 -0.24% $ 10,783
5/31/89 $10,754 2.38% $ 11,040
6/30/89 $10,944 1.44% $ 11,199
7/31/89 $10,965 0.22% $ 11,224
8/31/89 $10,951 -0.01% $ 11,222
9/30/89 $10,795 -2.27% $ 10,968
10/31/89 $10,315 -2.50% $ 10,694
11/30/89 $10,229 0.20% $ 10,715
12/31/89 $10,177 -0.45% $ 10,667
1/31/90 $9,826 -3.52% $ 10,291
2/28/90 $9,472 -1.85% $ 10,101
3/31/90 $9,687 2.88% $ 10,392
4/30/90 $9,655 0.42% $ 10,435
5/31/90 $9,939 2.08% $ 10,652
6/30/90 $10,185 3.15% $ 10,988
7/31/90 $10,435 3.23% $ 11,343
8/31/90 $9,791 -4.62% $ 10,819
9/30/90 $9,097 -7.63% $ 9,993
10/31/90 $8,433 -2.51% $ 9,743
11/30/90 $8,613 2.01% $ 9,938
12/31/90 $8,707 0.48% $ 9,986
1/31/91 $8,892 2.74% $ 10,260
2/28/91 $9,883 8.63% $ 11,145
3/31/91 $10,481 6.20% $ 11,836
4/30/91 $10,950 4.15% $ 12,327
5/31/91 $11,024 0.50% $ 12,389
6/30/91 $11,380 2.62% $ 12,714
7/31/91 $11,741 3.38% $ 13,143
8/31/91 $12,058 1.82% $ 13,382
9/30/91 $12,281 2.27% $ 13,686
10/31/91 $12,701 3.31% $ 14,139
11/30/91 $12,780 0.80% $ 14,252
12/31/91 $12,910 0.73% $ 14,356
1/31/92 $13,344 4.07% $ 14,941
2/29/92 $13,629 2.43% $ 15,304
3/31/92 $13,897 1.49% $ 15,532
4/30/92 $14,011 0.08% $ 15,544
5/31/92 $14,230 1.36% $ 15,756
6/30/92 $14,294 0.99% $ 15,912
7/31/92 $14,570 1.54% $ 16,157
8/31/92 $14,795 1.38% $ 16,380
9/30/92 $14,967 0.65% $ 16,486
10/31/92 $14,706 -1.04% $ 16,315
11/30/92 $14,881 1.50% $ 16,559
12/31/92 $15,058 1.13% $ 16,746
1/31/93 $15,404 2.73% $ 17,204
2/28/93 $15,640 1.98% $ 17,544
3/31/93 $15,878 2.11% $ 17,914
4/30/93 $16,004 0.57% $ 18,017
5/31/93 $16,188 1.46% $ 18,280
6/30/93 $16,548 1.81% $ 18,610
7/31/93 $16,735 1.04% $ 18,804
8/31/93 $16,806 0.85% $ 18,964
9/30/93 $16,877 0.57% $ 19,072
10/31/93 $17,367 1.83% $ 19,421
11/30/93 $17,440 1.26% $ 19,666
12/31/93 $17,713 1.26% $ 19,913
1/31/94 $18,093 1.78% $ 20,268
2/28/94 $17,920 0.15% $ 20,298
3/31/94 $17,124 -2.94% $ 19,702
4/30/94 $17,012 -1.34% $ 19,438
5/31/94 $17,088 0.57% $ 19,548
6/30/94 $17,101 -0.67% $ 19,417
7/31/94 $17,178 0.47% $ 19,509
8/31/94 $17,321 0.72% $ 19,649
9/30/94 $17,399 0.40% $ 19,728
10/31/94 $17,478 0.07% $ 19,741
11/30/94 $17,292 -1.16% $ 19,512
12/31/94 $17,440 1.06% $ 19,719
1/31/95 $17,589 1.05% $ 19,926
2/28/95 $18,284 2.46% $ 20,417
3/31/95 $18,435 1.13% $ 20,647
4/30/95 $18,934 2.22% $ 21,106
5/31/95 $19,368 2.82% $ 21,701
6/30/95 $19,523 0.66% $ 21,844
7/31/95 $19,893 1.55% $ 22,183
8/31/95 $19,979 0.28% $ 22,245
9/30/95 $20,138 1.15% $ 22,501
10/31/95 $20,298 1.11% $ 22,750
11/30/95 $20,386 0.47% $ 22,857
12/31/95 $20,696 1.27% $ 23,147
1/31/96 $21,083 1.90% $ 23,587
2/29/96 $21,248 0.53% $ 23,712
3/31/96 $21,113 -0.27% $ 23,648
4/30/96 $21,204 0.54% $ 23,776
5/31/96 $21,450 0.81% $ 23,969
6/30/96 $21,466 0.22% $ 24,021
7/31/96 $21,638 0.90% $ 24,237
8/31/96 $22,046 1.09% $ 24,502
9/30/96 $22,538 1.72% $ 24,923
10/31/96 $22,714 0.84% $ 25,132
11/30/96 $23,214 1.56% $ 25,525
12/31/96 $23,636 1.95% $ 26,022
1/31/97 $23,816 0.73% $ 26,212
2/28/97 $24,248 1.88% $ 26,705
3/31/97 $23,686 -1.12% $ 26,406
4/30/97 $23,956 0.89% $ 26,641
5/31/97 $24,482 2.01% $ 27,176
6/30/97 $24,926 1.36% $ 27,546
7/31/97 $25,632 2.12% $ 28,130
8/31/97 $25,652 0.54% $ 28,282
9/30/97 $26,107 1.98% $ 28,842
10/31/97 $26,039 -0.01% $ 28,839
11/30/97 $26,324 0.71% $ 29,044
12/31/97 $26,522 0.91% $ 29,308
1/31/98 $26,811 1.70% $ 29,806
2/28/98 $27,103 0.78% $ 30,039
3/31/98 $27,397 0.50% $ 30,189
4/30/98 $27,510 0.75% $ 30,415
5/31/98 $27,531 0.08% 0.30% $ 30,507
Total Return 175.31% 205.07%
