Semi
Annual
Report
November 30, 1997
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.
GRAPHIC PICTURE OMITTED
Rupert H. Johnson, Jr.
President
Franklin's AGE High Income Fund
CONTENTS
Shareholder Letter 1
Managers' Discussion 4
Performance Summary
Class I 9
Class II 11
Advisor Class 13
Financial Highlights &
Statement of Investments 15
Financial Statements 26
Notes to
Financial Statements 29
SHAREHOLDER LETTER
Dear Shareholder:
It's a pleasure to bring you Franklin's AGE High Income Fund semi-annual report
for the period ended November 30, 1997.
A Glimpse at the Economy
During the six months under review, the U.S. economy continued its expansion.
Just prior to the beginning of the period, in March, the Federal Reserve Board
(the Fed) raised short-term interest rates from 5.25% to 5.50%. This 25 basis
point increase was the Fed's response to tightening labor markets and an overall
concern that possible wage demands could lead to increased inflationary
pressures. The rate hike had its desired effect. Economic growth slowed slightly
and interest rates stabilized, reversing their general rising trend and ending
the period down from where they began. The 30-year U.S. Treasury bond started
the six-month period yielding 6.92%, and finished at 6.04% on November 30,
1997.1
Even with continued strong economic growth, there have been remarkably few signs
of increased inflation. This low inflation, combined with a balanced budget
agreement between the President and Congress, greatly contributed to a
beneficial environment of falling interest rates throughout the majority of the
reporting period. Consumer spending strengthened toward the end of the period
and the stock market -- despite a stumble at the end of October -- remained near
all-time highs. However, with the recent Asian market slowdown, growth rates in
this country and abroad appear to be moderating.
1. Source: Federal Reserve H15 Report, 30-year Constant Maturity Index,
11/30/97.
The Tale of the Tortoise and the Hare
We can't promise that a positive economic environment will continue. It is
important to remember, then, that markets correct -- in our opinion, it is
desirable for them to do so. Consequently, investor concern about volatility and
the market's direction prompts us to comment on the importance of having your
own long-term investment strategy. And when you consider your investment
strategy, are you a tortoise or a hare?
We all know that familiar story: The tortoise won the race because he had a plan
and stuck to it, not allowing the hare's fast start to distract him. Much like
the tortoise, successful investors historically have achieved good results
through setting goals, diversifying their assets, and having patience. Wise
investors think like the tortoise. They know mutual fund investments are long
term, so daily market fluctuations and short-term volatility have minimal impact
on their overall investment goals. They understand that patience and discipline
are keys to successful investing. Remember, it's time -- not timing -- that
makes the difference.
We encourage you to discuss your financial goals with your 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.
Regardless of the market's direction, Franklin Templeton's disciplined
investment strategy remains the same: All of our portfolio managers are
dedicated to providing shareholders like you with careful selection and constant
professional supervision. 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
GRAPHIC MATERIAL 1 OMITTED - SEE APPENDIX AT END OF DOCUMENT
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 six-month period ended November 30, 1997,
Franklin's AGE High Income Fund provided a +7.46% cumulative total return to
Class I shareholders, as discussed in the Performance Summary on page 9.
Additionally, the fund outperformed its benchmark index -- the unmanaged CS
First Boston High Yield Index -- which returned +6.82%, including reinvested
dividends, during the reporting period.1
Over the past six months, benign inflation and declining interest rates led to
higher employment, accelerating economic activity, and tighter capacity
utilization. Following these trends, corporate profits climbed and stock market
valuations rose to the higher end of their historical range, providing a solid
foundation for the performance of high-yield corporate bonds.
1. Index is unmanaged; one cannot invest in it directly.
Portfolio Update
Media and Broadcasting
Dominated by ongoing, rapid consolidation and government deregulation, the media
and broadcasting sectors exhibited strong performance during the reporting
period. A healthy advertising environment also sustained the merger activity
within these sectors, helping to create larger, more diversified corporations.
Sinclair Broadcasting Group, one of the nation's largest television
broadcasters, played an active role in this consolidation, and we benefited from
this holding's increased credit profile. Within the realm of radio broadcasting,
our holdings of EZ Communications, Inc. enjoyed healthy performance following
its acquisition by CBS/Westinghouse. This merger also boosted the credit quality
of EZ's bonds -- another positive note.
Wireless Communications
The industry experienced rapid subscriber growth driven primarily by declining
costs of service, the increasing mobility of the general population, and a
continued movement toward a service-based economy. Our holdings in Nextel
Communications and Sygnet Wireless, Inc., in particular, profited from these
trends. Nextel enjoyed a large capital gain as a result of the company's
successful introduction of its new, wireless powerFone. At the same time,
consolidation of the U.S. rural cellular phone industry benefited our holdings
of Sygnet. Seeking to take full advantage of these trends, we maintained our
large weighting in this sector, at 9.8% of total net assets on November 30,
1997.
Top Five Holdings
11/30/97
Company % of Total
(INDUSTRY) NET ASSETS
- -----------------------------------
Vencor, Inc.
(INDUSTRIAL) 1.36%
SFX Broadcasting, Inc.
(BROADCASTING) 1.16%
Outdoor Systems, Inc.
(INDUSTRIAL) 1.12%
LTV Corp.
(INDUSTRIAL) 1.05%
Chancellor Media Corp.
(INDUSTRIAL) 1.01%
For a complete list of portfolio holdings, please see page 18 of this report.
Telecommunication
Telecommunication has strengthened on the back of two major industry trends:
consolidation and deregulation. The 1996 Telecommunications Act has opened many
local markets to competition, and this deregulation has benefited CLEC
(Competitive Local Exchange Carriers) holdings such as Nextlink which have begun
to take market share from RBOCs (Regional Bell Operating Companies) like Pacific
Bell and Atlantic Bell. Although -- in absolute terms -- the total industry
market share remains small, overall market share growth on a company level has
been significant in many ways.
Consolidation, on the other hand, has manifested itself in increased merger
activity. In late September, two notable mergers were announced -- between
WorldCom and MCI, and MCI and Brooks Fiber. This set off a price rally,
benefiting our bond holding in IntelCom and Intermedia.
Automotive
As the economy grew, our holdings in such auto suppliers as Collins & Aikman
Products became beneficiaries of this positive environment. We closely monitor
the effects of two trends, out-sourcing and "transplants" -- foreign automaker
manufacturing plants located in the U.S. We expect that, after a year of high
production, production levels in this field should stabilize in the coming year.
Cable Television
We continued our search for companies in larger metropolitan areas that take
advantage of "clustering" strategies (which seek to minimize overhead cost by
maximizing the number of subscriptions in a given geographical area). Such a
positive industry trend made this a profitable sector for the fund, and
Cablevision Systems Corp., in particular, was a strong performer. By rapidly
improving its technology, the company was able to offer new systems and
services. Notably, in August 1997, Standard & Poor's, a national credit rating
agency, recognized Cablevision Systems Corp.'s performance and upgraded its
rating on subordinated notes (junior claims) from B to BB-.2
Energy
In general, holdings in this sector benefited from strong industry fundamentals,
as stable commodity prices allowed companies to increase production and
reserves. Our holdings in such companies as Energy Ventures, Mesa Operating Co.,
and Gulf Canada Resources, Ltd. contributed favorably to the fund during the
reporting period, due largely to material credit improvement.
Food Retailing
Ongoing consolidation and cost-cutting in the food retailing sector bolstered
the healthy performance of such holdings as Ralphs Grocery Co., whose plans to
merge with Fred Meyer may prove beneficial in the coming year. We also profited
from our holdings in International Home Foods, which recently went public and
made some successful acquisitions that contributed to this holding's strong
performance.
2. This does not indicate Standard & Poor's rating of the fund.
Financial Services
This sector displayed strong performance over the reporting period due largely
to our holding in Homeside Finance, Inc. This company was purchased by an
A-rated bank (National Australian Bank, or NAB) and, as a result, experienced
strong price appreciation and ratings improvement on the heels of the buyout.
Looking Forward
We hold a favorable outlook for the high yield bond market, in general, and for
Franklin's AGE High Income Fund, in particular. Recent economic data suggests
continued, moderate economic growth with low inflation. If this environment
persists, high-yield corporate bonds should remain attractive investments over
the short- to intermediate-term, and this would bode favorably for the fund.
Please remember, this discussion reflects our views and opinions as of November
30, 1997, the end of the reporting period. However, market and economic
conditions are changing constantly, which may affect our strategies and
portfolio holdings. Although historic performance is no guarantee of future
results, these insights may help you understand our investment and management
philosophy.
Sincerely,
Christopher Molumphy
Portfolio Manager
Franklin's AGE High Income Fund
PERFORMANCE SUMMARY
Class I
The share price of Franklin's AGE High Income Fund - Class I, as measured by net
asset value, increased 8.0 cents from $2.90 on May 31, 1997 to $2.98 on November
30, 1997. During the six-month reporting period, the fund paid income
distributions totaling 13.2 cents ($0.132) 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 November's monthly per share dividend of 2.2 cents
($0.022) and the maximum offering price of $3.11 on November 30, 1997, your
fund's distribution rate was 8.49%.
The fund posted a cumulative total return of +7.46% for the six-month period
ended November 30, 1997. Cumulative total return measures the change in value of
an investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
Although we expect market volatility in the short term, we have always
maintained a long-term perspective in managing Franklin's AGE High Income Fund,
and we encourage shareholders to do the same. Class I shares, for example,
provided a cumulative total return of +76.72% over the past five years, as shown
in the table on page 10.
Class I
Dividend Distributions
6/1/97 - 11/30/97
Dividend
MONTH PER SHARE
- --------------------------------
June 2.2 cents
July 2.2 cents
August 2.2 cents
September 2.2 cents
October 2.2 cents
November 2.2 cents
- --------------------------------
Total 13.2 cents
Class I
Periods ended 11/30/97
Since
Inception
1-Year 5-Year 10-Year (12/31/69)
- --------------------------------------------------------------------------------
Cumulative Total Return1 13.29% 76.72% 187.29% 1011.29%
Average Annual Total Return2 8.39% 11.09% 10.64% 8.84%
Value of $10,000 Investment3 $10,839 $16,922 $27.476 $106.311
Distribution Rate4 8.49%
30-Day Standardized Yield5 8.04%
1993 1994 1995 1996 1997
Fiscal Year Total Return6 16.75% -0.85% 17.89% 13.87% 13.29%
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 specified periods and include the sales charges.
4. Distribution rate is based on an annualization of November's 2.2 cent per
share monthly dividend and the maximum offering price of $3.11 on November 30,
1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1997. 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. Fiscal year total return represents the change in value of an investment over
the indicated periods and excludes sales charges. 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 any capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions and you may have a gain or loss when you sell
your shares.
Class II
The share price of Franklin's AGE High Income Fund - Class II, as measured by
net asset value, increased 8.0 cents, from $2.90 on May 31, 1997, to $2.98 on
November 30, 1997. During the six-month reporting period, the fund paid income
distributions totaling 12.4 cents ($0.124) per share. Distributions vary based
on the earnings of the fund's portfolio, and past distributions are not
necessarily predictive of future trends.
Based on an annualization of November's monthly dividend of 2.07 cents per share
and the offering price of $3.01 on November 30, 1997, your fund's distribution
rate was 8.25%.
The fund posted a cumulative total return of +7.16% for the six-month period
ended November 30, 1997. Cumulative total return measures the change in value of
an investment, assuming reinvestment of all distributions, and does not include
the initial sales charge.
Although we expect market volatility in the short term, we have always
maintained a long-term, perspective in managing Franklin's AGE High Income Fund,
and we encourage shareholders to do the same.
Class II
Dividend Distributions
6/1/97 - 11/30/97
Dividend
MONTH PER SHARE
- ---------------------------------
June 2.06 cents
July 2.07 cents
August 2.07 cents
September 2.07cents
October 2.06 cents
November 2.07 cents
- ---------------------------------
Total 12.4 cents
Class II
Periods ended 11/30/97
Since
Inception
1-YEAR (5/1/95)
- -----------------------------------------------------
Cumulative Total Return1 12.63% 34.25%
Average Annual Total Return2 10.48% 11.80%
Value of $10,000 Investment3 $11,048 $13,281
Distribution Rate4 8.25%
30-Day Standardized Yield5 7.77%
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 specified periods and reflects 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 specified periods and include the sales charges.
4. Based on an annualization of November's 2.07 cent per share monthly dividend
and the maximum offering price of $3.01 on November 30, 1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1997. 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 any capital
gains at net asset value. Your investment return and principal value will
fluctuate with market conditions and you may have a gain or loss when you sell
your shares.
Advisor Class
The share price of Franklin's AGE High Income Fund - Advisor Class, as measured
by net asset value, increased 8.0 cents, from $2.90 on May 31, 1997, to $2.98 on
November 30, 1997. During the six-month reporting period, your fund paid income
distributions totaling 13.38 cents ($0.1338) 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 November's monthly dividend of 2.23 cents ($0.0223)
per share and the share price of $2.98 on November 30, 1997, your fund's
distribution rate was 8.98%.
For the six-month period ended November 30, 1997, your fund posted a cumulative
total return of +7.53%. Cumulative total return measures the change in value of
an investment assuming reinvestment of all distributions.
Advisor Class
Dividend Distributions
6/1/97 - 11/30/97
Dividend
MONTH PER SHARE
- --------------------------------
June 2.23 cents
July 2.23 cents
August 2.23 cents
September 2.23 cents
October 2.23 cents
November 2.23 cents
- --------------------------------
Total 13.38 cents
Advisor Class
Period ended 11/30/97
Since
Inception
1-YEAR* 5-YEAR* 10-YEAR* (1/2/97)*
- --------------------------------------------------------------------------------
Cumulative Total Return1 13.40% 76.89% 187.58% 1012.33%
Average Annual total Return2 13.40% 12.08% 11.14% 9.01%
Value of $10,000 Investment3 $11,340 $17,689 $28,758 $111,233
Distribution Rate4 8.98%
30-Day Standardized Yield5 8.49%
11/30/93 11/30/94 11/30/95 11/30/96 11/30/97
One-Year Total Return*,6 17.19% -0.85% 17.89% 13.87% 13.40%
*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 Rule 12b-1 plans. 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 the Class I expenses, including 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. This was a period of generally rising security prices.
1. Cumulative total return measures the change in value of an investment over
the periods indicated.
2. Average annual total return represents the average annual change in value of
an investment over the specified periods.
3. These figures represent the value of a hypothetical $10,000 investment in the
fund over the specified periods and include the sales charges.
4. Distribution rate is based on an annualization of November's 2.23 cent per
share monthly dividend and the net asset value price of $2.98 on November 30,
1997.
5. Yield, calculated as required by the SEC, is based on the earnings of the
fund's portfolio for the 30 days ended November 30, 1997. 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. Fiscal year total return represents the change in value of an investment over
the periods indicated on the specific dates and does not includes the sales
charge.
All total return calculations assume reinvestment of dividends and capital gains
at net asset value. Your investment return and principal value will fluctuate
with market conditions, and you may have a gain or loss when you sell your
shares.
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Highlights
CLASS I
------------------------------------------------------------------
Six Months Ended
November 30, 1997 YEAR ENDED MAY 31,
------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout
the period)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.90 $2.79 $2.77 $2.70 $2.81 $2.72
-------------------------------------------------------------------
Income from investment operations:
Net investment income .13 .26 .25 .26 .27 .30
Net realized and unrealized
gains (losses) .08 .11 .03 .07 (.11) .05
-------------------------------------------------------------------
Total from investment operations .21 .37 .28 .33 .16 .35
-------------------------------------------------------------------
Less distributions from net
investment income (.13) (.26) (.26) (.26) (.27) (.26)
--------------------------------------------------------------------
Net asset value, end of period 2.98 2.90 2.79 2.77 2.70 2.81
===================================================================
Total return** 7.46% 14.09% 10.75% 13.34% 5.19% 13.33%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $2,945,746 $2,638,914 $2,183,738 $1,908,853 $1,817,481 $1,935,919
Ratios to average net assets:
Expenses .72%* .71% .70% .66% .59% .56%
Net investment income 9.12%* 9.31% 9.07% 9.71% 9.61% 10.78%
Portfolio turnover rate 7.30% 20.01% 19.87% 28.56% 42.32% 38.33%
</TABLE>
*Annualized.
**Total return does not reflect sales commissions or the contingent deferred
sales charge, and is not annualized. Prior to May 1, 1994, dividends from net
investment income were reinvested at the offering price.
<TABLE>
<CAPTION>
CLASS II
------------------------------------------------------
Six Months Ended
November 30, 1997 YEAR ENDED MAY 31,
--------------------------------
(UNAUDITED) 1997 1996 19951
------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C> <C> <C> <C>
Net asset value, beginning of period $2.90 $2.79 $2.77 $2.76
------------------------------------------------------
Income from investment operations:
Net investment income .13 .25 .25 --
Net realized and unrealized gains .07 .11 .02 .01
------------------------------------------------------
Total from investment operations .20 .36 .27 .01
------------------------------------------------------
Less distributions from net investment income (.12) (.25) (.25) --
------------------------------------------------------
Net asset value, end of period $2.98 $2.90 $2.79 $2.77
======================================================
Total return** 7.16% 13.41% 10.06% .36%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $253,669 $151,073 $46,064 $713
Ratios to average net assets:
Expenses 1.25%* 1.25% 1.25% 1.14%*
Net investment income 8.56%* 8.75% 8.50% 6.91%*
Portfolio turnover rate 7.30% 20.01% 19.87% 28.56%
</TABLE>
*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.
<TABLE>
<CAPTION>
ADVISOR CLASS
------------------------------
Six Months Ended
November 30, 1997 Period Ended
(UNAUDITED) MAY 31, 19972
------------------------------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the period)
<S> <C> <C>
Net asset value, beginning of period $2.90 $2.90
------------------------------
Income from investment operations:
Net investment income .14 .12
Net realized and unrealized gains (losses) .07 (.01)
------------------------------
Total from investment operations .21 .11
------------------------------
Less distributions from net investment income (.13) (.11)
------------------------------
Net asset value, end of period $2.98 $2.90
==============================
Total return** 7.53% 3.94%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's) $25,088 $6,224
Ratios to average net assets:
Expenses .60%* .61%*
Net investment income 9.20%* 9.25%*
Portfolio turnover rate 7.30% 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.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Statement of Investments, November 30, 1997 (unaudited)
SHARES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
aCommon Stocks 1.1%
<S> <C> <C>
aDarling Delaware Co. 504,447 $ 4,855,302
aFred Meyer, Inc. 94,870 3,213,721
aNextel Communications, Inc. 65,457 1,652,789
aPenn Traffic Co. 39,757 347,874
RJR Nabisco Holdings Corp. 510,000 18,583,125
aSpecialty Food Corp., 144A 97,500 975
aSullivan Broadcast Holdings 262,400 2,525,600
aThermadyne Holdings Corp. 38,615 1,153,623
aWalters Industries, Inc., Class A 189,505 3,766,412
-------------
Total Common Stocks (Cost $32,226,024) 36,099,421
-------------
Rights/Warrants .3%
aAdvanced Radio Telecom 195,000 2,496,390
aFoodmaker, Inc. 8,030 350,991
aGaylord Container Corp. 232,762 1,629,334
aGrand Union Co., Series 1 16,789 84
aGrand Union Co., Series 2 33,578 168
aGulf States Steel 27,800 139,000
aInternational Wireless Communication Holding 36,400 1,820,000
aKendall International, Inc., rights 5,896 1,107,455
aNextel Communications, Inc. 27,250 273
aOccidente Y Caribe Celular, 144A 152,660 1,068,620
aOrion Network System 35,300 398,890
aWireless One, Inc. 35,000 350
-------------
Total Rights/Warrants (Cost $5,630,565) 9,011,555
-------------
Preferred Stocks 5.0%
Asia Pulp & Paper Co., Ltd., 144A, 12.00%, pfd. 24,700,000 23,279,750
Cablevision System Corp., 11.125%, pfd., Series L 214,022 24,505,519
California Federal Bank, 11.50%, pfd. 199,000 22,698,438
CMS Energy Trust, cvt. pfd. 530,000 30,738,299
Fresenius Medical Care AG, 9.00%, pfd., 12/01/06 13,100 13,558,500
Sinclair Capital, 11.625%, pfd., 144A 147,000 16,243,500
Time Warner, Inc., 10.25%, pfd. 27,029 30,880,633
-------------
Total Preferred Stocks (Cost $144,034,965) 161,904,639
-------------
Partnership Units .1%
Freeport-McMoRan Resource Partners, Ltd., depository units (Cost $4,290,682) 415,000 3,605,313
-------------
PRINCIPAL
AMOUNT
-----------
Bonds 86.9%
Automotive 1.0%
Advanced Accesory, senior sub. notes, 144A, 9.75%, 10/01/07 $ 8,000,000 7,860,000
Cambridge Industries, Inc., senior sub. notes, 144A, 10.25%, 7/15/07 5,800,000 6,061,000
Collins & Aikman Products, senior sub. notes, 11.50%, 4/15/06 9,000,000 10,215,000
Automotive (cont.)
bHarvard Industries, Inc., senior notes, 12.00%, 7/15/04 $ 19,050,000 $ 5,905,500
bHarvard Industries, Inc., senior notes, 11.125%, 8/01/05 9,900,000 3,069,000
-------------
33,110,500
-------------
Broadcasting 6.0%
Benedek Broadcasting, senior notes, 11.875%, 3/01/05 7,000,000 7,857,500
Benedek Comunications, senior disc. notes, zero coupon to 5/15/01, 13.25%
thereafter, 5/15/06 24,500,000 18,007,500
Chancellor Media Corp., senior sub. notes, 8.75%, 6/15/07 32,000,000 32,720,000
EZ Communications, Inc., senior sub. notes, 9.75%, 12/01/05 17,500,000 19,293,750
Granite Broadcasting Corp., senior sub. notes, Series A, 10.375%, 5/15/05 7,100,000 7,384,000
Jacor Communications Co., company guaranteed senior sub. notes, 9.75%, 12/15/06 6,400,000 6,848,000
SCI Television, Inc., senior secured notes, 11.00%, 6/30/05 19,000,000 20,158,354
SFX Broadcasting, Inc., senior sub. notes, 10.75%, 5/15/06 34,200,000 37,363,500
Sinclair Broadcasting Group, senior sub. notes, 10.00%, 9/30/05 14,400,000 15,264,000
Sullivan Broadcast Holdings, deb., 13.25%, 12/15/06 16,400,000 17,384,000
Turner Broadcasting Systems, Inc., senior deb., 8.40%, 2/01/24 9,500,000 9,986,942
-------------
192,267,546
-------------
Cable Television 5.8%
Bell Cablemedia, Plc., senior disc. notes, zero coupon to 7/15/99, 11.95%
thereafter, 7/15/04 29,000,000 27,260,000
Cablevision Systems Corp., senior sub. deb., 10.50%, 5/15/16 20,000,000 22,900,000
Cablevision Systems Corp., senior sub. deb., 9.875%, 4/01/23 5,000,000 5,437,500
Comcast Corp., senior sub. deb., 9.50%, 1/15/08 15,000,000 16,012,500
Continental Cablevision, Inc., senior deb., 8.875%, 9/15/05 3,000,000 3,331,323
Continental Cablevision, Inc., senior deb., 9.50%, 8/01/13 8,500,000 9,957,512
Continental Cablevision, Inc., senior sub. deb., 11.00%, 6/01/07 13,000,000 14,325,857
Continental Cablevision, Inc., senior sub. deb., 9.00%, 9/01/08 5,800,000 6,656,625
Diamond Cable Communications Corp., senior disc. notes, zero coupon to 12/15/99,
11.75% thereafter, 12/15/05 18,850,000 14,302,438
Diamond Cable Plc., senior disc. notes, 144A, zero coupon to 2/15/02, 10.75%
thereafter, 2/15/07 7,850,000 5,220,250
Helicon Group L.P. Corp., S.F., senior secured notes, 9.00% coupon to 11/1/96,
11.00% thereafter, 11/01/03 10,000,000 10,775,000
Rogers Cablesystems, Inc., senior secured deb., 10.125%, 9/01/12 5,000,000 5,387,500
Scott Cable Communications, Inc., junior sub. notes, PIK, 15.00%, 3/18/02 6,930,000 6,618,150
Scott Cable Communications, Inc., junior sub. notes, PIK, 16.00%, 7/18/02 817,441 147,139
Tele-Communications, Inc., senior deb., 9.80%, 2/01/12 20,000,000 24,509,680
Telewest Plc., deb., zero coupon to 10/01/00, 11.00% thereafter, 10/01/07 13,000,000 9,977,500
Wireless One Inc., senior disc. notes, zero coupon to 8/01/01, 13.50%
thereafter, 8/01/06 13,800,000 3,381,000
-------------
186,199,974
-------------
Chemicals 2.1%
Climachem, Inc., company guaranteed, 144A, 10.25%, 12/01/07 7,500,000 7,631,250
Huntsman Corp., senior sub. notes, 144A, 9.50%, 7/01/07 27,500,000 28,531,250
IMC Fertilizer Group, Inc., senior deb., 9.45%, 12/15/11 3,400,000 4,228,203
Terra Industries, Inc., senior notes, Series B, 10.50%, 6/15/05 15,000,000 16,125,000
Chemicals (cont.)
UCC Investors, senior sub. notes, 11.00%, 5/01/03 $ 4,850,000 $ 5,238,000
UCC Investors, sub. notes, zero coupon to 5/01/98, 12.00% thereafter, 5/01/05 6,000,000 5,820,000
-------------
67,573,703
-------------
Consumer Goods 1.5%
Herff Jones, Inc., senior sub. notes, 11.00%, 8/15/05 3,600,000 3,924,000
Revlon Consumer Products Corp., senior sub. notes, 10.50%, 2/15/03 15,000,000 15,825,000
Revlon Worldwide Corp., senior secured disc. notes, 0.00%, 3/15/98 4,900,000 4,824,138
RJR Nabisco, Inc., senior notes, 9.25%, 8/15/13 20,000,000 22,610,000
-------------
47,183,138
-------------
Containers/Packaging 2.5%
Anchor Glass, first mortgage, 144A, 11.25%, 4/01/05 23,700,000 25,951,500
Container Corp. of America, senior notes, Series A, 9.75%, 4/01/03 12,000,000 13,020,000
Container Corp. of America, senior notes, Series A, 11.25%, 5/01/04 9,000,000 9,945,000
Four M Corp., senior notes, 12.00%, 6/01/06 23,700,000 25,359,000
Radnor Holdings, senior notes, 10.00%, 12/01/03 6,250,000 6,468,750
-------------
80,744,250
-------------
Energy 3.5%
Abraxas Petroleum Corp., senior notes, 11.50%, 11/01/04 22,000,000 23,870,000
Bellwether Exploration, senior sub. notes, 10.875%, 4/01/07 5,000,000 5,425,000
Clark USA, Inc., senior notes, 10.875%, 12/01/05 22,000,000 23,980,000
Energy Ventures, senior notes, 10.25%, 3/15/04 6,750,000 7,382,813
Forcenergy, Inc., senior sub. notes, 9.50%, 11/01/06 9,400,000 9,917,000
Gulf Canada Resources, Ltd., senior sub. notes, 9.25%, 1/15/04 17,000,000 17,850,000
Mesa Operating Co., senior sub. notes, zero coupon to 7/01/01, 11.625%
thereafter, 7/01/06 4,300,000 3,558,250
Nuevo Energy Co., senior sub. notes, 9.50%, 4/15/06 8,600,000 9,159,000
Pride Petroleum Services, Inc., senior notes, 9.375%, 5/01/07 6,600,000 7,095,000
Rutherford-Moran Oil, senior sub. notes, 144A, 10.75%, 10/01/04 4,500,000 4,584,375
-------------
112,821,438
-------------
Financial Services 1.0%
Homeside Finance, Inc., senior notes, 11.25%, 5/15/03 6,870,000 8,192,475
Polysindo International Finance, company guaranteed, 9.375%, 7/30/07 27,750,000 24,766,875
-------------
32,959,350
-------------
Food/Beverages 2.8%
Beatrice Foods, sub. notes, 1.00%, 11/19/26 4,567,000 753,555
Curtice-Burns Foods, Inc., senior sub. notes, 12.25%, 2/01/05 3,100,000 3,441,000
Delta Beverage Group, senior notes, 9.75%, 12/15/03 2,800,000 2,940,000
Dr Pepper Bottling Co. of Texas, senior notes, 10.25%, 2/15/00 1,540,000 1,582,350
Dr Pepper Bottling Holdings, S.F., senior disc. notes, zero coupon to 2/15/98,
11.625% thereafter, 2/15/03 2,000,000 2,070,000
International Home Foods, senior sub notes, 10.375%, 11/01/06 11,200,000 12,180,000
PMI Acquisition Corp., senior sub. notes, 10.25%, 9/01/03 14,225,000 15,131,844
RC/Arbys Corp., senior secured notes, 9.75%, 8/01/00 14,000,000 14,210,000
Food/Beverages (cont.)
Specialty Foods Corp., senior notes, Series B, 10.25%, 8/15/01 $ 19,000,000 $ 19,095,000
Texas Bottling Group, Inc., senior sub. notes, 9.00%, 11/15/03 19,000,000 19,665,000
-------------
91,068,749
-------------
Food Retailing 3.0%
Bruno's, Inc., senior sub. notes, 10.50%, 8/01/05 12,500,000 4,437,500
Grand Union Co., senior notes, 12.00%, 9/01/04 8,900,000 4,494,500
Pathmark Stores, Inc., senior sub. notes, 9.625%, 5/01/03 14,000,000 13,895,000
Pathmark Stores, Inc., S.F., sub. notes, 11.625%, 6/15/02 10,000,000 10,150,000
Penn Traffic Co., senior notes, 8.625%, 12/15/03 5,000,000 4,250,000
Penn Traffic Co., senior notes, 10.375%, 10/01/04 10,000,000 9,050,000
Pueblo Xtra International, senior notes, 9.50%, 8/01/03 9,500,000 9,084,375
Pueblo Xtra International, senior notes, 144A, 9.50%, 8/01/03 5,000,000 4,781,250
Ralphs Grocery Co., senior notes, 10.45%, 6/15/04 19,250,000 21,656,250
Shoppers Food Warehouse, senior notes, 144A, 9.75%, 6/15/04 14,750,000 14,971,250
-------------
96,770,125
-------------
Gaming/Leisure 2.6%
AMF Group, Inc., senior disc. notes, zero coupon to 3/15/01, 12.25% thereafter,
3/15/06 16,400,000 12,751,000
Aztar Corp., senior sub. notes, 13.75%, 10/01/04 19,900,000 22,835,250
Players International, Inc., senior notes, 10.875%, 4/15/05 4,750,000 5,153,750
Showboat, Inc., senior sub. notes, 13.00%, 8/01/09 17,000,000 19,550,000
Six Flags Theme Parks, senior sub. notes, zero coupon to 6/15/98, 12.25%
thereafter, 6/15/05 22,000,000 23,430,000
-------------
83,720,000
-------------
Government 1.1%
Argentina Government, senior notes, 9.75%, 9/19/27 20,000,000 18,470,000
dESCOM, E168, utility deb., 11.00%, 6/01/08 (South Africa) 108,800,000 18,273,294
-------------
36,743,294
-------------
Healthcare 3.4%
Abbey Healthcare Group, Inc., senior sub. notes, 9.50%, 11/01/02 14,830,000 15,423,200
Merit Behavioral Care, senior sub. notes, 11.50%, 11/15/05 9,000,000 10,440,000
Tenet Healthcare Corp., senior notes, 9.625%, 9/01/02 3,400,000 3,689,000
Tenet Healthcare Corp., senior notes, 8.625%, 12/01/03 4,000,000 4,243,292
Tenet Healthcare Corp., senior sub. notes, 10.125%, 3/01/05 12,300,000 13,391,625
Tenet Healthcare Corp., senior sub. notes, 8.625%, 1/15/07 17,800,000 18,111,500
Vencor, Inc., senior sub. notes, 8.625%, 7/15/07 44,500,000 43,943,750
-------------
109,242,367
-------------
Industrial 8.3%
Airxcel Inc., senior sub. notes, 144A, 11.00%, 11/15/07 13,500,000 13,803,750
Allied Waste Industries, senior disc. notes, 144A, zero coupon to 6/01/02
11.30% thereafter, 6/01/07 32,000,000 22,080,000
Allied Waste North America, Inc., senior sub. notes, 144A, 10.25%, 12/01/06 17,200,000 18,877,000
American Standard, Inc., S.F., senior sub. deb., zero coupon to 6/01/98,
10.50% thereafter, 6/01/05 22,850,000 23,135,625
Clark R & M, Inc., senior sub. notes, 144A, 8.875%, 11/15/07 9,000,000 9,000,000
Falcon Building Products, series B, company guarantee, 9.50%, 6/15/07 4,500,000 4,623,750
Industrial (cont.)
Falcon Building Products, series B, company guarantee, zero coupon to 6/15/02,
10.50% thereafter, 6/15/07 $ 7,250,000 $ 4,785,000
Fleming Companies, Inc., senior sub. notes, 144A, 10.50%, 12/01/04 15,000,000 15,637,500
Fleming Companies, Inc., senior sub. notes, 144A, 10.625%, 7/31/07 14,000,000 14,630,000
Goss Graphic Systems, Inc., senior sub. notes, 12.00%, 10/15/06 15,150,000 17,157,375
GS Superhighway Holdings, senior notes, 10.25%, 8/15/07 35,000,000 32,200,000
Inter-City Products Corp., senior secured notes, 9.75%, 3/01/00 12,600,000 12,915,000
Intertek Finance Plc., senior sub. notes, 10.25%, 11/01/06 9,400,000 9,928,750
Iron Mountain, Inc., senior sub. notes, 144A, 8.75%, 9/30/09 16,650,000 16,899,750
Newport News Shipbuilding, senior notes, 8.625%, 12/01/06 2,600,000 2,717,000
Newport News Shipbuilding, senior sub. notes, 9.25%, 12/01/06 5,100,000 5,329,500
Nortek, Inc., senior notes, 144A, 9.125%, 9/01/07 19,200,000 19,392,000
Thermadyne Industries, Inc., senior sub. notes, 10.25%, 5/01/02 10,376,000 10,739,160
Thermadyne Industries, Inc., sub. notes, 10.75%, 11/01/03 14,387,000 15,322,155
-------------
269,173,315
-------------
Information Systems/Technology .4%
Amphenol Corp., senior sub. notes, 9.875%, 5/15/07 5,000,000 5,287,500
Celestica International, Inc., senior sub. notes, 10.50%, 12/31/06 7,300,000 7,847,500
-------------
13,135,000
-------------
Lodging 2.8%
HMH Properties, Inc., senior notes, 9.50%, 5/15/05 20,000,000 21,150,000
HMH Properties, Inc., series B, company guaranteed, 8.875%, 7/15/07 8,250,000 8,538,750
John Q. Hammons Hotels, Inc., first mortgage, 8.875%, 2/15/04 20,000,000 20,375,000
John Q. Hammons Hotels, Inc., first mortgage, 9.75%, 10/01/05 4,500,000 4,747,500
Prime Hospitality, senior sub. notes, 9.75%, 4/01/07 23,200,000 24,592,000
Red Roof Inns, Inc., senior notes, 9.625%, 12/15/03 10,000,000 10,287,500
-------------
89,690,750
-------------
Media 6.4%
Ackerley Communications, Inc., senior secured notes, Series B, 10.75%, 10/01/03 12,000,000 12,840,000
American Media Operation, senior sub. notes, 11.625%, 11/15/04 8,700,000 9,461,250
Big Flower Press Holding, senior sub. notes, 144A, 8.875%, 7/01/07 12,100,000 12,205,875
Fox Kids Worldwide, Inc., senior discount notes, 144A, zero coupon to 11/1/02,
10.25% thereafter, 11/01/07 36,300,000 20,781,750
Fox Kids Worldwide, Inc., senior notes, 144A, 9.25%, 11/01/07 10,000,000 9,525,000
Fox/Liberty Networks, LLC, senior discount notes, 144A, zero coupon to 8/15/02,
9.75% thereafter, 8/15/07 22,650,000 14,269,500
Fox/Liberty Networks, LLC, senior notes, 144A, 8.875%, 8/15/07 15,000,000 14,868,750
Hollinger International, Inc., 9.25%, 2/01/06 6,400,000 6,656,000
Hollinger International, Inc., company guaranteed, senior sub. notes, 9.25%, 3/15/07 12,800,000 13,312,000
Lamar Advertising Co., senior sub. notes, 9.625%, 12/01/06 20,000,000 21,300,000
Outdoor Systems, Inc., company guaranteed, 8.875%, 6/15/07 34,750,000 35,966,250
PanAmSat Capital Corp., L.P., S.F., senior sub. disc. notes, zero coupon to 8/01/98,
11.375% thereafter, 8/01/03 18,000,000 18,039,132
PanAmSat, debentures, PIK, 12.75%, 4/15/05 13,453,000 16,345,395
-------------
205,570,902
-------------
Metals/Mining 5.6%
Acme Metals, Inc., senior secured disc. notes, zero coupon to 8/01/97,13.50%
thereafter, 8/01/04 $ 23,400,000 $ 27,261,000
AK Steel Corp., senior notes, 10.75%, 4/01/04 20,000,000 21,500,000
AK Steel Corp., senior notes, 9.125%, 12/15/06 13,400,000 13,902,500
Algoma Steel, Inc., first mortgage, 12.375%, 7/15/05 8,000,000 9,340,000
Armco, Inc., senior notes, 9.00%, 9/15/07 5,200,000 5,135,000
Envirosource, Inc., senior notes, 9.75%, 6/15/03 17,000,000 17,085,000
Envirosource, Inc., senior notes, 144A, 9.75%, 6/15/03 9,000,000 9,045,000
Gulf States Steel, first mortgage, 13.50%, 4/15/03 9,300,000 9,532,500
Keystone Consolidated Inds., senior notes, 144A, 9.625%, 8/01/07 7,000,000 7,175,000
LTV Corp., company guaranteed, 144A, 8.20%, 9/15/07 34,500,000 33,723,750
Neenah Corp., senior sub. notes, 144A, 11.125%, 5/01/07 6,100,000 6,633,750
eSheffield Steel Corp., first mortgage, 144A, 11.50%, 12/01/05 16,000,000 16,000,000
Ucar Global Enterprises, Inc., senior sub. notes, 12.00%, 1/15/05 3,090,000 3,499,425
-------------
179,832,925
-------------
Paper/Forest Products 3.7%
eBear Island LLC/Finance, senior notes, 10.00%, 12/01/07 11,700,000 11,846,250
Doman Industries Limited, senior notes, 9.25%, 11/15/07 6,800,000 6,800,000
Fort Howard Corp., S.F., pass through trust, 11.00%, 1/02/02 7,418,563 8,123,326
Pindo Deli Fin Maruitius, company guaranteed, 144A, 11.75%, 10/01/17 30,900,000 29,200,500
Repap New Brunswick, FRN, senior notes, 9.125%, 7/15/00 8,000,000 7,920,000
Repap New Brunswick, senior notes, first priority, 9.875%, 7/15/00 10,000,000 10,225,000
S.D. Warren Co., senior sub. notes, 12.00%, 12/15/04 11,300,000 12,670,125
Tembec Finance Corp., senior notes, 9.875%, 9/30/05 20,000,000 20,950,000
Tjiwi Kimia FN Mauritius, company guaranteed, 144A, 10.00%, 8/01/04 11,000,000 10,037,500
-------------
117,772,701
-------------
Restaurants 2.3%
Ameriserv Food Co., senior sub. notes, 144A, 10.125%, 7/15/07 21,500,000 22,252,500
Ameriserv Food Dist., senior sub. notes, 144A, 8.875%, 10/15/06 11,350,000 11,350,000
Family Restaurants, Inc., senior notes, 9.75%, 2/01/02 10,850,000 8,842,750
Flagstar Corp., senior notes, 10.75%, 9/15/01 2,000,000 2,220,000
Flagstar Corp., senior notes, 10.875%, 12/01/02 11,000,000 12,017,500
bFlagstar Corp., S.F., senior sub. deb., 11.25%, 11/01/04 13,614,000 6,194,370
Foodmaker, Inc., senior notes, 9.25%, 3/01/99 4,219,000 4,303,380
Foodmaker, Inc., senior sub. notes, 9.75%, 6/01/02 8,400,000 8,673,000
-------------
75,853,500
-------------
Retail .4%
Specialty Retailers, Inc., company guaranteed, 8.50%, 7/15/05 7,250,000 7,413,125
Specialty Retailers, Inc., company guaranteed, 9.00%, 7/15/07 5,000,000 5,100,000
-------------
12,513,125
-------------
Telecommunication 4.3%
Advanced Radio Telecom, units, 14.00%, 2/15/07 13,000,000 12,350,000
IntelCom Group, Inc., senior disc. notes, zero coupon to 5/01/01, 12.50%
thereafter, 5/01/06 29,000,000 21,170,000
Telecommunication (cont.)
Intermedia Communications, series B, senior disc. notes, zero coupon to 7/15/02,
11.25% thereafter, 7/15/07 $ 37,500,000 $ 25,968,750
Netia Holdings B.V., company guaranteed, 144A, 10.25%, 5/01/07 9,000,000 8,775,000
Netia Holdings B.V., company guaranteed, zero coupon to 11/01/01, 144A, 11.25%
thereafter, 11/01/07 15,000,000 8,512,500
Nextlink Communicaitons, senior notes, 9.625%, 10/01/07 17,350,000 17,566,875
ePoland Telecom Finance, units, 144A, 14.00%, 12/01/07 30,000,000 30,862,500
WorldCom, Inc., senior notes, 8.875%, 1/15/06 12,544,000 13,547,520
-------------
138,753,145
-------------
Textiles/Apparel .8%
Hartmarx Corp., senior sub. notes, 10.875%, 1/15/02 15,000,000 15,525,000
WestPoint Stevens, Inc., senior sub. deb., 9.375%, 12/15/05 10,000,000 10,550,000
-------------
26,075,000
-------------
Transportation 3.5%
Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.06%, 1/02/16 9,000,000 11,288,457
Delta Air Lines, Inc., S.F., pass-through equipment trust, 10.50%, 4/30/16 15,000,000 19,717,095
Gearbulk Holding, Ltd., senior notes, 11.25%, 12/01/04 19,000,000 20,995,000
Howmet Corp., senior sub. notes, 10.00%, 12/01/03 4,900,000 5,316,500
L-3 Communications Corp., senior sub. notes, 144A, 10.375%, 5/01/07 5,400,000 5,859,000
Sea Containers Ltd., senior notes, 10.50%, 7/01/03 25,000,000 27,125,000
United Airlines, S.F., pass-through equipment trust, Series B-2, 9.06%, 9/26/14 20,422,000 23,020,016
-------------
113,321,068
-------------
Utilities 2.0%
AES China Generating Co., 10.125%, 12/15/06 4,400,000 4,444,000
AES Corp., senior sub. notes, 144A, 8.50%, 11/01/07 7,500,000 7,462,500
California Energy, senior notes, 10.25%, 1/15/04 17,500,000 18,900,000
El Paso Electric Co., first mortgage, 9.40%, 5/01/11 12,900,000 14,383,500
Midland Funding II, S.F., senior lease obligation, Series A, 11.75%, 7/23/05 4,500,000 5,375,880
Midland Funding II, S.F., senior lease obligation, Series B, 13.25%, 7/23/06 11,500,000 14,534,425
-------------
65,100,305
-------------
Wireless Communication 10.1%
Arch Communications Group, Inc., senior disc. notes, zero coupon to 3/15/01,
10.875% thereafter, 3/15/08 33,450,000 22,077,000
Comcast Cellular, senior notes, 9.50%, 5/01/07 25,600,000 26,720,000
Dial Call Communications, units, senior disc. notes, zero coupon to 4/15/99,
12.25% thereafter, 4/15/04 9,750,000 9,262,500
International Wireless Communication, units, senior disc. notes, zero coupon to
8/15/01, 14.00% thereafter, 8/15/01 36,400,000 18,928,000
McCaw International, Ltd., units, 144A, 13.00%, 4/15/07 28,500,000 16,387,500
Metrocall, Inc., senior sub. notes, 144A, 9.75%, 11/01/07 26,300,000 25,971,250
Millicom International Cellular, S.A., senior disc. notes, zero coupon to
6/01/00, 13.50% thereafter, 6/01/06 22,300,000 16,279,000
Nextel Communications, senior disc. notes, 0.00%, 8/15/04 21,500,000 18,543,750
Nextel Communications, senior disc. notes, 144A, zero coupon to 10/31/02, 9.75%
thereafter, 10/31/07 20,500,000 11,864,375
Occidente Y Caribe Celular,units, zero coupon to3/15/01, 14.00% thereafter, 3/15/04 38,165,000 27,860,450
Orion Network Systems, units, zero coupon to 1/15/02, 12.50% thereafter, 1/15/07 35,300,000 26,122,000
Paging Network, Inc., senior sub. notes, 10.125%, 8/01/07 17,000,000 17,637,500
Paging Network, Inc., senior sub. notes, 10.00%, 10/15/08 14,800,000 15,299,500
Wireless Communication (cont.)
Rogers Cantel Mobile Communications, Inc., senior secured deb., 9.75%, 6/01/16 $ 30,000,000 $ 31,950,000
Sprint Spectrum L.P., senior disc. notes, zero coupon to 8/01/01, 12.50%
thereafter, 8/15/06 23,200,000 18,096,000
Sygnet Wireless, Inc., senior notes, 11.50%, 10/01/06 20,130,000 21,690,075
-------------
324,688,900
-------------
Total Bonds (Cost $2,697,195,559) 2,801,885,070
-------------
cRepurchase Agreement 5.7%
Joint Repurchase Agreement, 5.692%, 12/01/97, (Maturity Value $184,139,365) (Cost $184,052,069)
B.A. Securities, Inc.
Barclays de Zoete Wedd Securities, Inc.
Bear, Stearns & Co., Inc.
CIBC Wood Gundy Securities Corp.
Daiwa Securities America, Inc.
Donaldson, Lufkin & Jenrette Securities Corp.
Fuji Securities, Inc.
Sanwa Securities (USA) Co., L.P.
Swiss Bank Corp. Investment Bank
The Nikko Securities Co. International, Inc.
UBS Securities, L.L.C.
Collateralized by U.S. Treasury Bills and Notes 184,052,069 184,052,069
-------------
Total Investments (Cost $3,067,429,864) 99.1% 3,196,558,067
Other Assets, less Liabilities .9% 27,944,954
-------------
Net Assets 100.0% $3,224,503,021
=============
</TABLE>
aNon-income producing.
bSee Note 6 regarding defaulted securities.
cInvestment is through participation in a joint account with other funds managed
by the investment advisor. At November 30, 1997, all repurchase agreements held
by the Fund had been entered into on that date.
dFace amount is stated in foreign currency and value is stated in U.S. dollars.
eSufficient collateral has been segregated for securities traded on a
when-issued or delayed delivery basis.
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements
Statement of Assets and Liabilities
November 30, 1997 (unaudited)
Assets:
<S> <C>
Investments in securities, at value (cost $3,067,429,864) $3,196,558,067
Cash 4,333,320
Receivables:
Investment securities sold 17,259,062
Capital shares sold 6,072,145
Dividends and interest 64,271,263
-------------
Total assets 3,288,493,857
-------------
Liabilities:
Payables:
Investment securities purchased 57,700,000
Capital shares redeemed 520,403
Affiliates 2,297,234
Shareholders 3,105,036
Other liabilities 368,163
-------------
Total liabilities 63,990,836
-------------
Net assets, at value $3,224,503,021
=============
Net assets consist of:
Undistributed net investment income 15,673,879
Net unrealized appreciation 129,074,453
Accumulated net realized loss (369,688,711)
Capital shares 3,449,443,400
-------------
Net assets, at value $3,224,503,021
=============
Class I:
Net asset value per share ($2,945,746,293 / 989,368,923 shares outstanding)* $2.98
-------------
Maximum offering price per share (net asset value per share / 95.75%) $3.11
-------------
Class II:
Net asset value per share ($253,668,700 / 85,050,129 shares outstanding)* $2.98
-------------
Maximum offering price per share (net asset value per share / 99.0%) $3.01
-------------
Advisor Class:
Net asset value and maximum offering price per share ($25,088,028 / 8,421,613 shares outstanding) $2.98
-------------
*Redemption price is equal to net asset value less any applicable contingent
deferred sales charges.
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements (continued)
Statement of Operations
for the six months ended November 30, 1997 (unaudited)
Investment income:
<S> <C>
Dividends $ 6,303,009
Interest 143,047,320
-------------
Total investment income $149,350,329
Expenses:
Management fees (Note 3) 7,032,955
Distribution fees (Note 3)
Class I 1,715,438
Class II 657,800
Transfer agent fees (Note 3) 1,099,937
Custodian fees 17,599
Reports to shareholders 612,907
Registration and filing fees 270,062
Professional fees 55,377
Trustees' fees and expenses 39,126
Other 25,459
-------------
Total expenses 11,526,660
-------------
Net investment income 137,823,669
-------------
Realized and unrealized gains:
Net realized gain from:
Investments 1,533,452
Foreign currency transactions 14,055
-------------
Net realized gain 1,547,507
-------------
Net unrealized appreciation (depreciation) on:
Investments 71,950,488
Translation of assets and liabilities denominated in foreign currencies (69,454)
-------------
Net unrealized appreciation 71,881,034
-------------
Net realized and unrealized gain 73,428,541
-------------
Net increase in net assets resulting from operations $211,252,210
-------------
</TABLE>
<TABLE>
<CAPTION>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Financial Statements (continued)
Statements of Changes in Net Assets
for the six months ended November 30, 1997 (unaudited)
and the year ended May 31, 1997
Six Months Ended Year Ended
11/30/97 5/31/97
-------------------------------------
Increase in net assets:
Operations:
<S> <C> <C>
Net investment income $ 137,823,669 $ 231,525,511
Net realized gain from investments and foreign currency transactions 1,547,507 12,396,658
Net unrealized appreciation on investments and translation of assets and liabilities
denominated in foreign currencies 71,881,034 86,795,388
-------------------------------------
Net increase in net assets resulting from operations 211,252,210 330,717,557
Distributions to shareholders from:
Net investment income:
Class I (124,549,063) (221,817,438)
Class II (8,103,239) (7,337,363)
Advisor Class (671,647) (111,931)
Total distributions to shareholders (133,323,949) (229,266,732)
--------------------------------------
Capital share transactions (Note 2):
Class I 233,832,875 357,273,624
Class II 97,952,173 101,480,560
Advisor Class 18,577,999 6,204,815
-------------------------------------
Total capital share transactions 350,363,047 464,958,999
Net increase in net assets 428,291,308 566,409,824
Net assets:
Beginning of period 2,796,211,713 2,229,801,889
-------------------------------------
End of period $3,224,503,021 $2,796,211,713
=====================================
Undistributed net investment income included in net assets:
End of period $ 15,673,879 $ 11,174,159
=====================================
See notes to financial statements.
</TABLE>
FRANKLIN HIGH INCOME TRUST
AGE HIGH INCOME FUND
Notes to Financial Statements (unaudited)
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. 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, 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
distribute all of its taxable income.
d. Security Transactions, Investment Income, Expenses and Distributions:
Security transactions are accounted for on trade date. Realized gains and losses
on security transactions are determined on a specific identification basis.
Interest income and estimated expenses are accrued daily. Bond discount is
amortized on an income tax basis. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Realized and unrealized gains and losses and net investment income, other than
class specific expenses, are allocated daily to each class of shares based upon
the relative proportion of net assets of each class.
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. CAPITAL STOCK
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 November 30, 1997, there were an unlimited number of shares authorized (no
par value). Transactions in the Fund's shares were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
NOVEMBER 30, 1997 MAY 31, 1997
-----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
Class I
<S> <C> <C> <C> <C>
Shares sold 190,194,399 $562,757,363 293,629,457 $835,438,509
Shares issues on reinvestment of distributions 18,363,528 53,965,659 33,179,593 93,767,624
Shares redeemed (129,321,788) (382,890,147) (200,712,344) (571,932,509)
-----------------------------------------------------------------
Net increase 79,236,139 $233,832,875 126,096,706 $357,273,624
=================================================================
Class II
Shares sold 39,009,126 $115,738,738 40,869,751 $116,747,378
Shares issues on reinvestment of distributions 1,532,843 4,519,207 1,379,201 3,919,843
Shares redeemed (7,517,547) (22,305,772) (6,744,056) (19,186,661)
-----------------------------------------------------------------
Net increase 33,024,422 $ 97,952,173 35,504,896 $101,480,560
=================================================================
Advisor Class*
Shares sold 8,403,532 $24,858,635 2,709,819 $ 7,822,829
Shares issues on reinvestment of distributions 215,479 635,742 36,816 105,353
Shares redeemed (2,342,251) (6,916,378) (601,782) (1,723,367)
-----------------------------------------------------------------
Net increase 6,276,760 $18,577,999 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 Fund are also officers and/or directors of
Franklin Advisers, Inc. (Advisers), Franklin/Templeton Distributors, Inc.
(Distributors), Franklin Templeton Services, Inc. (FT Services), and
Franklin/Templeton Investor Services, Inc. (Investor Services) the Fund's
investment manager, principal underwriter, administrative manager, and transfer
agent, respectively.
The Fund pays an investment management fee to Advisers based on the average net
assets of the Funds as follows:
Annualized
FEE RATE MONTH-END NET ASSETS
---------------------------------------------------------------------------
.625% First $100 million
.500% Over $100 million, up to and including $250 million
.450% In excess of $250 million
Under an agreement with Advisers, FT Services provides administrative services
to the Fund. The fee is paid by Advisers based on average daily net assets, and
is not an additional expense of the Fund.
The Fund reimburses Distributors up to .15% and .65% per year of its average
daily net assets of Class I and Class II, respectively, for costs incurred in
marketing the Fund's shares.
Distributors paid net commissions on sales of the Fund shares, and received
contingent deferred sales charges for the period of $759,130 and $61,533,
respectively.
4. INCOME TAXES
At May 31, 1997, 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:
1998 $ 83,257,163
1999 192,912,531
2000 63,753,106
2001 14,304,993
2002 12,243,104
2003 4,606,276
-------------
$371,077,173
=============
4. INCOME TAXES (cont.)
At November 30, 1997, the net unrealized appreciation based on the cost of
investments for income tax purposes of $3,067,429,864 was as follows:
Unrealized appreciation $202,551,702
Unrealized depreciation $(73,423,499)
--------------
Net unrealized appreciation $129,128,203
==============
Net investment income differs for financial statement and tax purposes primarily
due to differing treatments of defaulted securities and foreign currency
transactions. Net realized capital gains differ for financial statement and tax
purposes primarily due to differing treatment of foreign currency transactions.
5. INVESTMENT TRANSACTIONS
Purchases and sales of securities (excluding short-term securities) for the
period ended November 30, 1997 aggregated $818,626,443 and $374,790,778,
respectively.
6. CREDIT RISK AND DEFAULTED SECURITIES
The Fund has 84.45% of its portfolio invested in lower rated and comparable
quality unrated high yield securities, which tend to be more sensitive to
economic conditions than higher rated securities. The risk of loss due to
default by the issuer may be significantly greater for the holders of high
yielding securities because such securities are generally unsecured and are
often subordinated to other creditors of the issuer. At November 30, 1997, the
Fund held defaulted securities issued with a value aggregating $15,168,870
representing .5% of the Fund's net assets. For information as to specific
securities, see the accompanying Statement of Investments.
For financial reporting purposes, the Fund discontinues accruing income on
defaulted bonds and provides an estimate for losses on interest receivable.
The Fund has investments in excess of 10% of its total net assets in the
Wireless Communication industry. Such concentration may subject the Fund more
significantly to economic changes occuring within that industry.
7. REORGANIZATION TO DELAWARE BUSINESS TRUST
On May 13, 1996, the Board of Trustees approved an Agreement and Plan of
Reorganization (the Agreement) whereby the Fund would be reorganized and its
domicile changed from a Colorado corporation to a Delaware business trust. In
connection with these changes, the Trust's name was also changed to Franklin
High Income Trust, formerly known as the AGE High Income Fund, Inc. On October
1, 1996, shareholders of AGE High Income Fund approved the agreement.
FRANKLIN'S AGE HIGH INCOME FUND SEMI-ANNUAL REPORT NOVEMBER 30, 1997
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 composition of the fund's portfolio on
11/30/97, based on total net assets.
<TABLE>
<CAPTION>
Portfolio Composition
<S> <C>
Bonds 86.9%
Equities 6.5%
Short-Term Obligations &
Other Net Assets 6.6%
</TABLE>
