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